Ipad Boom Strains Lithium Supplies as Prices Triple
Comment of the Day

June 20 2012

Commentary by Eoin Treacy

Ipad Boom Strains Lithium Supplies as Prices Triple

This informative article by Jesse Riseborough for Bloomberg may be of interest to subscribers. Here is a section:
The advantage of lithium-ion over other battery types is that a typical cell can generate more electricity than competing cells like such as lead-acid. There is about 1.7 grams (0.6 ounces) of lithium carbonate equivalent in a mobile phone, 2.1 grams in a smart phone and 20 grams in a tablet, according to Dahlman Rose.

There will be a “step change,” in the global lithium industry in 2016 or 2017 when electric cars became more commonplace, Rockwood Chief Executive Officer Seifollah Ghasemi said. Hybrid electric vehicles that are fitted with a lithium- ion battery contain about 1.3 kilograms (2.9 pounds) of the material, plug-in hybrid electric vehicles have about 12.8 kilograms, while an electric vehicle uses about 19.2 kilograms.

The four-strong lithium “oligopoly has the capacity to significantly ramp supply higher, but it will take time and significant capital to accomplish,” Dahlman Rose analysts Anthony Young and Anthony Rizzuto said in a May 16th report. “There are a limited number of known high-grade resources that can be economically extracted and there has not been a new lithium mine constructed in the last 25 years.”

Eoin Treacy's view Lithium has been a promising sector for a number of years, but there has been a substantial lag in terms of the exponential demand growth predicted by mining companies. As the market for smartphones, tablet computers and electric cars expands it is not difficult to project increased demand for batteries. There are two primary avenues for investment in this sector – lithium ion battery manufacturers and lithium miners. (Also see Comment of the Day on August 18th 2011).

Oligopoly is a word investors salivate at because they have experienced how Potash Corp performed as potash prices advanced and how the iron-ore triumvirate of BHP Billiton, Rio Tinto and Vale control that market. There is the possibility that the relatively small number of companies that dominate the lithium market can manipulate prices higher to their advantage as demand for the commodity increases.

While the sector has medium-term upside potential, this has not insulated the shares from the general sell-off in commodity related shares over the last few months. SQM (1.09%) has been ranging above $50 since late 2010 and retested that area three weeks ago. Talison Lithium (market cap C$400million and no yield) has been ranging mostly above C$3 since October. They would need to sustain moves below their recent lows to question medium-term scope for continued higher to lateral ranging.

Rockwood Holdings (2.94%) hit at least a medium-term peak in August following an impressive advance. Price action since then has been extraordinarily volatile and while the share has steadied over the last couple of weeks a sustained move above $55 will be required to confirm a return to medium-term demand dominance.

FMC Corp (0.68%) is a diversified chemicals company and lithium makes up approximately 10% of its revenue. The share hit a medium-term peak in April and pulled back to test the region of the 200-day MA. A sustained move below it would be required to question medium-term potential for additional upside

In the battery manufacturing sector, EnerSys Inc. and Samsung SDI, have bounced back impressively from their August lows and found support in the region of their 200-day MAs three weeks ago. Sustained moves below their recent lows would be required to check potential for additional higher to lateral ranging.

Analysts do not expect Tesla Motors to become revenue positive until 2013 but the share price has held a progression of higher reaction lows since its IPO and a sustained move below its recent low near $26.80 would be required to check potential for continued higher to lateral ranging.

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