If I were to make a wager, I’d say that nine out of 10 investors have never even heard of cryolite. But it’s undoubtedly one of the world’s scarcest natural resources.

Commercial quantities only exist in one place on the planet (the western coast of Greenland). After years of dwindling production, the well finally ran dry in 1987, and mining activity ceased altogether.

It is said that cryolite is the only resource to ever be mined into “extinction.” Given that rarity, the mineral must be extremely valuable, right? Well, not really, because nobody is interested in buying the stuff anymore. Cryolite was mainly used as a solvent to help separate aluminum from bauxite ore. But when supplies started to run low, a synthetic substitute was developed. So now, it’s little more than a curiosity.

It may seem counter-intuitive, but some of the world’s rarest resources don’t really generate that much wealth. Conversely, many that do (like iron ore) aren’t terribly scarce. That’s because supply is only half the picture. As we all know, it’s the relationship between supply and demand that influences prices.

I was thinking of all this recently when I ran across news of a new petrochemical plant being built by Exxon Mobil (NYSE: XOM) near Corpus Christi, Texas. The massive facility (which will occupy 1,400 acres and cost nearly $10 billion to construct) will have the capacity to produce a staggering 1.8 million tons of ethylene per year. Far from scarce, the output from this one facility alone will be enough to fill 576,000 Olympic-sized swimming pools.

But then again, this isn’t cryolite. We’ve already seen a tremendous wave of petrochemical project expansion and development on the U.S. Gulf Coast in recent years. But incremental capacity has been absorbed and global buyers remain hungry for more. The top bosses at Exxon are wagering $10 billion that global consumption of this critical compound will continue to rise.

And I’m betting they’re right.

What The Heck Is Ethylene?

For the past few weeks, I’ve been focusing a lot of my attention on writing about what’s going on in the Permian Basin in West Texas. That’s because we’re on the verge of another major oil boom (not to mention a wave of M&A deals) that could hand investors the chance for big-time profits.

But the truth is, I’m seeing a lot of opportunity in commodities and chemicals as well. And ethylene is just one of them. So I want to spend some time today discussing what exactly it is — and how savvy investors could potentially profit…

In its purest form, ethylene is a naturally occurring hormone in fruits and plants that regulates growth and promotes ripening. But suppliers don’t exactly walk out into the field and collect it with mason jars. Large-scale manufacturing is a bit more technical and typically requires steam cracking. This aptly-named process involves the use of steam to heat and crack the molecular bonds of liquid petroleum-based feedstocks, allowing for ethylene gas to be separated.

From there, this intermediate compound is sometimes sent through production lines (known as trains) for cooling and polymerization treatment, resulting in polyethylene pellets – the raw building blocks of plastics. Downstream processing plants mold these pellets into usable products such as polyethylene terephthalate (PET).

This wonder material (first discovered by DuPont scientists in the 1940s) possesses many important attributes. It’s clear, strong, and inert – almost like glass, but lighter and shatter-proof. Naturally resistant to contamination and spoilage, it’s the ideal packaging material for countless foods, beverages, and household products.

Salad dressing, peanut butter, cooking oil, apple juice, ketchup, aspirin, and shampoo, just to name a few. Walk into any supermarket or convenience store, and virtually every bottled water or two-liter soft drink you see will be packaged in this stuff.

And consumer packaging is just one application. There are countless other industrial uses. Ethylene is also used to make polyester fibers, a key material for textile production. And it’s the secret ingredient in automotive antifreeze. Welders value oxyacetylene fuel for its high combustion temperatures, just as LNG plants rely on ethylene-based coolants. Then there is ethylene dichloride, which is used to make PVC pipes and wiring, ubiquitous in the plumbing and construction fields.

Toys. Lubricants. Paints and coatings. Specialty glass.

Put it all together, and you can see why ethylene has been dubbed “the world’s most important chemical”.

A Unique Supply/Demand Setup

In decades past, most of the world’s supply came from the Middle East. That stands to reason, considering the fuel that runs these plants (Naptha) is derived from crude oil. But natural gas liquids (namely ethane) are another acceptable feedstock. And the U.S. is swimming in shale gas — we produce about 90 billion cubic feet per day.

So this homegrown fuel source is plentiful and inexpensive. Prices were recently in the neighborhood of 15 to 20 cents per gallon (three cents per pound). The cheaper the input, the more profitable the output — which explains why tens of billions in capital have been pumped into new cost-advantaged facilities across Texas and Louisiana.

_{Source: EIA}

As you might expect, U.S. production of ethylene has grown steadily higher. According to the Energy Information Administration, output has climbed from 27 million tons in 2013 (when the first new additions went online) to approximately 40 million today.

Global consumption has now topped 200 million tons annually and generally expands faster than GDP. With the global economy projected to expand at a healthy 4% pace this year, ethylene usage could grow by perhaps 8 million tons or more.

Action To Take

But what about pricing? Well, that would normally be the first question asked when evaluating a portfolio candidate in the commodities space. But in this rare instance, it’s not really much of a factor. That’s because my most recent recommendation over at High-Yield Investing pre-sells nearly all of its output at a fixed margin. Not a fixed price (which can be eroded by rising costs), but a fixed dollar amount above and beyond expenses.

This sales agreement removes most of the guesswork, giving shareholders a clear line-of-sight into a dividend distribution that has tripled since the company was created. (And best of all, it currently yields 7%…)

I won’t share the name of this particular pick out of fairness to my premium subscribers, but it’s far from the only name involved in ethylene. Exxon Mobil (as previously mentioned), Dow Chemical (NYSE: DOW), Lyondell Basell Industries (NYSE: LYB), and Royal Dutch Shell (NYSE: RDS-A) are other names worth considering.

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