Wednesday, January 20, 2010

Time for a Lithium Futures Contract

Until practical physics and/or electrical engineers devise a better battery, lithium-ion is the power-source of choice for the ever-growing electrification of our automobiles. The batteries are going to become more efficient, more compact, with larger capacity and a longer life, and within ten years they're going to be integrated into the engines of every car that rolls off the assembly line. And all the auto industry needs to accomplish this is firm resolve, technical knowhow, and 700 million tons of lithium.
The Wall Street Journal today reports that Toyota Motor Corporation secured access to a long-term lithium source in Argentina, outbidding potential Chinese buyers.
As lithium increasingly becomes an input into our transportation and energy industries, demand for the metal is going to skyrocket, as will the number of mining operations seeking to acquire and sell it, making the price about as volatile as the element.* If the auto/battery/lithium mining industrial complex is going to maintain any semblance of sanity there will need to be a hedge for producers and consumers of lithium. This is the same thing that happened with palladium, a metal used almost exclusively in the production of catalytic converters, when wild price swings pre-futures contract made establishing budgets and allocating funds close to impossible for automotive manufacturers. A listed futures contract will afford automakers a relative stability when it comes to protecting themselves. I'd put the over/under at about four years before a contract is listed on either the LME or the COMEX (or both). Any takers out there?
*As an unfortunate side effect, look for these sorts of chemical/financial volatility puns to be used in 100% of news stories related to lithium price movements.

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