(Yicai Global) Oct. 20 -- Shares of recently listed Chinese lithium battery firms such as Wanrun New Energy Technology, Power New Energy, and Leapmotor Technology have tumbled below their initial offering prices since last month following initial investor exuberance.

It is not surprising that market values have shrunk, when pre-listing valuations were too high, a private equity fund manager told Yicai Global.

The market for these stocks has likely peaked. For example, Jiuling Lithium recently planned to list on the main board of the Shanghai Stock Exchange seeking a market cap of CNY5.07 billion (USD701 million), just half of the CNY10 billion the supplier of lithium salt products was said to be worth following its fourth round of financing.

The valuations of recently listed lithium stocks were inflated before initial public offerings, according to Hou Xianping, a senior investment advisor at Jufeng Investment Consulting. After big price runups in May and June, lithium shares dropped as global markets extended declines, the Federal Reserve hiked interest rates, and the yuan depreciated, Hou said.

The lithium boom was sparked by strong production and sales of new energy vehicles in China that drove up lithium salt prices, said Li Mingjin, also a senior advisor at Jufeng Investment.

Although global lithium reserves are substantial, their distribution is uneven. High-quality lithium ores are mainly found in South America and Australia, and the mining rights have already been acquired by industry giants such as China’s Ganfeng Lithium and Tianqi Lithium. The profitability of other companies is questionable, Li added.

For example, Jiuling Lithium owns the Dagang mine in Yichun, Jiangxi province, which has proven reserves of 91.9 million tons of lithium clays, equivalent to about 1 million tons of lithium carbonate. But the average lithium oxide content is only 0.5 percent, making it a low-grade mine.

Industry leaders are becoming more profitable due to rising product prices. Tianqi Lithium said on Oct. 14 that its nine-month net profit is expected to have soared as much as 40 times to between CNY15.2 billion and CNY16.9 billion. The next day, Ganfeng Lithium predicted a six-fold profit increase to at least CNY14.3 billion for the same period.

Editor: Emmi Laine, Xiao Yi