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- A reader calls me out
-
Half as common as lithium, at an 80%
discount -
Lead is in the lead for the foreseeable
future
There’s lots going on in the news cycle right now, between
the new finance regulations and BP (NYSE: BP) capping its
well, every news site from Barron’s to Yahoo! is covering those stories, and
little else.
But no one is telling this battery commodity story, even
though it’s hugely important to anyone who thinks the world will keep driving
personal automobiles.
President Obama’s stop in Holland, Michigan to announce a
$303 million lithium-ion battery production plant scarcely received a day’s
attention in the media.
So I’m talking about lithium vs. lead again – especially
because I received a great reader question on the topic, and because you
absolutely need to be aware of this story.
Ronald L wrote in
to ask:
“If you say that Lithium is plentiful in supply, why is
it so expensive?
If lead is so limited in supply, why is it so
cheap?”
It’s true – lithium is certainly a “scarce resource.”
In the earth’s crust there’s approximately 20 parts per
million of lithium. Compare that to the abundance of iron, one of the most
common elements in the world at 50,000 parts per million.
What you might not realize is that lead is
actually less prevalent in the earth’s crust than
lithium.
Read that last sentence again to let it sink in. Lead is
found in the earth’s crust at an abundance between 10 and 14 parts per
million.
The relative scarcity of raw lithium vs. lead does not tell
the whole story though.
Right now lithium
costs about $4 a pound on a good day. Lead costs about 80 cents a pound. Why
would lead be so much cheaper than lithium if it’s more rare?
Lithium is much more expensive to mine and refine because
it’s one of the most highly reactive substances on earth. Here’s a quick youtube video showing a piece of lithium
being dropped into water. It actually catches fire.
Whereas lead can be easily leached out and refined from ore
and ready to use for a variety of applications, most lithium is difficult to
refine to an acceptable level of purity for its largest application:
batteries.
Battery manufacturers need lithium
in its lithium carbonate form to a 99.99% level of purity – or greater.
Lithium rarely occurs naturally in a high-mineralization of lithium
carbonate. A significant portion of that lithium carbonate can be found in
the desert brines in Argentina, Bolivia and Chile. Bolivia is believed to
have the best mineralization and the most supply of this “easy”
lithium.
Lead is also easily
recycled and there’s vast infrastructure for lead-acid battery recycling
already in place. But to date, there’s only one company on the planet that’s
able to recycle lithium batteries; a small private company in Anaheim,
California called Toxco, Inc. Whereas 93% of all lead-acid batteries are
recycled and repurposed as new batteries, lithium battery recycling is close
to nil.
As I’ve said before, the ocean holds a huge supply of
lithium – and every other element – but it’s not yet cost effective to mine
the ocean.
To sum it up, lithium is relatively more common than lead,
but more difficult to refine to battery specifications, and rarely found in
the appropriate mineralization.
The price disparity of lithium to lead is at an all-time
high though. And as I said yesterday:
“Very little lead is mined every year – but that dynamic
has to change as more Chinese and Indian cars hit the roads.
They’re not going to be buying the $100,000 Tesla roadster
or even the $30,000 Chevy Volt. They’ll buy the $2,500 Tata.”
There’s currently some debate about whether it makes a whole
lot of sense to replace a “diminishing resource” like crude oil with lithium
– another more expensive and scarce resource.
The prevailing wisdom in many battery circles is that
lithium is great for use in mobile devices such as laptops and cell phones.
It makes sense to use lithium batteries when weight and size is a paramount
consideration. But to then scale these batteries to use in automobiles is
something of a stretch – and we can see that stretch in the price-tag.
The problem is something of a counter-intuitive catch-22.
There is plenty of lithium supply – but most of it is expensive to
refine – which means it will always be relatively more expensive to use for
automobiles. The cheap and more easily refined lithium has been nationalized
by Bolivia.
You might have a few grams worth of lithium in your laptop
or cellphone, but the Tesla (Nasdaq: TSLA)
roadster has a 1,000 pound battery that needs to be replaced every 7 years at
a cost of about $36,000. Unless you’re super-rich, that’s simply
unsustainable.
And even if you drive a lot, you’d still struggle to match
that amount of gasoline consumption over the same period. Gasoline prices
would have to more than quadruple, by my estimates, in order to match the
cost of lithium battery replacement for a Tesla – let alone the initial cost
disparity for electronic vehicles vs. gasoline vehicles.
Don’t get me wrong. Lithium batteries aren’t going anywhere.
But their application in cars is so far limited to the number of tree-hugging
rich people who are into status symbols. It’s conspicuous consumption for
wealthy liberals – in much the same way that huge SUVs were the vehicle of
choice for rich conservatives a few years ago.
My point is – if you want to buy the battery commodity
that’s still inexpensive and still unpopular – and will still be in use in
the world’s automobiles for the foreseeable future, you should be buying
lead.
My favorite way to do so (besides buying ammunition for my
.357 magnum) is to buy Australian lead mining giant BHP Billiton
(NYSE: BHP). Like the lead battery, this company will be around and
make profits for a long time. Buy shares under $70 and back up the truck
under $65.
Good investing,
Kevin McElroy
Editor
Resource Prospector