Introduction to Lithium Investing

Introduction to Lithium InvestingIn 1817, Johann Arfwedson discovered a soft, silver-white metal while working in a laboratory under his mentor in Sweden. The mentor, chemist Jöns Berzelius, named it after the Greek word for stone, “lithos.” Today, this alkali metal is known as lithium.

By the 1940s, people began using lithium to treat what was at the time considered ‘mania.’ Over 70 years later, such symptoms are now traditionally labeled as bipolar disorder or manic depression, but lithium is still one of the most common elements used to treat these mood disorders. Researchers also believe it was used for medicinal purposes as many as 1,800 years ago.

Along with its role in the pharmaceutical industry, lithium is primarily used in batteries as well as heat-resistant glass and ceramics. The element’s electrochemical potential makes it useful for battery nodes, and it has the ability to decrease the melting temperature of glass because of its high specific heat.

Lithium can be found in igneous rocks and mineral spring water. Chile, Argentina and the United States are currently the three largest producers of the metal in the world, though reports show Bolivia has the largest available reserve base, according to the Royal Society of Chemistry.

Investing in lithium

Currently, the element is experiencing fairly high demand. Lithium batteries are more energy efficient than traditional nickel-metal hydride batteries, so they are extremely desirable throughout economic sectors such as the automobile and electronics industries. Moreover, this high demand is met by a limited supply, meaning investments in lithium would have a large profit potential.

Unlike other commodities, it is not possible to invest in the physical element. However, investors can buy stocks in lithium-production companies as well as exchange traded funds (ETFs).

The most popular lithium ETF is Global X Lithium (ARCA:LIT). It consists of a worldwide portfolio of companies in the lithium industry that are involved in everything from mining to battery production. This is a good way for investors to get exposure to the industry despite the fact that lithium is not traded on commodity exchanges.

Sociedad Química y Minera (NYSE:SQM)

Instead of investing in ETFs, investors can buy shares in SQM. Known in English as the Chemical and Mining Company of Chile, this is the largest single producer of lithium in the world. By the end of 2012, SQM controlled 31 percent of the lithium market and its annual production capacity was 48,000 metric tons. However, the company also works with other minerals such as iodine and potassium, so investors will not only be putting their money toward lithium. Due to the high supply of their desired minerals in Chile, SQM is the lowest-cost producer in the market.

Rockwood Holdings (NYSE:ROC)

This is another company at the forefront of global lithium holdings. Like SQM, it does not only deal in lithium; North America-based Rockwood specializes in chemicals and advanced minerals in general. In 2012, the company invested $140 million in a new lithium carbonate plant in Chile with the intent of increasing its yearly production capacity to 50,000 metric tons by the end of 2013.

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