How to Profit from Growing Lithium Demand
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Smartphones are a booming business all over the world, and tablets are in the first stages of what could be a gigantic market over the following years. These products require lithium for their batteries, and electric cars could mean another dramatic boost for lithium demand in the long term. Given an opportunity of this size, it makes sense to consider some alternatives to profit from growing lithium demand
Lithium's use in technology has been growing about 20% a year since 2000 and today accounts for 30% of global lithium demand, said Peter Oliver, CEO at Talison Lithium (NASDAQOTH: TLTHF.PK), one the world's top lithium producers in an interview with Barron´s. Talison has big operations in Western Australia, and it currently exports over 350,000 tonnes of lithium products annually to a global customer base.
The company also has a lithium brine project located in the Atacama Region, in Chile. This prospective exploration project consists of seven salars (brine lakes and surrounding concessions). Five of the salars are clustered within a radius of approximately 30kms and are 100% owned by Talison Lithium and its Chilean partners. Talison is perhaps the purest lithium play among global listed companies.
Choosing among lithium producers is no easy task; lithium can be sold in many different forms: salt, lithium carbonate, lithium hydroxide and sometimes it’s sold as a salt or metal in client-specific formulations. Depending on their business model and strategy, producers can achieve different prices or profit margins.
Rockwood Holdings (NYSE: ROC) has been able to build strong competitive advantages via a diversified offering of specialty chemicals and advanced materials, including lithium and advanced ceramics. Via its key assets in the Atacama Desert of Chile, Rockwood enjoys a low-cost base for its lithium production, and the company adds value to its products via specialized formulations which are not easy to replicate.
Another big player in the Atacama Desert is Sociedad Quimica y Minera de Chile (NYSE: SQM), this Chilean mining powerhouse has a global leadership position in specialty fertilizers, lithium, and iodine, among other products. The company is so big that lithium means less than 15% of its gross margins in spite of being one of the world's largest lithium producers. But SQM is in a privileged position to continue expanding its lithium assets in the very productive Chilean ground.
Since lithium is sold in many different ways, there is no transparent and uniform market price, and no ETF follows the price of the commodity. But Global X Lithium (NYSEMKT: LIT) holds shares of many lithium producers, including some of which are not listed in the US. The ETF also invests in industries related to lithium demand, like battery producer A123 Systems.
As an instrument to make a macro bet on lithium demand, this ETF is worth some consideration, especially because there are not many alternatives to choose among individual companies with big exposure to lithium.
The fundamentals for lithium demand look clearly exciting in the middle and long term, finding a convenient vehicle to invest in this trend is certainly not easy, but it may be worth the effort.
acardenal has no positions in the stocks mentioned above. The Motley Fool owns shares of Rockwood Holdings. Motley Fool newsletter services recommend Sociedad Quimica y Minera (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.