Oligopoly

Recently, the demand and the price for lithium are increasing. The uses in lithium expend in vehicles, ceramics, electronics and lubricants. By the exploding popularity of iPads and the increasing sales of hybrid vehicles, they are few investors planning to invest in producers of lithium for batteries. Lithium’s use in technology has been increasing about 20% a year since 2000. There is high demand in lithium for the making of many electronics and car batteries. The market for tablet computers and hybrid electric vehicles is growing faster than expected. Apple’s iPad is widening and its lead as consumers’ top choice. Without lithium, the whole mobile technology or hybrid car technology would not have been possible.

(Diagram 1)

Aside from Talison Lithium Ltd (TLH), the trio of Rockwood Holdings (ROC), Sociedad Quimica y Minera de Chile (SQM) and FMC Corp. (FMC) control most of the world’s production in lithium. Besides, Rio Tinto Group (RIO), the third biggest mining company may enter the lithium business by opening a new mine in Serbia. Once the facility begins production, it says it will be capable to produce about 20% of the world’s output of the metal. However, Sociedad Quimica y Minera (SQM) is the only member of the oligopoly whose stock has been in the red for 2012.

            An oligopoly is a market when only a small number of large sellers competing with each other and sell a product or service. There are homogeneous or differentiated products. Products such as lithium can be homogeneous, a pure oligopoly. Prices in an oligopoly tend to remain stable because if one company increases the price too much, the others seem to do the same. The lithium producers have publicly stated that the pricing over the past two years have increased. In 2011, FMC Lithium announced three times that they would increase pricing in their lithium products. Additionally, FMC just announced the price will increase on 18^th of June, 2012. (Diagram 2) Furthermore, Talison Lithium, the only pure-play lithium producer, announced in December of 2011 that it will increase the prices by 15% and expects to increase the prices again. A price increase has been agreed with the customers. Moreover, in oligopoly, it’s not easy for potential rivals to enter the industry. There are high entry barriers or natural entry barriers. Barriers to entry exist such as copyrights, patents, advertisements and also economics of scale (EOS). 

(Diagram 2)

          Last year, Argentina is promoting the idea of an OPEC-like cartel for lithium. Argentina, Bolivia and Chile, which total control 85% of world’s reserves of lithium, a key component in electric car batteries. In the near future and with the high level of production, Argentina, Bolivia and Chile may control the lithium market. A ton of lithium worth $2,500 in 2004 and now sells for around $6,000.

          In conclusion, lithium is going to be very important to the future world of hybrid electric vehicles because lithium’s use in batteries for electric vehicles. Other than hybrid electric vehicles, lithium is also used for many electronics such as smartphones, tablets and laptops. No doubt, the demand and the price for lithium will be continuing increasing in the future. 

(Diagram 3)

Resources:
-http://www.bloomberg.com/news/2012-06-19/ipad-boom-strains-lithium-supplies-after-prices-triple.html

-http://www.orocobre.com.au/PDF/21Jun12_The%20State%20of%20the%20Lithium%20Industry.pdf

-http://www.rawstory.com/rs/2011/06/30/argentina-considers-opec-like-deal-for-lithium/