Recently, we saw companies leveraged to energy metals — lithium and cobalt in particular, but others as well — fall off a cliff. This was due to a shocking report from Morgan Stanley.
They’re wrong, I’m right … and you can profit from this.
So, what’s the scoop? In late February, some Morgan Stanley analysts had more starch in their collars than common sense. They said that the price of lithium carbonate would plunge 45% from current levels to $7,332 per metric ton in 2020.
Why did they say that? Maybe they believe it. Maybe so they could buy great stocks on the cheap.
Meanwhile, back in reality, the supply/demand squeeze is going to get tighter before it gets better.
Morgan Stanley aside, other analysts are rolling out predictions of tight and tighter lithium markets for the next few years. Driven by surging demand from the electric vehicle megatrend.
- Transparency Market Research said demand for lithium globally is projected to rise at a compound annual growth rate (CAGR) of 11.6% from 2016 to 2024.
- HSBC added that lithium demand exceeded 200,000 metric tons in 2017 — more than anyone was expecting. And demand should climb above 600,000 tons in 2025. That’s a CAGR of 14.72%.
- FMC Corp. (NYSE: FMC), a lithium producer, says it expects lithium demand to grow from 200,000 tons in 2017 to 335,000 metric tons by 2020. And then — 1 MILLION METRIC TONS by 2025.
Imagine I said that last number with my pinkie finger tucked in my mouth, a la Doctor Evil.
Kidding aside, that’s a CAGR of 22.28%. Holy freakin’ smokes!
Now, these are all projections. We don’t know who will be right. But so far, lithium demand has exceeded projections every year.
But those are analysts. What matters is boots-on-the-ground, right?
That’s good. Because Sociedad Química y Minera de Chile (NYSE: SQM) recently reported on the markets. It said that lithium demand grew stronger than expected last year. It added that supply for the first half of this year looked drum-tight. And SQM acknowledged that new supply didn’t reach the market as fast as the industry promised.
Why? Because a couple big-name projects have run into funding trouble. That’s no surprise for anyone who is used to mining — between one-third to one-half of all mining projects suffer serious setbacks. But this emphasizes the squeeze coiling around the lithium market like a hungry python.
And that leads to a lithium price chart like this …
That chart shows that lithium prices rose 213% from the beginning of 2015 through today. More than doubled! And the price is still holding strong.
And that’s great. I’m happy. Heck, SQM is one of my recent picks in Wealth Supercycle. I recommended it when SQM joined the rest of the sector in diving off a cliff. I knew the EV megatrend was driving the energy metals supercycle. So SQM’s share price would bounce like it was made of Flubber. And it has.
But here’s the exciting thing: Lithium isn’t the most exciting energy metal.
A Cobalt-blue Tidal Wave of Demand
Here’s another chart I grabbed from Bloomberg.
Lithium prices doubled in three years, right? Well, cobalt prices tripled in the past two years. What’s more, this chart shows that cobalt just broke out to a new high. Indeed, it’s a 40-year-high.
See, most of the world’s cobalt comes from the Democratic Republic of Congo. It’s a terrible place. Along with its humanitarian woes, the government there is getting awfully grabby about mining revenues.
Related story: Bungle in the Jungle
So, no one is enthusiastic about opening new mines in the DRC. And that makes small juniors elsewhere in the world the potential cobalt kings of tomorrow.
Do I have a list of those companies? You can bet your cobalt-colored crumpets I do.
How strong are cobalt prices? So strong, that Glencore had a chance to lock in a deal to sell about a quarter of its cobalt output to Chinese firm GEM. But Glencore walked away over prices.
Glencore knows it can find other buyers. Heck, Ford wants to build 40 electrified models by 2025. Now add in the demand from GM, Volkswagen, Toyota and all the Chinese auto manufacturers.
That is a cobalt-blue tidal wave of demand.
The bottom line is cobalt buyers have no pricing power. Producers like Glencore hold all the cards.
And now you want the really exciting news? Lithium and cobalt aren’t the only two energy metals.
Nickel Looks All Shiny
Let’s look at nickel, for example.
Oh, there’s a heck of a lot of nickel in a li-on battery. Sure, that’s still a very small part of global nickel demand. About 4%. But it’s growing.
Growing enough, maybe, to trigger a price chart like this …
You can see the price of nickel has zig-zagged higher. In fact, prices recently hit the highest levels since early 2015.
Now, look at the bottom of the chart. Stockpiles at the London Metals Exchange are falling. Orders to remove the metal from LME warehouses jumped the most in five years.
I’ve added a yellow line that shows warrants for storing nickel at the LME. They’re being canceled left and right. This is an indicator of future storage. And it’s bullish for prices.
Now, there are many things that can influence nickel demand. For example, if the world spirals into a trade war, that would be bearish. But you can bet your bottom dollar that the constant pressure from li-on battery producers will be a bullish force.
Meanwhile, nickel supply is supposed to increase this year. But it’s the wrong kind of nickel! The increase is in nickel pig iron. Not the nickel sulphate prized by battery manufacturers.
So, there you have it. Three metals doing very well from the EV megatrend, and the energy metals supercycle.
There are lots of ways to play it. I’ll add more picks in Wealth Supercycle. Do your own due diligence. But great stocks are on sale since Morgan Stanley’s “Chicken Little” call.
Don’t miss that opportunity … and don’t miss out on this extraordinarily profitable move.
All the best,
Sean
