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 18th 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)
