Battery Metals

The North American Council for Freight Efficiency forecasts commercial battery-electric vehicles and fuel cell trucks will be capable of lower total cost of ownership, compared with baseline diesel trucks, in the 2030 time frame.

By 2040, commercial battery-electric vehicles will use clean well-to-wheel energy, and dominate the industry as batteries last longer, weigh and cost less, and fast-charging stations are everywhere, the group added.

The findings were included in NACFE’s latest guidance report: “Viable Class 7/8 Electric, Hybrid and Alternative Fuel Tractors.”

The report also pointed out, in the meantime, no single solution will replace diesel because specialization and regional factors, instead, are pushing the market to a multifuel future, where many of these technologies will coexist. “This [report] is particularly interesting given everything that is going on in the industry. This segment burns the most fuel and gathers the most attention because of that,” said Mike Roeth, NACFE’s executive director.

Roeth also said owners may keep these alternative-powered trucks longer since they are performing better in their duty cycles “because they have been specifically specified for them.” At the same time, used-truck buyers may not find those same trucks as applicable for them compared with typical diesel trucks that change hands now. “So we envision the ability to move [alternative-powered] trucks in the second and third markets more challenging.”

Roeth told Transport Topics as of now there are “not many retrofit options.”

The report includes two parity charts comparing these emerging technologies with current diesel or gasoline vehicles. One looks at the current situation, and the other looks at where parity stands in 2030.

The world of transport is awash in batteries today. Battery innovation is a fiercely competitive space. Investment dollars are pouring into battery tech and manufacturing every day. None of this is a surprise, given that globe is poised for widespread electrification over the next several decades. Many of the limitations that challenge electrical infrastructure and products, both technical and social, are predicated on the limitations of battery technology. Batteries are the beating heart of an electrical world, and what they can and can’t do determines where the bleeding edge is drawn.

The battery innovation arena is flush with startups and revolutionary ideas. A manufacturer of zero-emission heavy trucks is working with hydrogen-electric cells; another battery tech company produces solid-state batteries, doing away with liquid electrolyte; yet another firm is manufacturing batteries with graphene, reducing cost and creating an electric vehicle (EV) battery that can be fully charged within 5 to 15 minutes.

Improving battery chemistry is hard. There’s an old saying in production circles that reflects electrochemistry challenges: everyone wants a product that is good, fast and cheap…but you only get to pick two. When dealing with battery tech, there are six measures that create an unforgiving balancing act: Power, Safety, Temperature endurance, Lifespan, Cost and Energy. Ramping up one of these elements invariably comes at the expense of at least one of the other measures. Many of the brightest innovators in the space are looking for a magic bullet that breaks them out of the tension of these six factors, and continually hit roadblocks.

Lithium-Ion (Li-ion) batteries have been around since the 1970s. The state of battery technology today took five decades to achieve. The vast majority of innovation in battery tech currently takes place within the big tent of Li-ion, where incremental evolution reigns. The challenges around Li-ion are very well understood, supported by a huge body of knowledge that researchers and industrialists have painstakingly built.

Acknowledging the uphill climb that presents itself to battery chemists also allows one to recognize that Lithium-ion is likely to remain the standard for the next decade or more (and not just in terms of technology, but also with regard to adoption and infrastructure, which are titanic factors). The billions of dollars invested in battery tech are largely pooled around companies working on ingenious pathways to improving one or more of the six factors, while minimizing cost in the others. One such company is Israel-based battery tech firm Addionics.

The CEO and co-founder of Addionics, Dr. Moshiel Biton, holds a doctorate in material science. His fascination and passion for the technology he develops is evident in his speech, whether he is discussing battery tech history or electrification in transport. His firm falls into the fairly exclusive category of innovators who respect the boundaries carved out by the chemistry of Li-ion, but has come to a novel solution that could be applied both inside and outside of the Lithium-ion realm.

Biton was candid about the pace of advancement in this space: “Building new chemistry in this technology takes years. It’s important to understand that the key component in this field is the simple [battery] cell. A company like Tesla wisely takes cells that are a well-tested and well-understood commodity and that can scale, and they install them in their vehicles. To add range, they add more cells, up to a limit. There is no trick to this.”

The Li-ion cell, however, has reached a significant plateau in terms of performance. Most battery companies today focus on the chemistry of the cell, seeking ways to improve at least one of the factors. But as Biton put it, there is a hard problem in the energy density vs. power density question. “Energy density is about capacity, and determines how far I can drive my car. Power density has to do with charging time, and how fast I can accelerate my car. It’s usually an opportunity cost between the two. Current technologies have only been able to improve one by weakening the other.”

Which brings us to the Addionics’ (already commercially-viable) proposition. Their approach allows existing battery technology—Li-ion in this case—to increase its life by 50%, halve its charging rate and double its range.t. Biton also made it clear that their tech wasn’t just suitable for Li-ion batteries: “Our technology is agnostic. Any battery chemistry can benefit from our innovation and development. We are not betting on a particular horse, but on the entire race. We are unique because we are focused on a field that is taken for granted by the rest of the industry.”

Proponents of electrification have to remain patient as we meander our way to revolutionary solutions for battery power. Replacing fossil fuels with batteries as the heartbeat of transport is a long, complex journey. However, if companies like the one Biton leads continue to find ingenious ways to evolve the technologies we already understand, there won’t be much room for doubt that we’ll achieve global electrification.

Gold closed down as much as 1.21 percent Friday on a blowout jobs report that seemed to alleviate investor fears of an impending economic slowdown. The U.S. added as many as 266,000 jobs in November, beating expectations of 180,000, while the unemployment rate ticked down to a 50-year low of 3.5 percent.

The yellow metal remains on sound footing, though, and over the next 12 to 24 months, I see its price advancing further on strong fundamentals. Mean reversion, in particular, is the theme I believe investors should be focused on in 2020 and beyond.

This was the message shared by Bloomberg Intelligence commodity strategist Mike McGlone in a note to investors last week.

The chart below illustrates the 10-year rate of change for gold, the S&P 500 and U.S. trade-weighted dollar. In other words, it shows you how much each asset class has changed from a decade earlier.

As McGlone points out, both the stock market and U.S. dollar have recently increased at their fastest pace since the beginning of the millennium, whereas gold’s rate of change has slumped after hitting its all-time high of $1,900 an ounce in 2011. The law of mean reversion suggests a rerating could occur in the early 2020s.

“The unsustainability of these trends in the third decade is a primary support factor for the dollar price of gold,” McGlone writes.

“Unless the greenback and U.S. stocks are embarking on a new higher plateau,” he adds, “dollar-denominated gold is poised to take the all-time new highs baton.”

Here’s another way to look at it. The left chart below shows the stock market priced in ounces of gold, while the right chart shows the market priced in gold miners, as measured by the NYSE Arca Gold Miners Index. Both bullion and miners are currently below their mean, indicating they’re undervalued relative to the market. For mean reversion to take place, either gold will need to soar to new all-time highs or beyond, or stocks must tumble. In both cases, holding gold, I believe, is rational and prudent.

Royalty of the Precious Metal Industry

There are other ways to get exposure to gold than coins and bars, of course. One of the best ways to “supercharge” your gold position, I believe, is with precious metal royalty and streaming companies. Think Franco-Nevada, Wheaton Precious Metals, Royal Gold and others.

Loyal readers should know that I’ve discussed royalty companies a number of times before. Even so, I still come across new research and data that demonstrates their superiority in the metals and mining industry.

Take a look below. The world’s largest royalty and streaming company with a market cap of $25 billion, Franco-Nevada has outperformed gold bullion and gold equities in both bull markets and bear markets. Investors who like gold do so because they understand that the yellow metal can limit losses in their equity position and reduce volatility. Adding a royalty company such as Franco-Nevada to the mix can be like injecting nitro into your souped-up sports car. 

This is because while they enjoy a lot of the upside potential when gold prices are rising, royalty companies share very little of the downside potential with producers and explorers when the metal is in decline. Royalty companies are better insulated from bear markets because they have a diversity of high-quality active mines in their portfolio.

What’s more, they’re not the ones spending money to develop a project. They simply put up the capital, and in exchange they enjoy either a royalty on whatever the miner produces or rights to a stream of metal supply at a fixed, lower-than-average cost.

It’s a win-win for the miner and royalty company, a win-win-win if you also include the investor.

To give you an idea of just how profitable royalty companies can be, look at the chart below, courtesy of Katusa Research. What you see is each company’s net income, or profit, per employee. Some of the world’s most recognizable names are highly profitable, generating around half a million dollars or more per employee after expenses. And then there’s Franco-Nevada, which makes approximately $3.5 million per employee, or seven times Facebook’s net income. It’s in a league all its own.

And it’s not alone. If Royal Gold were in the S&P 500, it would rank second in revenue per employee at $18.4 million, following only Host Hotels & Resorts, which generated an incredible $30.2 million per employee in fiscal year 2018.

It doesn’t hurt that, as of August 2019, Royal Gold had only 23 employees. Compare that to the workforce of major metal producers such as Barrick (18,400 employees), Newmont-Goldcorp (39,600) and BHP Billiton (62,500).

I often recommend the 10 Percent Golden Rule, with 5 percent in physical gold and the other 5 percent in gold equities. But to supercharge your portfolio, I would strongly consider royalty and streaming companies.

The European Commission is backing research into longer-lasting and better performing batteries for the latest technology.

The body has approved €3.2bn of state aid from seven EU countries to help fund new research and innovation in battery technology.

Projects in Belgium, Finland, France, Germany, Italy, Poland and Sweden have all received financial approval to support research and innovation in the common European priority area of batteries.

• This stretchy, bendy battery could power a new generation of flexible phones
• Leaks suggest graphene will supercharge future Samsung phone batteries

Battery research

The overall project is slated to be completed in 2031 and in addition to the €3.2bn in public funding, private investments are expected to bring in an extra €5 billion.

Executive vice-president in charge of promoting technology in Europe and the EU’s competition commissioner, Margrethe Vestager recently announced the new initiative during which she explained how important battery production is to Europe, saying:

“Battery production in Europe is of strategic interest for our economy and society because of its potential in terms of clean mobility and energy, job creation, sustainability and competitiveness. The approved aid will ensure that this important project can go ahead without unduly distorting competition.”

According to the European Commission, the project involves “ambitious and risky” research and development into all parts of battery production including mining and process raw materials, producing advanced chemical materials, designing battery cells and modules as well as recycling and repurposing used batteries.

Demand for batteries is at an all time high thanks to the proliferation of smartphones and increased consumer interest in electric vehicles.

The aluminium market is in trouble again.

The London Metal Exchange (LME) price touched a three-year low of $1,705 per tonne in October and has failed to stage any significant bounce over the intervening period. It is currently trading around the $1,760 level.

Earlier this year there was a lot of excited talk in the market about growing supply deficits and falling stocks.

Fast forward to today and LME stocks are surging again and no-one is talking about deficits any more.

LME stocks are a poor lens through which to understand aluminium’s dynamics but the rapid increase in visible tonnage has reinforced concerns about a deteriorating demand outlook.

Aluminium producers have been here before and know trouble when they see it with Hydro announcing output cuts and both Alcoa and Rio Tinto reviewing their smelter portfolios.

STOCKS SURGE AS SPREADS TIGHTEN

Almost 394,000 tonnes of aluminium have been warranted in the LME warehouse system over the last four weeks, and the headline total has jumped from 940,500 tonnes to 1,288,150.

Most of the inflow has been split across just three locations — Port Klang and Johor in Malaysia, and Singapore.

This appears to be the emerging stocks liquidity hub for the global aluminium market with new CME warehouses in the region also attracting metal. The same three locations account for around 65% of the 20,237 tonnes in the CME system.

There’s a natural analytical instinct to interpret LME stock movements as a sign of underlying production-usage dynamics.

But as ever with the LME aluminium contract, surging stocks say far more about LME timespreads and the storage market than about the fundamentals of the aluminium market.

The driver of the recent stocks deluge was a tightening in the front part of the LME forward curve. The cash-to-three-months timespread CMAL0-3 flared out to a backwardation of $22.75 per tonne early last week. It was the highest premium for cash metal since December of last year.

LME spreads are key to the profitability of storing metal under financing deals. When spreads are relaxed, as was the case for the first nine months of this year, financing metal in cheaper storage outside of the LME warehouse system was profitable, which is why LME stocks fell to a decade low of 895,625 tonnes in early September.

Spreads tightness, by contrast, deters demand from both off-market financiers and physical users while simultaneously encouraging short position holders to deliver metal into the LME system.

The resulting ebb and flow of metal between exchange and off-exchange storage has been a defining feature of the LME marketplace for much of the last decade.

The current spreads tightness has yet fully to play out despite the high level of metal deliveries into LME warehouses. The benchmark cash-to-three-months period was still valued at a $7.25 per tonne backwardation at Friday’s close.

DEMAND SHOCK

LME stocks movements do not provide a linear read-through to the underlying state of the physical market but they do carry psychological weight.

Just as the steady draws in the first part of the year dovetailed neatly with a narrative of a tightening market balance, so the most recent increases reinforce negative sentiment about aluminium’s deteriorating outlook.

The real stocks story, however, continues to play out in the non-LME storage market, where up to 10 million tonnes of metal are sitting in the statistical shadows.

There were strong indications that such shadow stocks were falling earlier this year but the trend is believed to have gone into reverse as demand has weakened.

Global aluminium demand is widely expected to contract this year for the first time since the Global Financial Crisis.

The demand hit relative to some of the other base metals will be mild but this is still a shock for a market that has long enjoyed a stellar usage growth profile.

The transport sector has powered aluminium usage in recent years but it has turned negative this year.

Automotive sales are falling just about everywhere as the industry struggles with the combination of cyclical downturn and structural shift to electric vehicles.

In other sectors a more positive story is outweighed by a surge in aluminium scrap availability occasioned by China’s steady clampdown on imports of what it terms “waste”.

SUPPLY CUTS

You can understand why producers are once again running the ruler over their operations.

Norsk Hydro has announced a 20% cut at its Slovak smelter in the fact of what it termed “a demanding market”.

Alcoa has an ongoing review of 1.5 million tonnes of smelter capacity, while Rio Tinto has flagged a potential output cut at its Tiwai Point plant in New Zealand.

The last time producers were forced collectively to curtail capacity was during the price trough of 2015-2016, when LME aluminium touched a multi-year low of $1,432.50.

The irony is that global production hasn’t been rising at all this year, not even in China, the world’s largest producer.

Production outside China was flat year-on-year in the first 10 months of 2019, while run-rates in China fell by 1.5% on the back of a number of unforeseen outages.

That’s one of the reasons China’s exports of semi-fabricated products have also been running flat relative to 2018 levels.

The problem is that production is expected to accelerate again next year with analysts at CRU forecasting Chinese output to rise by 7% in 2020.

Unless there is a sudden turnaround in demand, that production surge is going to come at just the wrong time for an aluminium market that is struggling to hold even these low price levels.

Nor is there much in the way of support from the production cost curve since the price of alumina, the key metallic input into the aluminium smelting process, is also falling.

The CME’s alumina contract is currently trading around $279 per tonne, down from $418 in April.

Aluminium is currently experiencing something of a perfect bear storm – demand weakness, falling raw material prices, rising visible stocks and a sense that the downtrend in shadow stocks has ended. Relatively weak production in China is the one positive and that doesn’t look likely to last.

Supply cuts are back on the agenda as producers look to their operating margins.

And if all that sounds familiar, it’s because aluminium’s future is looking a lot like its past.

Chile’s export revenue fell 12% to $5.3 billion in November, the central bank said on Monday, more bad news for an ailing economy hammered by the worst unrest since the South American nation’s return to democracy in 1990.

Weeks of sometimes violent protests, riots, arson and looting have led to at least 26 deaths and billions in losses to private businesses and public infrastructure. The unrest prompted the central bank last week to slash forecasts for growth, investment and demand through 2020.

The bad news for Chile was made worse by falling prices for both copper and lithium. Chile is the world’s top producer of copper, and the No. 2 producer of lithium, both critical building blocks for electric vehicles. Revenue from copper exports plunged 8.7% in November to $2.772 billion, while lithium exports tumbled nearly 6% to $67 million.

The country’s vast copper mines have nonetheless largely maintained output despite more than 50 days of protests. Top lithium producers SQM and Albemarle have also said production had largely been spared.