Lithium – Lifting the Spirits – by Christopher Ecclestone (InvestorIntel.com – October 28, 2015)

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You don’t get to hear a specialty metal mentioned often in a Woody Allen movie, but Lithium has managed to score a mention more than a few times. Of course it’s not that the gnomic director has suddenly been converted to a new variety of battery but rather that so many of his characters (and maybe his audience) need a pick-me up of some Lithium to cure (or ameliorate) what ails them.

Then again until 20 years ago the only mention the public ever heard of Lithium was in reference to its medical properties, even though its ceramic applications were massively more important volume-wise. Indeed Lithium was the word on everyone’s lips pre-1950 when it was a standard ingredient in 7-Up (the “up” being literal) and farther back it went into Lithia Coke (give me that over Cherry Coke any day!).

Indeed, it has been speculated (and even tried in some places) that putting Lithium into water supplies might lift people’s mood and reduce suicides. In 1990, a study in 27 counties in Texas found lower rates of not only suicide but also homicide and rape in those where the drinking water contained lithium. In 2009, research in Japan found lower suicide rates in areas with lithium in the water.

If mood enhancement is a side effect then I humbly suggest that they run some through the Toronto water supply just a little bit ahead of the next PDAC. It may not improve stock prices but fewer would care!

The Cartel

Lithium has long been ruled by a Cartel, though the members would ferociously deny it. There is nothing as broken as a cartel once it comes unglued. They can go dysfunctional and yet survive (e.g. OPEC, Potash). However, once production outside the cartel exceeds that within discipline starts to break down.

Cartels require that:

  • All big players must be within
  • If there is a major player outside then the cartel breaks down
  • Price discovery is the enemy of cartels
  • Lithium being quoted (e.g. LME) would start cartel erosion

Therefore there is a prospect that stealth erosion may occur with spodumene players converting into lithium producers. There may also be increased price discovery (LME et al.) while vertical integration will evolve with trade buyers securing exclusive offtake.

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