Aluminum-lithium alloy is a material that is seeing increasing demand in aerospace and other industries. This is due to some of the properties of this alloy. Aluminum-lithium is both stronger than standard aluminum and lighter. These traits are ideal for the aerospace industry because low weight and strength are crucial when building a high-performance airplane, a transatmospheric vehicle, or anything else that is designed to fly.

The automobile industry may also be interested in this compound as its strength allows the vehicle to keep its occupants safe while its reduced weight allows for improved performance, particularly from electric motors.

Play by investing in lithium
There are a few ways for investors to profit from the growing demand for this alloy. One way would be to invest in aluminum producers such as Rio Tinto (NYSE:RIO). However, a better way is to invest in the world's largest lithium producer, Sociedad Quimica y Minera (NYSE:SQM). This is because the lithium market is much more centralized than the aluminum market. Sociedad Quimica y Minera controls one third of all the world's lithium reserves. This concentration ensures that Sociedad Quimica y Minera will benefit from any increasing demand for lithium.

Stock cheap due to weakness in fertilizer
Sociedad Quimica y Minera's primary product is potash and other specialty fertilizers, and this market has been fairly weak lately. This has served to hold down the company's stock price. Despite the stock price being at least partially dependent on the strength of the company's potash and fertilizer business, the company's biggest growth opportunities are in lithium.

Lithium is already in high and growing demand due to its energy storage properties that make it ideal for use in batteries for laptops, smartphones, tablets, and electric cars. Now that aluminum-lithium alloy is beginning to grow in popularity, demand for lithium will only grow further.

The richest sources of lithium in the world are found in South America, high in the Andes Mountains of Bolivia and in the Atacama Desert (which is essentially a plateau in the Andes Mountains.) The Atacama Desert is where Sociedad Quimica y Minera's base of operations is, so this explains why the company has so much lithium and produces more than anybody else.

Not a publicly traded commodity
Unlike many other metals such as aluminum, copper, and even potash, lithium is not traded on any commodity or futures exchange. As a result, lithium producers are free to set their own prices for the metal. Of course, the lithium market is still subject to the laws of competition and supply and demand, so any single producer, even one as large as Sociedad Quimica y Minera, cannot set prices so high that nobody will buy the material.

With that said, lithium prices have been rising due to the strong demand for it compared to the more limited supply. Sociedad Quimica y Minera has benefited from this trend, although the increased revenues that it derived from these higher prices have been offset by the entrance of more producers into the market. Sociedad Quimica y Minera remains the largest lithium producer in the world, and its substantial reserves will enable it to keep that position for a long time.

As the use of aluminum-lithium alloy becomes more prevalent, demand for and prices of lithium will climb. This will cause Sociedad Quimica y Minera's lithium-sourced revenues to continue to climb as well.

Significant advantages due to scale
What is preventing even more suppliers from coming to the market should the rising popularity of aluminum-lithium cause demand for lithium to surge further? Well, one thing is that the world's reserves of lithium are much more limited than its reserves of other materials, particularly outside of the Atacama Desert.

For many years, the world was believed to contain about five million tons of economically recoverable lithium. However, one analyst today believes that the world contains about 28.4 million tons of economically recoverable lithium, nearly all of which is located in the Atacama Desert. If this is true, then Sociedad Quimica y Minera could potentially have nearly all of the world's lithium at its doorstep. Thus, it would be pretty much impossible for other suppliers to keep increasing their production over the long term because they simply will not have the resources to do it.

Foolish takeaway
The rising demand for aluminum-lithium alloy is going to cause demand for lithium ore to surge over and above the effect that the growing demand for lithium batteries is having. Sociedad Quimica y Minera is very well positioned to profit from this trend due to its enormous reserves and position as the world's largest producer of lithium.

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Daniel Gibbs has no position in any stocks mentioned. His research firm, Powerhedge LLC, has a business relationship with a registered investment advisor whose clients may hold positions in any of the stocks mentioned. Powerhedge LLC has no position in any stocks mentioned and is not a registered investment advisor. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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