The great lithium rally is losing momentum.

Over the past year, the metal found in your smart phone's battery has become the unlikely centre of an investing frenzy as speculators bet that surging demand from electric-vehicle manufacturers will create a huge new market for the silver-white metal.

Dozens of new lithium miners have popped into existence while the Global X Lithium ETF, which holds a cluster of stocks related to the material, has advanced more than 20 per cent over the past 12 months.

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But skeptics note that prices for the metal, an essential ingredient in lithium-ion batteries, have drifted lower in recent months. One observer suggests today's boom could end as early as next year.

"Lithium is just not that rare," says Jon Hykawy, a former research physicist who now heads Stormcrow Capital, a Toronto-based firm that conducts research on critical materials. The metal is found in large quantities across the so-called lithium triangle that spans Chile, Bolivia and Argentina, as well as in Australia and many other jurisdictions including Canada.

Four major producers – Albemarle Corp. and FMC Corp. of the United States, SQM of Chile and Tianqi Lithium of China – dominate production. At the moment, they're enjoying boom times.

SQM, for instance, can produce lithium from salt flats in Chile for less than $2,300 (U.S.) a ton, while spot prices in China hover above $16,000 a ton.

The problem for the producers is that today's lofty prices appear to reflect an exaggerated response to a relatively small increase in final demand, Mr. Hykawy says. Financial speculation is driving some of the gains. So is a desire among battery makers to stockpile supplies in case short-term shortages should emerge.

None of this is likely to last, he says. Today's lavish prices are luring new entrants into the market, adding more lithium to a market that already had ample sources of potential supply.

"Just from the incumbents alone, from their stated production increases over the next little while, I'd say we have no concerns about lithium shortages through 2025," Mr. Hykawy says. If all the new entrants that are vying to come onto the market succeed in financing their ventures, he estimates global production of lithium could rise to around 800,000 tons by 2025, far above projected global demand of around 400,000 tons.

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"Next year is probably when we start to see a few of the wheels come off the pricing," he predicts. Spot prices for lithium in China have already slid by more than 20 per cent from their highs in April and May, when they crested well above $20,000 a ton. If prices continue to weaken, there could be a stampede to sell.

His pricing models suggest a realistic long-term average price for the metal is in the range of $6,000 to $7,000 a ton, with high-grade battery material perhaps fetching more like $10,000 a ton. "But for the market overall, we're not looking at a long-term $20,000-a-ton price," he says.

Lithium miners retort that all lithium is not the same. It's produced in different grades and in various compounds, meaning price alone may not always reflect the allure of a given resource.

The great hope of lithium investors is that sales of electric vehicles will surge past estimates, creating a demand for battery-grade lithium that would overwhelm current production. "There are people out there who believe that and they're acting on it," said Anthony Milewski, vice-president of Pala Investments, a private-equity group in Zug, Switzerland. His firm, however, has so far not invested in the metal.

One deterrent is the market's lack of transparency. Lithium isn't traded on public exchanges. Instead, it's sold through long-term contracts or in a small "spot" market for immediate delivery.

Given the lack of transparency, investors have focused on other cues. For instance, some fledgling lithium producers have excited interest in recent months by brandishing agreements with Tesla Motors Inc., the electric-car manufacturer.

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Those agreements, though, are "off-take" deals under which Tesla agrees to buy future supplies of lithium at a discount to the current market pricing. Typically, other stipulations also apply.

"Tesla has signed a lot of off-take agreements and usually they're not worth the paper they're written on," said Luis Saenz, chief executive of Li3 Energy Inc., a lithium miner in Chile, who spoke at the Mines and Money Americas conference in Toronto last week. "They have so many ifs, ands or buts, they mean nothing."

Investors should view lithium stocks as a potential trading position rather than as a permanent part of their portfolio, Mr. Hykawy suggested. He says potential winners will need to have three ingredients – an ability to produce at low cost, the right partners and the right customers.

"There's no doubt in my mind that there's nothing in the next 10 to 15 years that is going to run in and supplant lithium as a battery material," he said. "But at the same time you have to recognize that this is not platinum. This is not a rare metal."