Investing in Lithium: Top Lithium Producer Draws Line in the Sand
There’s nothing like a strong dose of excitement returning to stocks.
Over the past couple of months one of the most exciting sectors has been in the emerging lithium sector. Shares in small lithium companies like Western Lithium and Canada Lithium (just to name a couple) have been leading the way.
All of the excitement surrounding lithium has brought the world’s largest lithium producer, Sociedad Quimica y Minera de Chile S.A. (SQM), back into favor too.
As you might expect, SQM isn’t going to sit idly while new entrants crowd into the lithium market. SQM is taking action to shore up its leadership position in lithium.
SQM says it’s going to be cutting lithium prices:
Consistent with its business strategy of world leadership based on low costs and abundant high-quality natural resources, SQM has decided to implement a significant reduction of its lithium price levels with the purpose of accelerating demand recovery, creating incentives for research of new lithium uses, and contributing to the sustainable long-term development of the lithium market.
Consequently, SQM announced that prices for lithium carbonate and lithium hydroxide will be reduced by approximately 20% from current levels for the renewal of all its supply contracts.
The world’s largest lithium producer is cutting prices?
If you’ve been watching lithium stocks lately, you’d think a lithium supply shortage was imminent.
Well, this is where the lithium market is a bit different than the market for most other commodities. You see, the lithium market is still small. It’s not like copper or oil, it’s more like potash or a specialty chemical. It’s a market dominated by a few small producers.
That’s why SQM cutting prices is big news. This action, although under the guise of “accelerating a demand recovery” and finding “new lithium uses,” is actually a signal SQM intends to maintain its dominance. If that means sacrificing profits to do it, that means sacrificing short-term gains for long-term market share to do it.
More importantly, this is why we continue to cover lithium investing in the Prosperity Dispatch investment newsletter. The lithium boom is coming. When the largest lithium producer is cutting prices to maintain market share and stifle emerging competition, it clearly sees the value in ensuring it has a big piece of the lithium prize in the years ahead.
When a company is willing to go to great lengths (cutting lithium prices will not be popular in the near-term with SQM shareholders) it’s a clear tipping of the hand there is a potentially big opportunity here.
