How to Invest in Lithium

Since you can't buy lithium futures, you have to buy lithium stocks.

Since you can't buy lithium futures, you have to buy lithium stocks.

Lithium is a rare-earth metal that is used in -- among other things -- rechargeable batteries. Cell phones, laptop computers and hybrid and electric cars all use lithium batteries. The bulk of lithium production in 2012, however, was used in low-tech applications such as hardening of glass and ceramic glazes. As of the date of publication, lithium still is not traded on world commodity exchanges, so the only way to invest in it is indirectly by buying stocks of companies -- or baskets of companies -- that produce it.

Set aside a sum of money that you want to use to invest in lithium. Because commodity prices and the prices of the companies that produce them can swing relatively widely, it's wise to invest only the amount of money that you can afford to lose. In addition to the normal fluctuations of commodity prices, with the growing number of lithium ventures there is a risk that supply will outstrip demand, further depressing prices.

Achieve immediate diversification -- if that is your goal -- by buying an exchange-traded fund that invests in a basket of lithium companies. The Global X Lithium ETF invests in both lithium producers and in lithium users, like battery makers.

Purchase shares in a major lithium producer. As of 2012, four companies were responsible for 95 percent of the world's total lithium production: FMC, Rockwood Holdings, Sociedad Quimica y Minera de Chile and Talison Lithium. As of March 2013, Rio Tinto, one of the world's largest mining companies -- was increasing the share of its business devoted to lithium. The values of these companies will fluctuate based not only on their performance but also based on the value of the lithium that they mine.

Invest in smaller lithium producers, such as Canada Lithium, Galaxy Resources Ltd. of Australia, or Simbol LLC. Investments in the stocks of smaller corporations can entail greater risk, but they can also produce higher returns.

About the Author

Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.

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