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Rio Tinto recently announced its $6.7 billion acquisition of Arcadium Lithium Plc, positioning itself firmly in the lithium market—a vital mineral for electric vehicle (EV) batteries. This move is significant, considering China's dominance in lithium production and refining, which accounts for 65% of the global refined lithium output. The acquisition comes at a premium of 90% over Arcadium’s undisturbed share price, showing Rio’s commitment to securing a future in the EV battery market.

China's Impact on Lithium Prices

Rio is betting on a market recovery, despite lithium prices currently hovering at around $11,000 per metric ton, down from a peak of $85,000 per ton in 2022. With China flooding the lithium market and lowering production costs, particularly through hard-rock lithium mining, Rio's focus on lithium brine, which has lower production costs, is a strategic counter. Arcadium's operations in Argentina, for example, can produce lithium at around $5,500 per ton, making it highly competitive.

Seasonal Factors & Potential Market Response

As we approach the end of the year, Rio's strong seasonal performance aligns with its strategic push into lithium, setting up a potential period of price appreciation. The stock has delivered gains in 21 out of 25 years during this time frame, often fueled by commodity price rebounds and strategic corporate moves. The average return is an impressive 8.95% and there have been multiple years of doubt digit gains. However, this acquisition comes with risks, especially if China continues to drive down lithium costs and oversupply the market.

Technically, Rio Tinto has put in a large bullish engulfing bar rejecting the 200EMA on the Monthly chart showing price trying to find a bottom around the 4,800 region. Major resistance sits above at 5,600 and would be an obvious near term target for buyers into the end of the year.

Trade risks

One major risk is if China continues to drive down lithium costs and oversupply the market. The other risk is the general outlook for global growth.

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