Since the dawn of civilization, gold and silver have dominated the precious metal realm.
Gold was the revered currency for most of human history. It’s been around for the rise and fall of countless civilizations.
But since central banks and fiat currency (money invented out of thin air) have shown up on the scene, gold has taken a back seat on the world stage.
And while precious metals like platinum and palladium have more industrial uses than gold, they have lacked the types of returns that make fortunes.
Over the last five years, platinum prices have gone down 38.59%. Over that same time frame, the price of gold has dropped 21.84%. And the price of silver has taken the worst beating, down 42.81%.
But as we march into the future, there is one particular precious metal that is seeing a surge in price and demand.
It’s a metal that will shape the future of energy, transportation and communication. In fact, it already has. But its impact is growing. And those who control, produce and leverage this metal will build great fortunes and power.
That metal is lithium. And we are dubbing it “The Precious Metal of the 21st Century.”
Global demand for lithium is growing by leaps and bounds. And the impact and implications for the energy industry have made this “energy metal” a very hot commodity.
As you can see above, lithium is up more than 77% since the financial crisis.
What’s behind this surge in price and demand?
Lithium has long been used in ceramic and glass production, as well as air treatment and polymer production. But its growing industrial use today is in rechargeable batteries.
Lithium-ion batteries have the ability to store a lot of energy in a very small space. Energy density is measured in watt-hours as a function of volume, or liters. The energy density of the basic lead-acid battery in your car is 30 Wh/L. A basic lithium-ion battery’s density is 250 Wh/L.
And new lithium-ion batteries in development will be able to store even more energy.
Add in the fact that a lead-acid battery is an environmental disaster in a box, and you can see there are a lot of advantages for lithium. That’s why lithium batteries are likely to be the power storage system of the 21st century.
Our mobile device revolution is one of the biggest forces boosting lithium demand.
Last year, the world produced 36,000 metric tons of lithium. Thirty-one percent of that was for batteries.
Look around the room you are in. Do you see a cellphone, tablet, camera or laptop?
In today’s web-connected world, I bet you do. There is a good chance you have one in your pocket or on your desk at this moment. In fact, you might be reading this report on a device that’s using the stored power lithium provides.
The growth in mobile devices has resulted in an explosive demand for lithium. And we haven’t even touched on the growing electric vehicle and home energy markets that are also pushing up prices.
Battery maker Panasonic is looking for a 74.9% compound annual growth rate in stationary storage lithium batteries. These batteries can power your home or workplace. And Panasonic is looking for a 16.9% compound annual growth rate in automotive lithium-ion batteries.
Another primary driver of the lithium surge is the world’s most popular electric car company, Tesla (Nasdaq: TSLA).
The batteries Tesla uses for its Model S electric cars are Panasonic’s NCA lithium-ion batteries. These lithium-ion batteries are made of lithium, nickel, cobalt and aluminum oxide. A lot of lithium goes into each battery – about 21.4 kilograms (47 pounds) per car.
Tesla CEO Elon Musk wants a “complete transformation of the entire energy infrastructure of the world to completely sustainable zero carbon.” And to reach that goal, he wants lithium-ion battery production on an enormous scale.
This year, Elon Musk hopes to start selling electric cars for just $35,000 apiece. That’s about half of what a Model S costs now. Eventually, Musk wants to make electric cars so affordable that they become the predominant form of private transportation in the world.
The Tesla Gigafactory in Nevada will be the world’s largest lithium-ion battery plant. It is scheduled to reach full production capacity by 2020... and it is ahead of schedule. Carrying a price tag of $5 billion, the factory will make enough battery packs to power 500,000 electric cars a year.
And it won’t just make car batteries. About one-fourth of the Gigafactory’s capacity will be for Tesla’s new Powerwall storage batteries for home solar systems. And these will also require lithium.
Exactly how much lithium the factory will require is a matter of dispute. Tesla says the Gigafactory’s expected lithium demand per year will be 8,000 metric tons by 2020, the first full year of production.
But there are other estimates. Bank of America says the factory will probably use 9,000 tons a year. Goldman Sachs estimates that the Gigafactory could require 15,000 to 25,000 tons of lithium at full capacity – in other words, running round-the-clock shifts.
Per Tesla’s numbers, batteries would suddenly gobble up 53% of supply. And if you believe Wall Street, it could be a heck of a lot more.
Electric car batteries are rated in kilowatt-hours. Factories are rated in gigawatt-hours. The Gigafactory will have an annual production capacity of 35 million kWh, or 35 GWh. It will also source an additional 15 GWh from external suppliers.
But that’s just the beginning of the story. Elon Musk wants to build 200 factories around the world. And he’s not the only one with his eye on the lithium market.
Tesla’s biggest rival will likely be Chinese auto manufacturer BYD, also known as Build Your Dreams, a company backed by Warren Buffett. BYD is already building electric buses on American soil. It has global gigafactory ambitions. By the end of the year, BYD should have 10 GWh of battery production capacity. And with the addition of a new factory in Brazil, it expects to increase that to 34 GWh by 2020. That’s about the same capacity as Tesla’s Gigafactory.
Beyond that, every major auto manufacturer has more than one fully electric car. These manufacturers might outsource their batteries. And that would mean huge demand for lithium-ion batteries.
Thanks to the surge in demand for rechargeable batteries, companies are scrambling for supplies of lithium. And there is a major supply shortage on the horizon.
As you can see, there is a major projected gap between lithium supply and demand. This has put a hard floor under current prices. And it means there is huge potential for prices to continue to rocket higher.
Benchmark Mineral Intelligence forecasts the lithium price will increase 17.65% over the next year alone. If demand continues to outpace supply, prices could jump even higher in the short term.
The demand for lithium is about to shift into even higher gear. And select investments in this space have the potential to see outsized returns.
If you are looking for a diversified way to play this trend, consider the Global X Lithium ETF (NYSE: LIT).
This ETF has 27 holdings, which take advantage of both the mining and manufacturing sides of the lithium business, as well as the battery storage and electric vehicle sector. And since it’s the only lithium-based ETF out there, it’s the lone diversified direct play on the market.
Personally, I think individual stocks are the way to go in this particular market at this time. And the best plays are the companies that will benefit directly from increased demand and prices... miners.
The “Big 3” companies in the lithium mining business are FMC Corp. (NYSE: FMC), Albemarle Corporation (NYSE: ALB) and Sociedad Química y Minera de Chile (NYSE: SQM). Combined, they produce 53% of the world’s lithium.
All three companies have active lithium mining operations in different parts of the globe – most are in Chile, Australia, Bolivia and the western United States. Combined, they are projected to see earnings increase 17.03% in 2017.
These are some great plays in the lithium space. Just make sure to do your own due diligence before you invest.
There are some great opportunities out there that could see profits soar alongside lithium prices. And miners are the best place to start.
The Energy & Resources Digest Research Team,
The Oxford Club
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