Supply Demand Curve Suggests Big Oppurtunity in Green Tech Metals

April 22, 2023No Comments


Today we are going to talk about metals. Specifically, we’re going to talk about metals that relate to the green movement. So that would include EVs, electric vehicles, solar, wind, that kind of thing. So all of these green power alternatives require special types of metals, and we’re going to talk about the growth of those types of energy producing and energy using structures and the supply-demand curve for the metals and where they’re coming from. And we’re going to get into some global stuff too. So I want to start off by thanking Bear Traps, which is a research company that I am a subscriber to. ValueTrend has subscribed to Bear Traps for, I’m going to guess, around five years now.

And it has literally been very eye-opening research that we readily endorse. They’re not always right, sometimes they’re contrarian and they get a wrong call. But nine out of 10 times, I would say, they’re onto something and I think they’re onto something here. And so this blog was inspired by a research report that I read coming out of Bear Traps and I do want to give them credit because I stole some of their charts and I have to give them credit for that anyways, and they deserve it because they’re a really, really well structured, well thought out, super smart research firm.

So EV and other green type metals outlook. So first of all, let’s look at the electric vehicle forecast. And I really am impressed by this chart. This is again from Bear Traps. In 2023, this is the amount of sales projections for electric vehicles. Take a look just seven years from now. Look at the difference. We’re talking literally 400% or more increase in sales of these type of vehicles. Why? Because governments here imposing them upon us, whether we like it or not. And of course, going out to 2040, the curve is insane. So that’s great. So let’s talk about where the base metals that are going to be used to produce, for example, an electric vehicle and its battery. So obviously beyond the steels and whatnot that you need to formulate the body, there’s certain metals that are used in the construction of a battery such as nickel, cobalt, lithium, and other rare earth products.

So they’ve got to be mined. These are the four steps, again, from Bear Traps. Four steps, mining, then they’ve got to be processed and then they’ve got to be turned into battery components and then the battery cell itself is produced. So that is the four stages. You could look at all four of these stages and try to find companies that are involved with pulling the metals out of the ground, processing them, and then turning them into batteries. These are the stages and there’s companies that are involved with each one of these steps. So that’s one of the things we should be keeping in mind as we think of this trend. Now, some really interesting facts, and this is a kind of a very wordy screen I have in front of you, but I want you to pay attention because this is really important. Right now China controls basically between 70 and 100% of all of the processing of many of these metals and products that are used to make solar, wind, and electric vehicle production.

So they in fact make 75% of all the electric vehicle batteries produced in the entire world. The fact is that China has created a dominance in the mining and processing and development of these products. This was a strategy that they began in a very well planned out strategy several years ago so that the Chinese Communist Party could dominate the transportation energy and technology of those green technology factors. So really important to understand that there’s been a plan behind this, that it’s not been an accident, that they’re dominating the space right now. Now why is that important that China’s dominating that space? I’m writing this on, I think, the 13th of April. So about a week ago Nika reported that China is considering prohibiting exports of certain rare earth magnet technology.

So in other words, the magnets that are used in the wind power machines that you’ll see in farmer’s fields all over the place are the technologies coming out of China. Well, if they restrict or prohibit exports, where are we going to be looking? So the US is trying to address this right now by trying to find friend shores, so onshore rather than offshore friend shores, for some of the technologies and reduce their reliance on China because China is obviously got a few things up their sleeve. We’ve seen that in Canada. China, as you know, we just discussed, has presence in many of the materials for EV production and the other that we just saw, the metals used in magnets and whatnot. And this may be a factor why China has been funding through the Chinese Communist Party politicians that are friendly to their cause.

And that’s been all over the news right now. Why is that happening? Why does China have any interest in Canada? Well, it is because Canada has got a mining industry of its own and it would be a friend shore to the US and to Europe and other countries. We produce potash, which is not used in EV but it’s certainly used extensively in food production. We produce cobalt, which is definitely one of the factors that are used in the new green technology, nickel and copper. I’ve outlined uranium, nickel and copper, but particularly nickel and copper because we’re going to be talking about that in a minute. But uranium too is part of that green energy because nuclear, even though that was considered non-green a few years ago, now we’re realizing it is actually a very green technology for power production. You’ve got to produce power if you’re going to run an electric vehicle.

So we’re going to talk specifically about nickel and copper in a minute but there are other countries that we’re going to be looking at in the future based on these trends and that can include Brazil as well as as good old Canada. So it’s interesting that we are one of those countries that can offer alternatives to China in some areas. Now the demand, as you can see, for these metals is expected to increase by 70%, specifically nickel, copper, and platinum, which are used in the batteries. So you can see this is 2020 and here we can see just seven years from now, the demand for nickel, for example, which is this gray bar, is drastically higher. Copper as well is hugely higher, and platinum as well. So you can see it going up to 2040 and you saw that EV chart, you know, through the roof.

But even in the next seven years, this is really important because I don’t like to think in terms of 20 years from now, I like to think of what’s going to happen in the very near term because that’s where the trade is. And you can see there’s building momentum. So we’re going to look now at the supply demand curve. So that’s great. There’s more demand coming up. Well how about the supply? Because if supply meets that demand through production, then prices aren’t going to go up. This is economics 101. So let’s look, this is again supplied by Larry over at Bear Traps, and you can see this is a one-to-one ratio. So lead, you actually can produce more than what’s needed, definitely at one to one. One ounce of lead needed, definitely an ounce of lead is being produced.

But we go down to graphite, cobalt, vanadium nickel and nickel made here in Canada, good old Sudbury, lithium, which is another one of these major products rare earth over here. The supply is less than demand. Anything less than one is projection by 2030. In other words, if the curve is that we can’t supply based on projection of production by 2030 to meet that demand, prices are going to be higher. So you don’t want to own stuff at this end of the world because we’re basically making pretty much as much zinc as we need. But boy, do we ever need nickel and Canada has that. We need cobalt, stuff like that. So keeping these things in mind. It’s not just the demand. People look, oh yeah, EV’s are going to go through the roof. Everybody’s going to have windmills in their local farmer’s backyard and an electric vehicle in the driveway.

Well, so what if we can produce as much as we need of these products, but in some of these products we can’t. And you can see that on this chart, very important. You’ll have to look at both sides of supply and demand, not just the end result of the EVs and whatnot. So next thing, I want to look at is the chart of the S&P Metals and Mining, which includes basically everything, all the base metals including some precious metals. What you’re seeing here is that there’s this very, very long term trend like going way back to 2007, like before the 2008 crash, and you can see that there’s a bit of a lid on the index and we’re approaching that lid, but we have some room to go. So I will disclose that at ValueTrend, and if you read my blogs, you know I’ve been talking about metals for a few months now.

We started moving back in a few months ago and it’s been so far an okay trade and we think we’re going to get up into this zone. So the question from that point is, this is the overall metals picture, but what about those ones on the far right hand side of that supply-demand scale that we just saw? That’s where we’re thinking the juice is going to be made after the group itself hits its long-term lid. So we want to be very aware of that. Now these are just some conclusions that I’ve put together that in the near term we’ve got some upside on basically the whole metal group. That includes steel and stuff like that. That’s kind of the basic stuff. But we also have the potential based on supply-demand dynamics to see either a breakout on the whole group or in the specific metals that are needed for the new green movement.

Now again, China has purposely worked on dominating the transportation energy and technology area and we talked about what’s happening in Canada surrounding that and the US and the European Union will be looking for alternatives because they’ve got problems with Russia. So the three key elements that are going to be used in the largest degree according to Bear Trap’s research are nickel, copper, and platinum. These are key elements and the supply demand curve is expected to have a shortage based on what is needed to meet the sales of these new products, be it windmills, solar panels or cars. So beyond China and Russia, which are no longer really our allies at all, we have to look at other countries and I did a quick search on what countries are producing metals. Now these are not the only countries, so it doesn’t mean you run out and buy the Peru ETF, if there is one.

I know there’s a Chile ETF for example. It means that you look at these in addition to others that are producing the metals that you want to be involved with. So Chile, Peru, Indonesia, Philippines, South Africa and Australia as well. So these are all producing these metals, copper, platinum, nickel that we want to be looking at. And interestingly enough in some of these cases, Canada too. So there’s hope for Canada. Here’s what I’m saying. So I hope this gives you food for thought and that maybe inspires you to do some research on who’s producing what and we can start positioning portfolios. And even if you do have that 5, 6, 7 year horizon, these might not be bad things to start looking at for a longer term trade. Not to mention the shorter term trading possibilities on any of these producers or the metals themselves. This was not a blog to give you specific buy this now advice. It’s more to stimulate you to do some research and I hope it’s done so.

 

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