Lithium breakthrough

The lightest metal is traded in small quantities, but it could be about to enjoy a prolonged period in the sun.

Summary: Scientists have made progress on a lithium-air battery that could provide enough power for an electric car to match the travel distance of a petrol-powered car. Citi has released positive forecasts for demand for electric cars and lithium. Although the lithium price could rise, the metal is traded in small quantities.

Key take-out: Lithium is a fascinating metal, but from an investment perspective it needs to be treated with great care.

Key beneficiaries: General investors. Category: Commodities.

Lithium is the commodity which allows you to store power in your smartphone, iPad and possibly, your electric car. The issue for a long time has been the storage capacity is not that strong... that's why it takes half the night to recharge your phone. However, in recent days news of a science breakthrough that will multiply the power of lithium is igniting interest in this little known metal.

Of course minerals and metals with a small market and a sky-high price can be expensive traps for investors largely because supply can rise quickly to flood demand which is what just might happen here.

Vanadium, tantalum and rare earths are examples of a boom moving quickly into a bust and while lithium could go the same way there are interesting indications in the academic, industrial and banking worlds which point to lithium enjoying a prolonged period in the sun.

The primary appeal of lithium, the lightest metal which sits just below hydrogen on the periodic table, is its use in storing energy which is why most mobile phone, electric cars and modern power tools, use lithium-ion batteries.

Now, three seemingly disconnected events over the past two months could combine to create a surge in demand for lithium.

  • The most important development is the breakthrough in the science behind lithium batteries with a research team at Britain’s Cambridge University reporting successful laboratory-scale tests of a lithium-air (or lithium-oxygen) battery which can store five times the amount of electricity as a lithium-ion battery.

Theoretically, a lithium-air battery could be lighter than existing lithium-ion batteries and provide enough power for a full electric car, on a single charge, to match the travel distance of a petrol-powered car.

More work is required on the lithium-air battery with a commercial version at least 10 years away – and that assumes it survives the challenge of being scaled up from its current benchtop status.

  • The second event which has galvanised interest in longer-life vehicle batteries is the nitrous-oxide emissions scandal which has rocked the world’s biggest car maker, Volkswagen.

Whatever happens at VW the disgrace over emissions-cheating devices in its diesel-fueled cars has encouraged more vehicle owners to consider the inevitability of a switch to electric, or the half-way house, electric-hybrid.

  • The third event which put lithium in the headlines was a report from the investment bank, Citi, which featured an extremely positive set of forecasts for electric car demand and corresponding demand for lithium.

“The mass adoption of pure electric vehicles such as the Tesla Model S or the Nissan Leaf would be a boon to the lithium market,” Citi said.

According to the bank’s research the number of pure electric vehicles in the world will rise from around 150,000 today to 1.04 million in 2020. Hybrid vehicle numbers, which use lithium batteries and a small petrol engine, could rise from 2.7 million to 7.6 million.

Other markets for long-life batteries, including consumer goods (mobile phones and power tools), and industrial uses such as in ceramics and glass, will add to the demand for lithium.

According to Citi’s analysis increasing demand for lithium has already led to a 20 per cent rise in the price of lithium carbonate (the most commonly traded form of the metal) over the past 12 months to around $US5900 a tonne.

Over the next 24 months the price could rise to around $US7000/t.

Any metal selling for a price that high is bound to attract attention, and that’s also why investors should look at the supply/demand balance because lithium is one of those metals which is traded in small quantities.

Last year, according to Citi’s analysis, the total global supply of lithium amounted to 184,000 tonnes, valuing the market at slightly more than $US1 billion, not a lot compared with other metals while the tonnage, to put it into perspective, would fit comfortably in one small bulk ore carrier.

Even strong demand for lithium from the battery industry should see supply rise to just 318,000 tonnes a year by 2020 which could be slightly ahead of demand at 308,000 tonnes.

The bulk of current demand, and for the foreseeable future, will come from a handful of international suppliers, led by China’s Sichuan Tianqui Lithium, Albemarle Industries and FMC Corporation of the US, and SQM in Chile.

The source of their lithium is a combination of traditional hard-rock mining and extraction of the metal from brine solutions found in dry lake beds, particularly high in the Andes of South America.

Citi’s numbers and the tight supply/demand situation means there is little reason to get excited about the small crop of lithium-exposed explorers and producers listed on the Australian stock exchange such as Orocobre, Galaxy Resources, Pilbara Minerals, Neometals and Mineral Resources.

But that’s before considering the wild card in the lithium pack, the Cambridge University research breakthrough.

If the lithium-air battery lives up to its early promise it could be the Holy Grail for electric vehicles and another setback for conventional petrol and diesel cars.

From an academic perspective lithium is a fascinating metal, but from an investment perspective it is a metal which needs to be treated with great care, like all minor metals.