If I Had a Nickel; Let’s Talk Commodities
As noted in last week’s newsletter, the recent IPCC report, Mitigation of Climate Change, outlined the enormity of the challenge the world faces to limit global warming to 1.5°C above pre-industrial levels. While we previously touched on the up-and-coming technological solutions of carbon capture and sequestration, this week we’ll be discussing the even sexier subject of commodities.
Key to the rollout of critical green technology — from wind turbines to batteries for electric vehicles (“EVs”) and energy storage — are metals and minerals. This includes lithium, copper, nickel, zinc, polysilicon, cobalt, and more. According to the IEA, reaching net zero by 2040 will require a six-fold increase in mineral inputs, with demand for some metals such as lithium growing 40x. These inputs have recently experienced historic volatility, decreased inventory, and record-breaking prices, putting the acceleration of the transition in a precarious position.
- The price of lithium is now floating around $80k per ton, up from $10k in 2020. This is leading lithium batteries to halt their decade long cost decline trend and actually increase 10–20% this year. Tesla and other EV manufacturers have already bumped up their prices in response.
- In March, the price of nickel went vertical, surging 250% in just 24 hours. The historic short squeeze — prodded by Russia’s invasion of Ukraine (as Russia is the world’s third-largest producer nickel) — caused trading volumes to collapse on the London Metal Exchange, setting up a liquidity crisis in the market for this critical industrial commodity.
- Output of copper has also been substantially reduced due to water shortages and worker unrest in Chile, the world’s top producer. In March, the metal reached an all time high of $5/lb.
- Zinc hit a 14-year high in October 2021 and has held at that price, currently 11.5% above the 5-year average. Skyrocketing energy prices in Europe are further tightening up supplies as some smelters have shut down in response.
- Since the beginning of 2020, the price of the PV-grade polysilicon used in solar panels has more than quadrupled, with fluctuations anticipated to remain through late 2023 as supply works to catch up with demand.
At the end of March, President Biden invoked the Defense Production Act to provide support for domestic mining of critical materials, specifically lithium, graphite, nickel, and manganese. This move serves to not only meet the administration’s climate goals but also to act defensively against China which currently controls 75% of the supply chain of all metals required for batteries.
Unfortunately, increasing production capacity requires time, time the world doesn’t have to spare. It takes 2–3 years to expand an existing mine and 5–7 to open a new one. Therefore, while this expansion is necessary, its benefits won’t be felt in the immediate term. Some companies are looking ahead and bringing in new technology to alleviate some of the pressure. Take Ford, which recently signed a non-binding agreement to purchase 25k tons of lithium from an Australian mining company using tech from Lilac Solutions. Lilac reports that its lithium-ion exchange technology can recover 2x the lithium with 0.1% of the acreage. As the accelerating energy transition continues to mount the pressure for these critical materials, it’s likely we’ll continue to see breakthroughs such as Lilac’s come to market. FWP is keeping a finger on the pulse of these movements, but sustainable commodities certainly present us with a challenge that we’ll continue to dig into.
Madelyn O’Farrell, Analyst, Private Investments
EV winners will likely be determined not by who has the best tech but by which players have the materials to get their cars to market. Not all that surprisingly, Elon Musk has thrown around the idea of Tesla getting into the lithium mining business in order to control its own supply.
What else could alleviate pressure on mines for raw materials? The development of closed loop supply chains. From lithium battery recycling by Redwood Materials or Li-Cycle, to the world’s first recyclable wind turbine blades from Siemens Gamesa, keeping these materials in use not only reduces waste but helps the world ensure that it has the materials it needs for a decarbonized economy.
This NPR Morning Edition podcast from March dives a bit deeper into automakers partnering with mines for the raw materials needed for EVs, from GM investing in a California mine, BMW buying lithium from an Australian mine, and Volkswagen signing contracts for a lithium mine.
This newsletter is intended solely for informational purposes, and should not be construed as investment/trading advice and are not meant to be a solicitation or recommendation to buy, sell, or hold any securities mentioned. Any reproduction or distribution of this document, in whole or in part, or the disclosure of its contents, without the prior written consent of Flat World Partners is prohibited
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