Lithium: The Next Oil?

A unique and highly reactive metal, lithium is the lightest and least dense solid element known. For years the relatively rare element has been studied and utilized for a variety of applications ranging from medical usage to nuclear power generation. More recently, lithium has being touted as “the next oil” and as a cure-all for the energy and climate problems facing the world. Investor interest is increasing daily as the material has generated considerable excitement. Despite the great aspirations, it is important for a prudent investor to avoid being caught up in the hype. Examining the true fundamentals of this anomalous metal must be done in an objective manner if investors are to safely profit from lithium.

Lithium prices have tripled in the past decade. Currently used in watches, 90% of laptops and 60% of cell phones; the primary demand for lithium is expected to come from electric car batteries and energy storage solutions for the burgeoning alternative power sector. However, with these technologies in their infancy, lithium’s supremacy is not assured. Competition from more traditional batteries that lack some of the weight advantages of lithium but are more accessible and easy to construct may prove detrimental. There is also the issue of scarcity, the fear that there simply is not enough lithium in easily accessible areas to meet demand. This lack of supply may make lithium price prohibitive and push the market into other technologies.

Some scientists have also raised questions about lithium’s safety. Citing data collected over a century of research that shows these batteries have a potential to be volatile and unstable, they warn that batteries have the potential to overheat and explode. Some reports of this phenomenon occurring in computers and cell phones exist, and the large size and usage attributes of a car battery dramatically increase the chance of a meltdown if not properly protected against. Any safety concerns, even those that pose little risk and occur infrequently may doom this technology before it gets off the ground.

It is also quite difficult to find an effective way to invest in the metal. Currently, there are no lithium futures and there is no single company than derives more than 25% of its revenue from the metal. ETFs that claim to track lithium merely hold a diversified basket of companies with varying degrees of exposure to different aspects of its mining and battery production.

Of course, there are many opportunities for lithium to succeed. The story behind lithium is compelling; offering an effective remedy to the many problems attributed to a dependency on hydrocarbons for energy.  However, lithium’s future is decidedly uncertain; an array of factors could tip the scales in either direction over the next several years.

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