Why Investing in Potassium & Lithium can be Lucrative

Dear PGM Capital Blog readers,

In this weekend’s blog edition, we want to elaborate on the increasing usage of Potassium and Lithium in our modern society and the best way to invest in them.

POTASIUM:
Potassium is a chemical element with symbol K, with atom number 19, and is an alkali metal used mainly in the fertiliser industry.

The principal use of potash is as an agricultural fertilizer (plant nutrient) because it is a source of soluble potassium, which is one of the three primary plant nutrients required for plant growth and maturation; the others are fixed nitrogen and soluble phosphorus.

In addition to its use as a fertiliser, potassium chloride is important in industrialised economies, where it is used in aluminum recycling, by the chloralkali industry to produce potassium hydroxide, in metal electroplating, oil-well drilling mud, snow and ice melting, steel heat-treating, and water softening.

Potassium hydroxide is used for industrial water treatment and is the precursor of potassium carbonate, several forms of potassium phosphate, many other potassic chemicals, and soap manufacturing.

Potassium carbonate is used to produce animal feed supplements, cement, fire extinguishers, food products, photographic chemicals, and textiles.

It is also used in brewing beer, pharmaceutical preparations, and as a catalyst for synthetic rubber manufacturing.

Generally, these nonfertiliser uses have accounted for about 15% of annual potash consumption in the United States.

Top 3 Producing Countries:
The top 3 potash-producing countries are:

  • Canada:
    Total mine production of 11 million Metric Tons in 2014-2015, for which the country is home to the world’s largest fertiliser company by capacity, Potash Corporation of Saskatchewan, (POT.TO) or PotashCorp.
    However, the company has recently been forced to shutter two of its potash mines in Canada due to low prices.
  • Russia:
    Russian potash production also stayed fairly flat from 2014 to 2015, rising an estimated 20,000 MT to 7.4 million MT. The country is home to some of the world’s largest-known potash reserves.
    Last year, Industrial Minerals reported that Industrial and Commercial Bank of China (1398.HK) and China Construction Bank (0939.HK) engaged in a loan deal worth over $500 million with Russian potash company Uralkali (OTCMKTS:URAYY).
    The move gave China greater control over global potash production, as Uralkali is responsible for 20 percent of the world’s potash output.
  • Belarus:
    Belarus boosted its 2015 potash production to overtake China as the world’s third-largest potash producer in 2015. It put out a total of 6.5 million Metric Tons of potash for the period.
    The country has historically been a major player in the global potash market. In 2014, marketing agreements between Belarusian and Russian producers dissolved, according to the USGS. This shift lessened potash producers’ collective bargaining power, and contributed to the recent decline in the potash price.

LITHIUM:
Lithium is a chemical element with the symbol Li and atomic number 3. belonging to the alkali metal group of chemical elements.

Lithium production has greatly increased since the end of World War II. The metal is separated from other elements in igneous minerals. Lithium salts are extracted from water in mineral springs, brine pools, and brine deposits.

Worldwide identified reserves in 2008 were estimated by the US Geological Survey (USGS) to be 13 million tonnes, though an accurate estimate of world lithium reserves is difficult.

Deposits are found in South America throughout the Andes mountain chain. Chile is the leading producer, followed by Argentina, for which the company “Sociedad Quimica y Minera de Chile S.A.” (NYSE: SQM) is world biggest producer of Lithium.

Late in the 20th century, lithium became an important component of battery electrolytes and electrodes, because of its high electrode potential. Because of its low atomic mass, it has a high charge- and power-to-weight ratio.

Below table shows the world’s top eight producers in 2015 and reserves in metric tons by country:

PGM CAPITAL ANALYSIS AND COMMENTS:

Potassium:
The potash price has been on the decline since 2013′s cartel breakup between Russia and Belarus, but the amount of potash on the world market is still expected to increase over the next few years.

Specifically, the US Geological Survey (USGS) sees global potash production capacity reaching 61 million MT by 2019, up from 52 million MT in 2015.

The demand for the fertilizer is expected to increase over the long term. In 2015, the world consumed 35.5 million MT of potash, and that number should grow to 39.5 million MT over the next four years.

Potassium is associated with movement of water, nutrients, and carbohydrates in plant tissue. If potassium is deficient or not supplied in adequate amounts, growth is stunted and yields are reduced. Various research efforts have shown that potassium:

  • Stimulates early growth
  • Increases protein production
  • Improves the efficiency of water use
  • Is vital for stand persistence, longevity, and winter hardiness of alfalfa, and
  • Improves resistance to diseases and insects.

These roles or functions are general but all are important to profitable crop production as can be seen from below table.

Interpretation
Crop Part
Sampled
Time of
Sampling
Deficient Low Sufficient High Excessive
– – – – – – – – – – – – – – – – – – % K – – – – – – – – – – – – – – – – –
alfalfa top 6 inches bud <1.8 1.8-2.4 2.5-3.8 3.9-4.5 >4.5
barley whole plant head
emergence
<1.25 1.25-1.49 1.50-3.00 >3.00
corn ear leaf silking <1.30 1.30-1.70 1.80-2.30 2.40-2.90 >2.90
soybean most recently
matured trifoliate
early
flower
<1.30 1.30-1.70 1.80-2.50 2.60-4.50 >4.50
wheat whole plant head
emergence
<1.25 1.25-1.49 1.50-3.00 >3.00

Lithium:
A typical lithium-ion battery can generate approximately 3 volts per cell, compared with 2.1 volts for lead-acid or 1.5 volts for zinc-carbon cells. Lithium-ion batteries, which are rechargeable and have a high energy density, should not be confused with lithium batteries, which are disposable (primary) batteries with lithium or its compounds as the anode.

Other rechargeable batteries that use lithium include the lithium-ion polymer battery, lithium iron phosphate battery, and the nanowire battery.

A recent study looked in great detail at how Lithium is used to produce batteries, and the entire life cycle of the batteries.

The findings were compared to the environmental impact of conventional internal combustion cars. The study measured environmental impact in a number of ways, including global warming potential, cumulative energy demand, an Ecoindicator 99 and an Abiotic Depletion Potential that measures resource depletion.

Interestingly, the study found that the environmental impact of Lithium was relatively small, but that other elements of these batteries have a higher impact.

For example, lithium batteries take a tremendous amount of copper and aluminum to work properly. These metals are needed for the production of the anode & the cathode, cables and battery management systems. Copper and aluminum have to be mined, processes and manufacturing which takes lots of energy, chemicals and water which add to their environmental burden.

Based on their fundamentals we have a BUY rating on the producers of Potassium and Lithium mentioned in this article.

Last but not least, before following any investing advice, always consider your investment horizon, risk tolerance and financial situation and be aware that prices of metals and the stock of their producers might be very volatile and that sharp corrections may happen in the short term.

Until next week.

Yours sincerely,

Suriname Times foto

Eric Panneflek

 

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