Between 2008 and 2009, the global production of lithium declined by 30%, entirely for economic reasons. In fact, I created a definition for rare metals in 2009, in which I defined a rare metal in 2009 as one produced at a global rate of 25,000 metric tonnes per year or less. Lithium was my threshold rare metal in 2009 by this definition. In 2008 it was in fact produced at a rate of 25,000 t a year. When updating my rare metals chart earlier this year, to produce my list of the rare metals for 2009, I fully expected that lithium’s production would have increased to the point where it was no longer a rare metal by my definition. Instead, to my surprise, lithium tracked the recession. Its 2009 production was in fact 30% less than it had been in 2008; it was, in 2009, only 18,000 t for the year.
Like every other commodity metal besides gold, silver, or platinum, the production and price of lithium is dependent on the demand for the element in the global industrial marketplace and has no intrinsic value component at all. This demand in its turn is a direct function of the end use of lithium, in all of its chemical forms in mass produced devices, chemical catalysis, and pharmaceuticals.
Therefore, instead of just being based on lithium metal production, a lithium market ETF for a small investor is much better based on being indexed to not only actual production and demand but also to the probability of future demand and supply increases, due to technological breakthroughs. An indexed ETF that includes investments in technological breakthroughs that can drive future high demand, is the best bet for a small investor, providing that the companies indexed by the ETF are chosen for their ability to increase existing production of lithium, or to economically bring new production on line when called for, and/or for their ability to innovate uses for lithium and to commercialize those innovations profitably.
don’t know who is choosing companies of both types, either lithium producer or present and future lithium users , for the new fund mentioned in the Wall Street Journal article noted below, but that individual or group of individuals will make all of the difference, among this new lithium ETF and any other lithium ETF that will be created now or ever. Before you invest in such a natural resource-based rare metal ETF, look carefully at its board of advisors and at its founders.
When I first encountered Euclidean geometry in junior high school 56 years ago, my understanding blossomed when the teacher ridiculed my answer to the question, ‘What is the reason that side A of the figure equals side A of the same figure? My answer was “it is obvious.” The very good teacher said “No, it is because they are congruent, and that is what is obvious, Mr. Lifton.” I realized at that moment, that nothing is obvious unless we all agree on the subject matter, the meaning of terms, and the rules of logic.
Without further ado then, I give you the Magic World of rare metals-themed investing (drumroll, please and a cloud of non-toxic, non-irritating smoke – this type of smoke is called steam by the way; it is the visible output from nuclear reactors, for example, and is often mistaken for pollution…)
The June 19, 2010, Wall Street Journal had on the first page of its regular section called “Money & Investing”, a story I have been waiting for that I thought would come sooner, entitled “lithium ETF Aims to Rev Obscure Part of the Market”.