Sunday, November 8, 2015

Is lithium a legitimate investment vehicle?

Yes but like everything else with some caveats. The big news around lithium and why it is moving into the mainstream is the ongoing start up of the Tesla battery "gigafactory" in Nevada.

However irrespective of the Tesla effect on lithium demand the energy metal was already moving higher in price as a result in the growth of lithium ion batteries for a whole host of applications. They are not only found in phones and computers but power tools and even lawn and garden equipment.

There is a definite transition of more and more products to battery power. This requires more lithium as most of these products use this metal in their batteries. There is a certain amount of hype involved but there is also definite demand with emerging supply constraints.

As can be seen from the chart the demand for lithium is forecast to go almost vertical. This increase in demand would seem to be contingent on more demand for electric cars and the emergence of more power storage devices. One of the largest producers of lithium, FMC, recently pushed through 15% price increases on all of their lithium products. Their press release said the following:

"Continued market growth is outpacing current industry supply capabilities for most of our product lines.  For butyllithium, growing demand in all regions has improved market conditions," said Chris Senyk, global marketing director, FMC Lithium.  "Price increases are necessary to re-invest in our global manufacturing facilities and continue reliable supply of high-quality lithium products."

I am watching Tesla with a cautious bent. They are selling nearly 50,000 cars per year and the initial reports on demand for the Powerwall product in Australia are being characterized as "strong".

Electric vehicle and battery storage developer Tesla Motors says it is receiving “very strong” demand for its new battery storage products in Australia, which are due to be rolled out in the next month or two.

In its latest quarterly update, the company said it will accelerate its battery cell production at its new “gigafactory” – a battery storage manufacturing plant in Nevada – and says it does not expect to be beaten on price.

Australia has been chosen as one of the first countries for the Tesla Energy “Powerwall” product, a 7kWh lithium-ion battery storage system, because of its excellent solar resources, high electricity prices, and the tariff structure for consumers.

“We are seeing very strong demand for Tesla Energy products globally, and particularly in Australia, Germany and South Africa,” founder and CEO Elon Musk said.

We shall see but it would be wise to remember that Tesla currently loses money. However, if the gigafactory delivers as advertised we will see prices for these batteries drop and therefore more demand. I know several people are projecting that Nevada and Reno in particular are poised for supercharged growth because of the battery factory and because of all the lithium reserves in Nevada. 

Nevada is booming as new lithium companies rush in to stake out targets and massive business development gets underway, from Tesla to Amazon and Apple. As the state’s southwest corner fills up with new lithium players, Tesla gears up for its battery gigafactory and the world’s largest data center sets up shop, Nevada is poised for one of the greatest economic revival stories of the century.

My take is that there are opportunities in the lithium space. However, it will get hyped like all other facets of the resource space have at other times. We will see more press attention and then the promoters win Vancouver will sart creating all kinds of lithium companies. Remember how many legit lithium properties are out there? How many legit competent lithium management teams are out there? Caveat Emptor.

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