As oil tanks, this ‘new gasoline’ is on a tear

Noah Friedman-Rudovsky | Bloomberg | Getty Images

Amid a major reordering of global oil markets, investors and manufacturers are turning their attention to a lesser-known commodity which experienced its biggest ever price surge at the start of this year.

Lithium carbonate helps to power smartphones and hoverboards, but the real attraction for investors is the nascent electric and hybrid vehicle sector. The emergence of firms like Tesla – which is building its own lithium factory in Nevada – has helped to boost the price and more demand is expected, according to Eoin Treacy, a strategist at investment strategy firm Fuller Treacy Money.

“Home batteries and home charging stations are likely to become much more visible,” he said in a note on Monday evening.

“Utilities are already installing industrial scale (lithium) batteries to tackle intermittency of renewables and to become more efficient with fossil fuel use.”

Auto revolution

Data is scarce compared to oil and gold, but London-based data firm Benchmark Minerals has information on recent price rises. The lithium industry is going through its strongest ever period of price increases, according to the firm, which signaled that prices were heading beyond $10,000 per ton in its latest analysis note on February 15.

Indeed, the price of lithium carbonate so far in 2016 was 47 percent higher than last year’s average, it said last month. It also noted that the lithium ion battery market was 63 gigawatt-hours in size last year, but was set to grow to 85 gigawatt-hours by 2020.

The fortunes of the light alkali metal are becoming increasingly tied to consumer electronics, at a time when other commodities are seeing price slumps due to falling demand in China. In a note last December, Goldman Sachs analysts predicted that lithium would be the “new gasoline” and said the abundant commodity was easy to store and would be a “key enabler of the electric car revolution.”

That revolution might be spearheaded by Tesla, but Elon Musk’s’ company is not alone. Apple has continued to hint at the prospect of producing an electric car, Google is already testing its own self-driving vehicle and start-up Faraday Future is prototyping something that bears a slight resemblance to the Batmobile. Meanwhile, established brands like Ford and Nissan already have battery-powered autos on the market.

Rally over?

Despite a rapid price surge, the next step for lithium could actually be another slump. Some economists are predicting prices to peak in 2017 with more factories coming along and adding to supply.

Lower oil prices might also be a downside risk as cheaper gas causes consumers to hold onto their conventional models. There are also other technologies to contend with, according to Goldman Sachs, which pointed out that lithium wasn’t the only battery type that could be adopted by the automobiles sector.

It also said that policymakers would have their part to play in the market as an end to subsidies could shake up demand, and therefore pricing. “There is a substantial risk that less favorable policy could slow EV (electric vehicle) adoption,” it said in its report in December.

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