China’s lithium war

China spent 15 years fighting tooth and claw to corner the market in rare earth metals. Now it’s gearing up for battle over a new metal, this time in the desolate salt-flats of south-western Bolivia. It is wrestling with Japan for rights to mine the region’s vast deposits of lithium – a mineral used in batteries that power everything from laptops to electric cars.

A reliable source of lithium would allow the Japanese to continue producing batteries for the world’s laptops, digital camera and mobile phones. China on the other hand spies an opportunity to seize control of the electric-vehicle market as the US and German car industries struggle with the recession.

But president Evo Morales is in no mood to relinquish rights to such a prize resource.

The Salar De Uyni salt plain is home to half the planet’s known reserves of the metal, so he can afford to wait for the best deal. According to Leo Lewis in The Times, Beijing’s efforts to butter up the authorities in La Paz have already included a donation of cash to help build a school in the town where Morales was born and a gift about 50 military vehicles.

The loser will almost certainly be forced to scour the earth for other lithium deposits. With the auto-industry looking to bring lithium-powered cars to market over the next two years, the handful of outfits who control the market in this scarce metal could have a field day.

“There are enormous possibilities for profits,” says Steve James on Reuters. Sociedad de Chile (NYSE: SQM) – based in Santiago, Chile – is a world leader in the production of lithium carbonate and a number of other speciality chemicals, and leads the world in lithium production, too, with a more than 30% market share.

It’s not cheap – valued on forward p/e of 20 and offering a 2.5% dividend – but given its prime position in this important market, it looks worth having some at least some exposure to.