As any Apple or Tesla analyst would tell you, the increasing popularity of lithium ion batteries present certain risks to manufacturers and their suppliers, who need these metals to build batteries that power everything from smartphones to electric vehicles.
Reports on the trend bubbled to the surface last week following reports that Apple is in talks to buy cobalt directly from mines in tan unprecedented move to go around its suppliers and take responsibility for securing its own suppliers of the increasingly rare metal.
Rising demand for metals like cobalt and lithium have caused their prices to skyrocket over the past 18 months. While most analysts believe there’s enough lithium in the earth to last humanity for centuries, miners haven’t ramped up production in line with demand – in short, many companies are playing catch-up to the market.
Back in October, we noted what Bloomberg called “the Mad Scramble for Lithium Mines From Congo to Cornwall” a story about how penny-stock miners were recasting themselves as lithium pioneers.
Following the Apple news last week, it’s unsurprising that MacroVoices host Erik Townsend and Sprott Global Resource Investments’ Rick Rule focused on the impact of advanced battery technology on the market for industrial metals like cobalt and lithium. Rule, who is famous for his exacting approach to natural resources investing which sometimes brings him out to the mines themselves, said he agrees that rising demand for lithium ion batteries, which power so many contemporary consumer products and essentials, will spur a concommitant increase in prices for lithium, cobalt, nickel and copper (something we pointed to last week when we explored the impact of batteries on the soaring price of cobalt).
Rule points out that it’s difficult to formulate a bullish trade on lithium because of the many complexities of markets for these minor industrial metals, which until very recently have been of secondary importance to the largest miners.
With metals like lithium, prices aren’t rising because of a paucity of supply – indeed, there’s plenty of lithium to go around. They’re rising because mining companies haven’t dedicated enough resources to mining lithium.
If you were, as an example, a rare earth consumer. If you were the purchasing agent for some technology company that relied on rare earths in your supply chain, you would rather buy rare earths from one of the larger mining companies in the world rather than from a rare earth startup that might be able to offer you lower prices. Because security of supply is of much more importance to you than anything else.
In the technology metals, very often the companies that are important to the supply are companies that are so large that the metal is unimportant to them. So developing an investment theme in the minor markets is very, very difficult.
It’s interesting to note as an example that, although the case for lithium, as expressed by physical demand for lithium in the last three years, has been extraordinary, the same four companies dominate lithium supply now as they did before.
Secondly, what we’ve learned in the case of lithium is that we don’t have a problem with lithium supply. The world is awash in lithium. What we have is a shortage of fabrication capability to extract the lithium from known reserves and resources.
Indeed, the theme of green energy is a very important theme in the natural resource market, Rule said. It could even be the most important theme. Rule predicts that the demand for lithium and cobalt will be “so extraordinary” because of the demand for batteries that he and Sprott can’t help but be interested in these markets.
Soon, these batteries will be used in everything from electric vehicles to smart watches…
We think that other technologies will be developed. But we think the demand for batteries, for many applications of all types, will be so extraordinary that we are interested in lithium. We’re interested in nickel. We’re interested in copper. We’re interested in cobalt. And, believe it or not, we’re still extremely interested in lead.
The ability to store energy on a distributed basis, closer to where it’s produced, is one of the literally next stops in the assent of man. Having the ability, as an example, to generate power off the grid. Having the ability to actually utilize, on an economic basis, alternative energies – things like solar power when the sun doesn’t shine, the application of battery technology in applications as small as a watch and as large as a major municipality in the Sun Belt, like Las Vegas – is such that we’re attracted to battery and distributed power storage technologies of all types and utilizing all materials.
Despite public sentiment shifting against it, Rule believes nuclear power will play an important role in humanity’s energy future, despite disasters like Fukushima and Chernobyl – and even with all the attention that has been paid to the nuclear weapons programs of Iran and North Korea.
In the near term, the price of nuclear stocks and uranium itself will revolve around Japan, Rule said.
The near-term question about nuclear power really revolves around Japan. The Fukushima disaster did two things. One, it made people, arguably, very nervous – and rightly nervous – about the efficacy of current nuclear standards on a global basis.
And, from the market’s point of view, it took 15 or 16 million pounds of demand out of the market and added 100 million pounds of inventory as supply. In the near term, the price of uranium will be determined by the pace of Japanese reactor restarts. We have eight restarted now, with about 30 in the permitting phase.
I’d like to go to an earlier part of your question, though, where you talked about the safety of nuclear power. If we looked at nuclear power safety from a statistical point of view relative to other kinds of energy, and we asked ourselves how many people got electrocuted every day, are we prepared to make electricity illegal? Or, if we thought about the real risks associated with flammables like natural gas, and how many people die every year of various accidents associated with natural gas.
If we were going to pay attention to science and arithmetic, we would advance nuclear power, relative to natural gas and electricity.
Following their discussion of nuclear energy and the future of uranium pricing, Townsend posed a much broader question: What will be the most important themes in the natural resources market in the coming years and decades.
Rule’s answer might reinforce readers’ anxieties over the availability of water – something that’s already been widely discussed because of Cape Town’s looming “Day Zero.” Rule even went so far as to call water “the most mispriced commodity on Earth”.
The third place – and this is very much more difficult to implement – is water. Water is the most mispriced commodity in the world. Because water is allocated politically. It is believed to be a right, as opposed to a commodity. The consequence of that – as an example, here in the US Southwest, we have taken sources of water, like the Colorado River, and we have allocated approximately 130% of the flow of the river to various claimants. This is sort of hard on the river. You have a circumstance where water flows uphill to votes rather than downhill for money. And you can’t allocate something that doesn’t exist.
And also because of the structure of the American water business. Because of the fact that most of it is delivered politically rather than via markets. The rents that go to water, while they are insufficient to maintain supply, go to municipalities. And they go to fund current political goals as opposed to maintaining the infrastructure for the production and distribution of water.
It is believed, on a country-wide basis, that we have deferred as much as 3 trillion dollars in sustaining capital investments in the water business. I can’t tell you when this theme comes home to roost. But when it does come home to roost, this might be one of the great resource themes of all time.
Listen to the full interview below:
via Zero Hedge http://ift.tt/2HLQVG3 Tyler Durden