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Tuesday, November 9, 2010

Lithium is the next commodity to hold

My thoughts again regarding Lithium - buy. I guess the question many fellow readers are asking and wondering is how, where - since what, why, when - you have read from my writings.

Anyway to sum it all up: Lithium is used in your Nokia phone. The battery. It is also used in the battery of hybrid cars. Laptop computers and camera batteries all use lithium. To see the magnitude of potential demand let us examine the amount used for a mobile phone. Mobile phones are small, compact, lightweight and uses about 5 to 10 grams of Lithium. Now a hybrid car battery uses 6 kg. That is 1000 times more.

Here is a case study.
There are 100 000 new cars added to Singapore each year. Total cars on the road are about 500 000. If the government in the effort to go green, and create a gradual reduction in the reliance of petrol, it may want to support and promote hybrid and electric cars.

At the lowest estimate of 50% new cars being hybrid, that would use up = 50 000 cars x 6 kg Lithium = 300 tons of Lithium demand. Current worldwide production estimates are about 100 000 tons. That gives about 0.3% usage of worldwide production. Now supplant this demand for Lithium for hybrid cars into the passenger car markets of USA (12% from estimates of 40x population of Singapore). Then Europe who are normally environmentally conscious. Plus Japan itself the producers of hybrids - Toyota and Honda. Half of world supply will be used for just these economies. What about China, India, Brazil and Russia?

Soon, there would be an exponential growth for demand.

And this demand is definitely exponential or parabolic - have we forgotten oil prices in the middle of 2008? It sure drove many car people into taking public transport. It sure led to a frenzy to retrofit a CNG/LNG/LPG tank into passenger cars in Thailand, and Malaysia as far as I can remember. And that is even for net producers of petroleum. Today oil prices are hovering at $90 USD. Possibly will go upwards relative to the percentage the dollar is coming down with QE2 (Quantitative Easing 2).

Other factors that will fuel demand is innovation and technology. More consumer products require the storage of energy. Battery life. Electric bicycles. MP3 players. Movie players. Portable devices. Car ownership increases as economies around the world flourishes. Demand for electric public transport to reduce carbon footprint and pollution will boost an even higher demand for Lithium. If a small passenger car uses 1000 times Lithium than a mobile phone, what about a commuter bus?

Lithium stocks are listed mainly in NYSE and ASX (Australia). Australia apparently is not just a gold mine, coal mine and koala. It seems to be the lucky country to have other minerals and one of them in abundance is Lithium, plus also Rare Earth Elements (REE) which I will talk about in another posting.

Commodity Investing: Maximizing Returns Through Fundamental Analysis (Wiley Finance)

So here are the NYSE Lithium stocks:
Sociedad Quimica y Minera de Chile SA (SQM) capitalized at $13.4 billion is the world’s largest lithium producer. SQM produces 30,000 tonnes per year from massive Chilean brines located in the Atacama salt desert, where it has a number of other projects producing fertilizers and chemicals.
SQM is a Chilean producer of specialty plant nutrients and chemicals. The Company's activities are structured in four business units: Specialty Plant Nutrition (SPN), comprising the production of organic fertilizers and nutritional solutions under the Ultrasol, Qrop, Speedfol and Allganic brands; iodine extraction and the production of iodine derivates; lithium exploitation and production of lithium carbonate, lithium hydroxide and lithium metal, and Industrial Chemicals, including the production of such chemicals as sodium nitrate, potassium nitrate, boric acid and potassium chloride, among others. Through its subsidiaries and affiliates, the Company has operations established in South, Central and North America; Europe; North, Central and South America, Asia, the Middle East, Africa and Oceania. In addition, the Company's products are sold and distributed in more than 100 countries worldwide.
  Wright Quality Rating: BBA1

FMC - FMC Corporation (FMC) is a chemical company serving agricultural, consumer and industrial markets with solutions, applications and products. It operates in three business segments: Agricultural Products, Specialty Chemicals and Industrial Chemicals. Its Agricultural Products segment develops, markets and sells three classes of crop protection chemicals: insecticides, herbicides, and fungicides. Specialty Chemicals consists of BioPolymer and lithium businesses and focuses on food ingredients that are used to enhance texture, structure and physical stability, pharmaceutical additives for binding, encapsulation and disintegrant applications, ultrapure biopolymers for medical devices and lithium specialties for pharmaceutical synthesis, specialty polymers and energy storage. Its Industrial Chemicals segment manufactures a range of inorganic materials, including soda ash, hydrogen peroxide, specialty peroxygens and phosphorus chemicals.
  Wright Quality Rating: ABA1

And listed in ASX:
Orocobre Limited is an Australia-based mineral exploration company. The Company focuses on lithium, potash and boron resources in Argentina. The Company's projects include Salar de Olaroz Project, Santo Domingo Project and South American Salars Project. The Salar de Olaroz Project is located in the Puna region of Jujuy, approximately 230 kilometers northwest of the capital city of Jujuy. The Salar de Olaroz Project consists of 118 square kilometers of tenements over a salar (salt lake). The Santo Domingo Project is located in the San Juan Province. The South American Salars Project has approximately 60,000 hectares of tenements on 10 salars in the provinces of Salta, Jujuy and Catamarca. During the fiscal year ended June 30, 2009 (fiscal 2009), the Company drilled 16 vertical cored holes (1136 meters) and six monitoring holes (360 meters).
  Wright Quality Rating: DBNN

Galaxy Resources Limited (Galaxy) is engaged in mineral exploration in Western Australia. The Company's principal activities consists of the development of the Mt Cattlin Spodumene Mine; development of the Jiangsu Lithium Carbonate Plant and exploration for minerals. Its subsidiaries include Galaxy Lithium Australia Limited and Galaxy Lithium International Limited.
  Wright Quality Rating: DBNN

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