How To Diversify Portfolio to Oil Gas Gold Rubber Palm Commodities

Very often, the term diversifying your portfolio crops up whenever things aren't doing so well and especially when there is uncertainty if good times are sustainable. Not putting all your eggs in one basket is a adage so common even an egg seller can start claiming he invented McEgg to diversify his poultry farm business.

So we have our stocks. Blue chips. And trendy tech stocks. And possibly 1-2 properties. Then next the metals are getting a nice warm heat these days - gold and silver. The not so distant past 2008, oil prices were hovering above $150 USD. Today when oil prices are about to break $100 to $110 USD, airlines are scrambling their F5 (refresh button not the fighter jet!) to start imposing fuel surcharges which distorts the customers final price tally - where is the nett price battle cry.

So nett is never final until all these ancillary cost, surcharges, fees, taxes are fully factored in - totally an enormous 30-60% more than the quoted rack price of an air ticket.

While those bankers and financial vampires are celebrating their (again) new found wealth, supersize fat bonus and stock options, because sales exceeded last 2 year's deals (2008-2009 were the Global Financial Crisis years remember?), we are left wondering - why are we left behind? Why can't we have bought oil when it was $50 USD during the crash? Won't we have made 100-200% supernormal profits?

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Honda Fit surpasses sale of Toyota Prius

In Japan, the Honda Fit has surged in sales and just beaten the Toyota Prius for the first time after about 2 years. Then end.

Not. Now the challenges of putting out a hybrid or fuel cell vehicle has been tackled in every direction by the big players in Japan, the next shift in demand will boost the demand of the raw material used. Steel? Metal? Yes in certain respect. The correct answer: Lithium.

Lithium is the powerhouse of these machines. These machines that will dominate the car driving landscape. American government policy is pressing so hard to get 1 million of these vehicles on the road. The success in Japan will be overshadowed by a milestone sucesss in USA. Simply because the media and power of the media and propaganda will push the awareness to a greater level across the globe. And therefore, the demand is not just picking up. It will be a huge tremendous political bargaining tool. Imagine countries where petroleum is not being produced. If you are a wise leader and want to keep your government, one good simple suggestion is to push hard for these machines. Your people will love you! You will get their votes again. And you are a hero - green hero - saving their home land from the evil addictions of oil.

Green and social conscious countries such as Denmark, Sweden, Finland - and small city states like Monaco, Singapore, can easily and quickly shift their whole country to adopt (by law) these machines and replace the oil guzzlers in a matter of a single term in office. 2-5 years.

Thus the curvature of demand will be growing exponentially particularly in the next 5-10 years.

If you have yet to invest in Lithium, do it now.

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

Late for Gold then buy Lithium

Almost everyone wants to get into Gold these days. Prices have been on the uptrend. Here I too share my oversight and it happened in 2000/01 when I was at a crossroad of investing a lump sum of my money into two investments - Gold Trust or Other Unit Trust.

Why these two? At that point of time, I had limited stock trading experience and time. What I knew from years of reading was when stocks go down, Gold will quite certainly go up because of factors like safety haven, scarcity and so on and so forth. I was at the the persuasion of the banks to "come and invest in unit trusts" - easy, and steady growth. Yes the key words were that. Growth with very nice upward trend "charts". Past 3 year charts! My mind was lingering on the Gold Trust which was at about $0.60.

So no regrets now.

Instead investment is always about looking forward. And forward looking value for some new research we would believe in. Thereby summarised in my Stock Trading Rules. (see http://denzukefinance.blogspot.com/p/my-trading-system-and-rules.html)

Therefore for the past 2-3 years I have been keeping a watch on this resource - Lithium. It started when the oil prices went out of "control" to over $150 USD a barrel. And when car companies were going crazy about been bigger and larger especially in USA. Inefficient and fuel-hungry machines. Manufacturers were thinking of alternative fuels, and fuel-cell. The downturn changed this too. Being efficient is in. Being green is in. Start to think now to change this. Some vehicle owners started with retro-fitting gas cylinders for CNG or NGV. For the longer term, hybrid cars and fuel cell cars will be more and more mainstream. And for these cars to function, the main product is lithium to store electricity inside the car.

My stock highlight for this sector is Orocobre Limited (ASX based stock).
Here is the chart. From 14 December 2007 till now, there has been a whopping 900% gain. (from about 0.30 to over $2.45) Look at the green "percentage change since" indicator.

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).