Is Lithium 21st Century's Oil? Part I

Includes: BYDDF, FMC, SQM
by: Erik Bethel

Lithium-ion batteries power most of the world’s laptops and mobile phones and lithium has become an important mineral. But lithium could have a more serious and lasting global impact. With tumultuous and uncertain oil prices and growing environmental concerns, governments and manufacturers are turning to alternative fuels. Hybrids and pure electric vehicles require batteries. And these batteries will most likely use lithium. Unlike nickel-based batteries, lithium batteries weigh less and have longer storage capacity. Therefore electric car batteries that use lithium will be able to store more energy and be driven longer distances.

The demand for lithium is projected to more than double by 2020. Most of the production needed to satisfy the market will come from Latin American countries like Argentina, Chile, and Bolivia which control over 75% of the world’s lithium reserves. We've spent some tome analyzing the lithium industry while highlighting the special relationship between China and Latin America.

The Big Picture

Although new technologies are—by definition—subject to change, lithium is currently the best raw material for making rechargeable batteries. Today, lithium-Ion (Li-Ion) batteries power most of the world’s laptops, mobile phones and cameras. But lithium enthusiasts are also pinning their hopes on the electric car.

The number of economically viable lithium deposits in the world is limited; most are found in South America, and some are in China. As the market for lithium grows, countries with large lithium deposits will become very important from a geo-economic standpoint.

China is the leading producer of consumer electronic appliances including laptops, mobile phones, and cameras. China also has a very strong battery industry whose growth has even attracted the likes of Warren Buffett who in 2008 made an investment in one of the country’s leading battery companies and (now) electric vehicle maker, BYD (OTCPK:BYDDF). China realizes that in order to continue to have a globally-competitive battery industry and not be dependent on imports, it must have a “lithium strategy.” As a result, Chinese firms have spent the last several years prospecting and developing lithium in western provinces such as Qinghai and Tibet.

If electric vehicles become as popular as expected, China will not be able to solely depend on domestic sources of lithium. As it has done in other sectors such as oil and copper, China will have to look outbound. Over the coming years, we believe that Chinese firms will make acquisitions overseas to secure lithium reserves. And the most attractive location is South America’s “lithium triangle,” an area that covers roughly 43,000 kilometers between Argentina, Bolivia and Chile.

>>>Click here for Part II

Disclosure: No ownership