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David Fuller and Eoin Treacy's Comment of the Day
Category - Precious Metals / Commodities

EV makers' battery choices raise questions about future cobalt demand -

This article from S&P Global Platts was written in November but includes some useful information about the outlook for battery chemistries. Here is a section:

In May, Volkswagen acquired a stake in Chinese battery supplier Gotion-High Tech, one of the country's largest suppliers of LFP batteries. However, Volkswagen told Platts by e-mail that it currently does not plan to use LFP in its cars, although the company is "verifying that technology and its opportunities."

Another German automaker, BMW, recently expanded its battery plant in Tiexi, China, but reportedly to produce nickel-cobalt-manganese (NCM) batteries for the iX3 model. The company's primary goal at the moment is to increase driving range, but lowering costs will be a priority in the future, BMW told Platts by e-mail.

"In this conflict of objectives between range and cost, it is more important than ever to completely penetrate all actuators, starting with raw materials, cell chemistry, cell and module construction, and optimizing their entire interactions," BMW said, without dismissing any specific kind of cathode chemistry.

Some western market participants still argue that LFP should be restricted in the future to Chinese low-range city cars, as well as energy storage systems. Most of the investment is still flowing into NCM technology, which will maintain cobalt's relevance, sources said.

Even Tesla, despite committing to completely move away from cobalt and employing LFP in its Chinese-made Model 3 Standard Range, still uses NCM 811 (8 parts nickel, 1 part each cobalt and manganese), supplied by LG Chem, in the Model 3 Long Range version produced in Shanghai.



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Corn Supply Squeeze Sends Prices Soaring, Risking Food Inflation

This article from Bloomberg may be of interest to subscribers. Here is a section:

Corn futures rose to a seven-year high a day after the U.S. slashed its forecast for domestic stockpiles more than expected, adding steam to a rally fueled by Chinese demand for grain and soybeans.

The U.S. Department of Agriculture’s cut in the corn-inventory forecast to a seven-year low means world supply is tighter than expected at a time when Chinese demand shows little sign of letting up and South American growers face drier-than normal weather. Brazil’s crop agency on Wednesday lowered its estimates for corn and soybean output. Global food prices have been rising and stronger grains means further inflation is likely.

“Corn markets should stay bid this winter,” given Chinese demand and risks to Brazil’s harvest, Citigroup said in a note.



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Precious Metals: Easy come's "But for how long will easy stay"

Thanks to a subscriber for this report from RBC which may be of interest. Here is a section:



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Waiting For The Last Dance

Thanks to a number of subscribers for this article by Jeremy Grantham which may be of interest. 

The strangest feature of this bull market is how unlike every previous great bubble it is in one respect. Previous bubbles have combined accommodative monetary conditions with economic conditions that are perceived at the time, rightly or wrongly, as near perfect, which perfection is extrapolated into the indefinite future. The state of economic excellence of any previous bubble of course did not last long, but if it could have lasted, then the market would justifiably have sold at a huge multiple of book. But today’s wounded economy is totally different: only partly recovered, possibly facing a double-dip, probably facing a slowdown, and certainly facing a very high degree of uncertainty. Yet the market is much higher today than it was last fall when the economy looked fine and unemployment was at a historic low. Today the P/E ratio of the market is in the top few percent of the historical range and the economy is in the worst few percent. This is completely without precedent and may even be a better measure of speculative intensity than any SPAC.

This time, more than in any previous bubble, investors are relying on accommodative monetary conditions and zero real rates extrapolated indefinitely. This has in theory a similar effect to assuming peak economic performance forever: it can be used to justify much lower yields on all assets and therefore correspondingly higher asset prices. But neither perfect economic conditions nor perfect financial conditions can last forever, and there’s the rub.

All bubbles end with near universal acceptance that the current one will not end yet…because. Because in 1929 the economy had clicked into “a permanently high plateau”; because Greenspan’s Fed in 2000 was predicting an enduring improvement in productivity and was pledging its loyalty (or moral hazard) to the stock market; because Bernanke believed in 2006 that “U.S. house prices merely reflect a strong U.S. economy” as he perpetuated the moral hazard: if you win you’re on your own, but if you lose you can count on our support. Yellen, and now Powell, maintained this approach. All three of Powell’s predecessors claimed that the asset prices they helped inflate in turn aided the economy through the wealth effect. Which effect we all admit is real. But all three avoided claiming credit for the ensuing market breaks that inevitably followed: the equity bust of 2000 and the housing bust of 2008, each replete with the accompanying anti-wealth effect that came when we least needed it, exaggerating the already guaranteed weakness in the economy. This game surely is the ultimate deal with the devil.



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China's Steel Plan Puts Challenge to Australian Iron Ore Miners

This article from Bloomberg may be of interest to subscribers. Here is a section:

China has already been moving steadily to secure iron ore resources. Some of its overseas mines include Sinosteel Corp.’s Channar mine joint venture in Australia and Shougang Group Co.’s Marcona project in Peru. But the focus is on Guinea, where some of China’s biggest state-owned firms are close to getting the go-ahead to develop Simandou, the world’s largest untapped iron ore deposit.

“It’s entirely feasible that China could raise its self-sufficiency in virgin and secondary iron units to 45% from its current level of just over 30% if it successfully develops the Simandou project,” said Navigate Commodities co-founder Atilla Widnell.

To reach 45%, Simandou has to produce 200 million tons a year to displace imports from other countries, said Widnell. Still, “it may be a stretch” to achieve that level by 2025 given geographical challenges in the area, and he estimates that with the current pace of development, the goals will be reached by 2030.



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December Research Letter

Thanks to a subscriber for this report from Crescat Capital which contains a number of interesting charts. Here is a section:

Contributing to the supply shortage, the number of major new gold discoveries by year, i.e., greater than 2 million Troy ounces, has been in a declining secular trend for 30 years including the cyclical boost between 2000 and 2007. At Crescat, we have been building an activist portfolio of gold and silver mining exploration companies that we believe will kick off a new cyclical surge in discoveries over the next several years from today’s depressed levels.

Gold mining exploration expense industrywide, down sharply since 2012, has been one of the issues adding to the supply problems today. Crescat is providing capital to the industry to help reverse this trend.

Since 2012, there has also been a declining trend of capital expenditures toward developing new mines. From a macro standpoint, gold prices are likely to be supported by this lack of past investment until these trends are dramatically reversed over the next several years. Credit availability for gold and silver mining companies completely dried up over the last decade. Companies were forced to buckle up and apply strict capital controls to financially survive during that period. Investors demanded significant reductions in debt and equity issuances while miners had to effectively tighten up operational costs, cut back investment, and prioritize the quality of their balance sheet assets.



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Email of the day on rising inflationary pressures and Ethereum

I hope you are enjoying the holidays and looking forward to a better year next year.

Here’s another one of Charles Gave's excellent articles-the oil price is on the move thus starting to bear out his fear of a 1970s-type repeat.

Secondly, regarding Ethereum, have you been able to quantify any price target and if so, what technical data/events have you chosen to use?



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Greenback at Risk of Sharp Year-End Drop to Cap a Miserable 2020

This article from Bloomberg may be of interest to subscribers. Here is a section: 

The dollar is heading into the year-end vulnerable to a sharp extension of the bear run that’s shaped global currency markets since March.

Long-term trends on technical charts stretching back over the past decade reveal multiple trigger points that could see the greenback shoot lower against a host of key currencies.

Poor liquidity, lightly-staffed trading desks, defensive price-making engines and reduced seasonal demand add to the potential for outsized moves.



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U.K. Faces Food Crisis Threat as Virus Surge Blocks Trade

This article from Bloomberg may be of interest to subscribers. Here is a section:

The U.K. confronted threats of food insecurity and panicked shopping days before Christmas as European nations restricted trade and travel to guard against a resurgent coronavirus, offering Britain a preview of the border chaos to come in the absence of a Brexit deal.

Fearing a fast-spreading new strain of the virus that forced a strict lockdown across England, France on Sunday suspended travel from the U.K. for 48 hours and wants a stricter testing regime before lifting the blockade. Germany and Italy halted arriving flights from Britain with Spain and Portugal following suit. The crisis gave renewed urgency to negotiations for a trade deal with the European Union that remained at a critical stage after weekend talks.

Late Sunday, the Port of Dover stopped freight moved by truck into France while allowing unaccompanied cargo to keep moving. Traffic into the U.K. is unaffected, though truckers often run supplies in both directions and the latest outbreak in the heart of England may discourage them from entering the island.



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'Politics come first' as ban on Australian coal worsens China's power cuts

This article from the Financial Times may be of interest to subscribers. Here is a section:

Yiwu, a city in eastern China known for making products such as flags and badges, has not only switched off all its street lights during the evening but has forced factories to cut working hours by up to 80 per cent until the end of this year.

“We are not living a normal life when our factory can only work two days a week and the streets are dark at night,” said Mike Li, owner of a plastic flower factory in Yiwu.

Chinese authorities have blamed these problems on a combination of an unusually cold winter in parts of the country and high energy demand.

Power plants, however, said their operation had also suffered from the suspension of Australian coal imports.

Official data show Chinese plants obtained about 3 per cent of their thermal coal from Australia last year. The ratio, said an official at trade association the China Electricity Council, could exceed 10 per cent in more developed provinces that are drawn to the high quality of Australian coal.

“The import ban doesn’t make economic sense,” said the official.



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