Lithium Demand Outlook

Brian Hicks

Written By Brian Hicks

Posted October 6, 2010

*Editor’s Note: For a more recently updated article on lithium demand from Energy and Capital, click here…

You can’t go wrong with commodities these days.

Take lithium, for example.

It may not be the hottest story out there…

But as governments and investors scramble to cash in on the lithium-dependant car market, the price of this crucial alkali metal will surge.

China is already looking to invest some $15 billion in electric cars over the next 10 years.  And the Middle Kingdom plans to increase production of alternative energy vehicles to 500,000.

As my colleague Chris DeHaemer told us months ago, the real growth of electric cars will depend largely on China:

As part of China’s new five-year plan — which coincides with the release of electric cars — they will put half a million electric cars on the road by 2012. 

The reason is simple: China is the largest and fastest growing car market on earth. And they simply can’t afford to import all that oil for gasoline.

JBC Energy estimates China’s passenger fleet will be 9% electric by 2020. If the auto fleet were to increase to 15% electric, they say this will reduce China’s petroleum demand by 200,000 barrels/day (7.5%).

Much like the United States government, the Chinese government is offering $8,800 subsidy for every EV car sold. They have set aside 5 billion yuan for this program; they are also spending another 1 billion yuan on research and development.

The Obama Administration just invested $2.4 billion in the development of batteries and electric car technology and is offering tax credits for purchasers.

And that’s after the U.S. granted more than $25 billion in loans to auto and battery markets in an effort to usher in a million electric cars by 2015.

The UK is offering to cover 25% of the cost of an electric car.

BMW — an electric car holdout — is joining the fray and leasing hundreds of electric cars in the United States, Germany, and the UK ahead of a full-scale market launch.

Another 14,000 Americans paid $99 to reserve the Nissan Leaf, set to hit U.S. roads this year.

Ford is gearing up for a 2011 electric car launch along with General Motors.

And Tesla Motors has already taken more than 1,000 reservations for its lithium-powered car.

And the automaker expects to begin production of an all-electric and more affordable sedan by next year…

Tesla motors car

We’re talking about exposure to a lithium battery market that’s expected to hit $15 billion this year — and quite possibly $30 billion within a few short years.

Just imagine the size of the market if 250 million electric cars are on the road by 2020…

It’ll be music to the ears of lithium miners, who will be hard pressed to satisfy demand.

Four ways to play the lithium boom

There’s Western Lithium (WLC.V) — a well-funded, debt-free company that’s preparing to become a major lithium supplier for lithium-ion battery powered electric and hybrid cars.

What we’re looking for here is a lithium miner that can produce inexpensive battery grade lithium. Western is one of those.

Two others include Lithium One (LI.V) and Canada Lithium (CLQ.TO).

But here’s what we’d recommend doing: Buy Western Lithium (WLC.V) at market, and make an easy play on lithium by buying the Global X Lithium ETF (NYSE: LIT).

(Note: This ETF does not hold Western Lithium, which we also want to pick up.)

Let me tell you why I like LIT.

First, it offers broad exposure to lithium companies. Second, it’s accumulated more than $32 million in assets in less than two months of trading.

It has a nice holding in A123 Systems (AONE), which just lit up the ETF. News is that AONE just opened the largest lithium-ion auto battery production factory in Michigan.

While AONE is a small company, this expansion highlights a very bright future for global lithium.

And it holds my favorite lithium play, Rockwood Holdings (ROC).

But what’s really attractive is how easy it is to invest in lithium’s future.

It’s not a commodity fund; but it does track the Solactive Global Lithium Index made up of companies that explore, sell, and distribute lithium.

Some of its holdings include:

  • Chemical & Mining Co. of Chile Inc. (NYSE: SQM)

  • FMC Corp. (NYSE: FMC)

  • Rockwood Holdings Inc. (NYSE: ROC)

  • A123 Systems, Inc. (NASDAQ: AONE)

  • Exide Technologies (NASDAQ: XIDE)

  • Advanced Battery Technologies, Inc. (NASDAQ: ABAT)

  • Ener1, Inc. (NASDAQ: HEV)

  • China BAK Battery, Inc. (NASDAQ: CBAK)

  • Valence Technology Inc. (NASDAQ: VLNC)

Buy it. Hold it. And check back on it in a few months.

We’ll keep an eye on it for you.

Buying commodities these days is a great move for your portfolio… and we’ll continue to sniff out the profit opportunities for you in this sector.

Stay Ahead of the Curve,

Ian L. Cooper
Energy and Capital

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