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Why lithium could be the shining light in a depressed commodity market

by , 27 October 2015

Commodities have had a tough few years. It's not easy to find a commodity that's not felt the impact of the global economic downturn.

But there is one commodity which is showing all the signs of a bull market. This commodity is lithium.

So is it worthwhile looking at for investment opportunities?

Let's take a closer look…


What is lithium?


Lithium is a metal used in batteries. You’ll find it in your tablet and smartphone. It’s also behind the batteries in electric cars.

What makes lithium so appealing is that it allows manufacturers to make very small rechargeable batteries that have a long life.

Roskill Information, a provider of commodity data, shows global consumption of lithium grew 11% from 2010 to 2014. And it expects this rate of growth to continue over the next few years.

The growth of electric cars should also push up demand for lithium. And indicators suggest that electric car use will rise into the future.

This demand for lithium batteries will in turn push demand for lithium higher. For the next five years, SignumBOX, a data provider, expects demand for lithium to rise 30% each year until 2020. And demand is outpacing supply.

Between 2013 and 2014, lithium production rose from 37,400 tons to 38,640 tons. This is only a rise of 5%, well below the rise in demand. And looking at the supply from the three biggest producers, there’s going to be a shortfall.

Lithium is hard to produce and this has led electric car maker Tesla to buy lithium from mines that aren’t even producing yet.

This is already driving the price of lithium, in the form of lithium carbonate, higher. Have a look at the chart below showing the price rising 30% in the past four years…


Chart of lithium carbonate price


Analysts at Citibank expect the price of lithium carbonate to rise to $7,000 a ton by 2017.


How to profit from the rise of lithium


To gain exposure to the rising lithium price, you need to look to lithium producers, Matt Badiali in The Crux explains.

It’s hard to find a pure lithium play. Your best bet is to invest in one of the larger speciality metals companies including FMC Corp (FMC) and Chemical and Mining Co of Chile (SQM).

Both of these stocks have listings on the New York Stock Exchange.

So there you have it. Why lithium could be the shining light in a depressed commodity market.

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Why lithium could be the shining light in a depressed commodity market
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