July 6, 2021
Electric vehicles have exploded in the past decade… And that means more than just frequent tweets from Elon Musk.
The ramifications are far-reaching, including the skyrocketing demand for electric vehicle battery materials.
Today, we’ve got commodities expert Bill Shaw to fill us in. Since joining Stansberry Research in 2015, Bill has been traveling the globe searching for the best investment ideas in the commodities and natural resource space.
Surging Metal Mania From Electric Vehicles
By Bill Shaw
Most folks consider EVs to be a relatively new technology…
In reality, though, the earliest EVs were built in the late 19th century in both the U.S. and Europe.
Of course, cars were just coming into existence back then… But by the start of the 20th century, 40% of cars in the U.S. were powered by steam, 38% by electricity, and only 22% by gasoline.
EVs became popular in American cities, especially among women and the wealthy…
They were easier to operate, quieter, and cleaner than the other offerings at the time. And their slow speeds (15 mph to 20 mph) and short range (30 miles to 40 miles) weren’t an issue for quick trips around the city.
But by the 1920s, the country’s highway infrastructure was growing, and EVs couldn’t provide the necessary range or speeds.
Plus, advances in oil exploration led to huge discoveries of petroleum reserves around the world. Gasoline and oil became cheaper and more available. So aside from specialty uses like golf carts and forklifts, EVs virtually disappeared for most of the 20th century.
But now, more than a century after their initial start, the trend is shifting once again…
Advances in battery technologies are enabling EVs to travel much farther on a single charge. Plus, consumers are becoming more environmentally conscious and are trying to do their part to help fight climate change.
The trend is still in its infancy, though…
According to research firm Canalys, sales of EVs reached 3.1 million units globally in 2020. That marked a 39% increase from the 2019 total of around 2.2 million units.
But total market share of EVs grew to just 4.7%. While that’s up from 2.6% in 2019, you can see that EVs still have plenty of catching up to do in the overall passenger-car market.
More impressive, though, this surge in EV sales happened as the overall passenger-car market dropped 14% in 2020. The decline was mainly due to the worldwide COVID-19 lockdowns that forced people to stay in their homes. EV buyers, on the other hand, typically place orders in advance, so many of these “sales” actually occurred before the pandemic.
And as you can see in the following chart, this is likely only the beginning for EVs in the U.S. and across the globe. Canalys forecasts sales of cars with internal combustion engines to level off and begin dropping as EVs take more and more market share in the years ahead…
Canalys’ report projects that EV sales will exceed 5 million units in 2021 – increasing market share to 7% of total new car sales. By 2028, EV sales are expected to top 30 million units… And by 2030, less than a decade from now, it projects that EVs will represent nearly half of all new cars sold.
It’s worth noting that those numbers don’t include commercial EVs and other battery-powered vehicles, such as scooters and e-bikes – both of which are gaining in popularity.
In short, with EV usage expected to soar in the years ahead, the demand for battery materials will skyrocket as well.
And that’s where the importance of nickel comes in…
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Soaring Nickel Growth
Its use in lithium-ion batteries provides more energy density and storage capacity. That’s crucial for increasing the range that EVs can travel before they need to recharge.
Today, roughly 98% of global nickel demand comes from its use in producing stainless steel. But many industry analysts expect that demand to shift quickly toward EVs…
A recent report from Fitch Solutions forecasts average annual nickel demand growth for EV batteries at a rate of nearly 30% annually from 2021 through 2030.
And another recent report prepared by Roskill expects nickel demand from the EV sector to grow from only 92,000 metric tons in 2020 to 2.6 million metric tons by 2040.
That’s a 2,700% increase over the next 20 years.
Plus, the demand for nickel in stainless steel won’t just go away… Morgan Stanley forecasts a 6% increase in that space in 2021. And that trend is not expected to fall anytime soon.
But that brings up the million-dollar question… Where will all this nickel come from?
You see, not all nickel is the same. Battery makers require nickel sulphate – a high-purity chemical that can only be made from certain types of deposits. This so-called “green nickel” is hard to find.
Even Tesla founder Elon Musk is worried about how it will impact EVs…
In February, he posted on Twitter, “Nickel is our biggest concern for scaling lithium-ion cell production.” And a week later, Tesla partnered with a nickel mine owned by Swiss commodities trader Trafigura in an effort to stave off supply issues.
China’s Tsingshan Holding Group – the world’s largest nickel producer – believes it has a solution… Earlier this year, Tsingshan roiled the markets when it announced that it found a way to produce battery-grade nickel materials from low-grade “nickel pig iron.”
But analysts aren’t buying it… Nickel is already one of the “dirtiest” metals to mine and process. Using even more energy in the refining process won’t pass most companies’ strict environmental and social governance (“ESG”) standards.
In fact, billionaire mining magnate Robert Friedland called it a “fantasy” at an industry event earlier this year. As he reasoned…
The automobile industry is not going to nuke hundreds of thousands of acres of tropical jungle in Indonesia and dump the tailings in the ocean and try to convert ferronickel into batteries… That’s disinformation or whistling in the dark.
The nickel market seems to agree with Friedland…
After selling off 19% from a nearly seven-year high of about $20,000 per ton in late February, nickel is climbing once again. It currently sits around $18,100 per ton.
However, even though it’s currently up more than 40% over the past year, nickel has a long way to go before it hits its 2007 all-time high above $50,000 per ton. And with increased demand and scarcity in the years ahead, the price of nickel still has a lot of room left to run.
Meanwhile, copper is just as important to the future of renewable energy…
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High Demand for Copper
A conventional automobile uses less than 50 pounds of copper. But a battery-powered EV uses more than 180 pounds. And don’t forget the millions of charging ports that will need to be built to support the EV infrastructure… They’ll each use another 50 pounds of copper.
More important, copper is used for just about everything in the renewable sector – including solar and wind energy sources. And there’s the need to reimagine our energy grid… Experts believe that switching global energy sources from fossil fuels to solar and wind would require four to six times the amount of copper that we currently use.
Outside of renewables, the housing industry is on fire lately… That means the demand for copper wire is growing. And folks who aren’t buying new homes are looking to renovate… That means purchasing washing machines and other appliances that use copper wiring.
That’s part of the reason copper prices have soared recently… They’re up 55% over the past 12 months.
And we expect this trend to continue…
Analysts from Bank of America Securities believe copper demand will increase 6% this year. Meanwhile, analysts at Citibank expect to see copper supply deficits during the second half of this year… And they expect these deficits will continue into 2022 and 2023.
Like nickel, copper is also facing a long-term supply problem…
Copper mines are gigantic. And these assets have lifespans between 40 and 100 years.
But many of the world’s top-producing copper mines are getting long in the tooth…
According to commodities consultant CRU, global copper production will drop from 20 million metric tons today to less than 12 million metric tons by 2034. That will leave a shortfall of more than 15 million metric tons. More than 200 copper mines are projected to run out of ore by 2035… And there aren’t enough new mines in the pipeline to replace them.
And with copper prices sagging over the past decade, miners haven’t spent a lot on exploration… Instead, they’ve worried about paying down debt and fixing their balance sheets.
The last major copper discovery happened back in 2015. And new copper mines take up to 15 years to go from exploration to production. So with old mines aging and a dearth of new ones in the immediate pipeline, copper supply could be a major problem down the road.
With nickel and copper prices both forecast to rise among surging demand and shrinking supply in the years ahead, it’s a great time for us to consider investing in these supercycles.
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Publisher, American Consequences
With Editorial Staff
July 6, 2021