Battery Metals

A rare silvery-white material is close to dethroning gold as the most valuable precious metal.

Palladium, which is used to filter emissions in gasoline car engines, has climbed to record highs recently. Prices are up more than 25% since the start of August and about 10% for the year, making the metal one of the market’s best-performing assets of 2018.

Meanwhile, gold is down about 5% for the year, with investors preferring the safety of the dollar and U.S. Treasurys amid market volatility. A stronger dollar makes metals denominated in the currency more expensive for overseas buyers, while the prospect of higher interest rates makes gold less attractive than interest-bearing assets.

These dynamics can affect palladium as well. But it has been boosted by projections showing supply shortages and steady auto demand.

Palladium has climbed to about $1,180 a troy ounce; gold has fallen to $1,245. The difference between the two is the narrowest since 2002, according to Dow Jones Market Data. That palladium is close to eclipsing gold is the latest sign investors remain cautious about the outlook for bullion.

Most-active palladium futures were up 1.3% Tuesday. Gold added 0.6% as long-term Treasury yields fell, bucking a trend that has held for much for the year. Bond yields fall as prices rise.

“The casual investor in gold hasn’t gotten anything for their money and they’re still occupied elsewhere,” said Tai Wong, head of metals trading at BMO Capital Markets.

Platinum, palladium’s close relative, overtook gold earlier this decade but has since slumped to about $805. Analysts are wary about falling demand for platinum in diesel engines.

Palladium got another boost over the weekend with the U.S. and China signaling progress on ending their months-long trade dispute. Some analysts think a deal could help stabilize demand from the auto sector, and many expect supply to decrease from producers like Russia and South Africa.

“There is such a shortage of the material that the industrial users can’t really get a hold of it,” Mr. Wong said.

Hedge funds and other speculative investors have boosted net bets on higher palladium prices for four consecutive weeks through Nov. 27, pushing them to their highest level since March, Commodity Futures Trading Commission data show.

Speculators have increased bearish wagers on gold, meanwhile: Hedge funds pushed net bearish bets to a record in October, according to figures going back to 2006.

Of course, plenty of investors have counted gold out over the years, only to be proved wrong. Some analysts remain optimistic bullion can rebound after signals last week that the Federal Reserve might not be as aggressive with interest-rate increases moving forward.

With long-term Treasury yields falling amid worries about a slowing U.S. economy, gold has risen in four of the last five sessions. Some analysts are waiting to see if bullion can sustain a rally above $1,250, a level that gold hasn’t been able to eclipse steadily since the summer.

The small palladium market is also prone to outsize swings, so some traders are bracing for a sharp decline if trade setbacks or higher supply shift the outlook.

Given palladium’s recent climb, “you have to be cautious,” Mr. Wong said.

Copper eased on Tuesday as markets awaited remedial action by the United States and China after the two countries’ weekend agreement on a 90-day ceasefire in their damaging trade dispute.

Other metals, however, clung on to the previous session’s gains, powered by a weaker dollar. At the G20 summit this weekend, Washington and Beijing agreed to hold off from further tariffs for 90 days, pausing a dispute that had dragged down metals and equity markets.

Markets remain sceptical, however, that full resolution will be achieved soon. “The G20 has always been long on rhetoric and short on substance, so now we need to see some instant action taking place,” said Societe Generale metals specialist Robin Bhar. U.S.

President Donald Trump on Tuesday held out the possibility of an extension of the 90-day trade truce but made clear he would revert to tariffs if the two sides could not resolve their differences.

Three-month benchmark copper on the London Metal Exchange (LME) ended 1.4 percent down at $6,209 a tonne, erasing the bulk of Monday’s 1.6 percent gain.

TRADE: The United States expects China to cut tariffs on U.S. car imports and end intellectual property theft and forced technology transfers as the countries move towards a broader trade deal, a White House official said on Monday.

METALS FLOOR: “Initial G20 euphoria soon gave way to the realisation that nothing has actually been resolved,” Brokerage Marex Spectron said in a note. “Weekend events probably raise the floor to the (metals) complex, although whether that leads us to some sort of new panacea is highly debatable.”

COPPER PREMIUMS: The premium for copper imports into China, the world’s biggest copper consumer, sank to an 18-month low on Monday in a sign that demand for physical metal is waning after a buying spree.

TECK: Canadian mining company Teck Resources , has agreed to sell a 30 percent stake in its Quebrada Blanca copper mine expansion in northern Chile to Japan’s Sumitomo for $1.2 billion.

ALUMINIUM: A Japanese aluminium buyer has agreed to pay a global producer a premium of $85 a tonne over the benchmark price for shipments in January to March, the lowest in more than two years, two sources involved in pricing talks said on Tuesday.

ZINC STOCKS: LME inventories of zinc touched their lowest since February 2008 at 111,750 tonnes, having halved since mid-August. The plunging stocks pushed the premium for cash LME zinc over the three-month price to more than $100 a tonne, close to a 20-year high touched on Friday. .

Industrial metals on the London Metal Exchange fell on Wednesday as U.S.-China trade tensions resurfaced, raising concerns over economic growth and demand.

U.S. President Donald Trump threatened to place “major tariffs” on Chinese goods imported into the United States if his administration is unable to reach an effective trade deal with Beijing.

But China said Beijing and Washington will push forward with trade negotiations in the next 90 days and it is confident that an agreement can be implemented.

FUNDAMENTALS

* Three-month copper on the London Metal Exchange fell 0.3 percent to $6,189 a tonne by 0121 GMT, while the most-active contract on the Shanghai Futures Exchange lost 1.4 percent to 49,250 yuan ($7,206.30) a tonne.

* London aluminium fell 0.2 percent to $1,971 a tonne, while nickel eased 0.1 percent and zinc was 0.4 percent lower.

* TRADE: U.S. President Donald Trump on Tuesday held out the possibility of an extension of the 90-day trade truce with China but warned he would revert to tariffs if the two sides could not resolve their differences.

* U.S. DOLLAR: The greenback edged up on Wednesday, putting further pressure on London metals which are traded in dollars, as the commodities became more expensive for countries using other currencies.

* Nickel: Brazilian miner Vale SA, the world’s top nickel producer, plans to invest $500 million in its struggling New Caledonia nickel mine on its own after previously vowing to find a partner for the venture, reflecting its new understanding of the importance of an expected surge in electric vehicle sales.

One of the world’s poorest nations is sitting on the second-largest amount of the mineral needed to power electric cars.

A small army of workers from cities and villages across Bolivia boards the buses for the last leg of a commute that can last days. The meandering, bumpy dirt roads, the thin air at high altitude, the ordeal of bringing labor into the blinding white plain of the world’s largest salt flat—all of this stands between anyone who dreams of retrieving Bolivia’s lithium riches and turning it into electric-car batteries.

These workers will spend two weeks at the Uyuni salt flat in the southern tip of Bolivia before they return home for a seven-day rest. They are attempting to build a world-class lithium mine on top of the Andes mountains, about 12,000 feet above sea level at the heart of landlocked Bolivia. The nearest port is at least 500 kilometers and a border crossing away.

From above, this vast area appears so white it gets mistaken for a giant snow plain. The salt crystallizes in the dry season, forming millions of tile-looking hexagons that span an area as large as Connecticut. During the wet season, it’s covered by a thin layer of water that forms a giant mirror, reflecting the sky so neatly that the line of the horizon disappears. The visual effect draws thousands of visitors and the Dakar Rally every year, making it Bolivia’s top tourist destination.

Getting the lithium out will prove far more difficult than bringing tourists in. Most observers doubt that Bolivia’s lithium will ever support a commercial mining operation. Still, the government is eager to tap into the global hunger for a mineral essential to power electric cars and build storage batteries. The ambition is to ultimately transform Bolivia into a manufacturer of the rechargeable batteries inside Tesla Inc.’s all-electric cars and the nearly 300 EV models expected to reach the market by 2022, according to Bloomberg NEF.

“Bolivia will be a relevant actor in the global lithium market within four or five years,” said Juan Carlos Montenegro, general manager of state-owned Yacimientos de Litio Bolivianos, or YLB. “And we don’t plan on stopping there.”

The Bolivian government—South America’s longest-standing populist regime—is vowing to make itself into a mineral-and-battery player using mainly its own engineers. Its pilot plant in Uyuni has produced close to 250 tons of lithium carbonate this year, and YLB said it can bring production to 150,000 tons within five years. This would make Bolivia one of the top-producing nations and the source of about 20 percent of the world’s lithium by 2022, according to Bloomberg NEF projections.

But the country also needs a help from the few foreign companies undaunted by the prospect of retrieving lithium from one of the most remote places on the planet. And there seems to be at least one willing to take that risk.

ACI Systems Alemania GmbH has no prior mining experience.

Based in Zimmern ob Rottweil, a rural village at the heart of Germany’s Black Forest, the company is a subsidiary of ACI Group, which provides project-management support to the photovoltaic, battery and automotive industries. ACI Systems Alemania employs just 20 people and was created solely to focus on building a lithium mine in Bolivia. Chief Executive Officer Wolfgang Schmutz is betting that he will succeed in an impoverished nation that has frustrated a long list of elite lithium suitors.

“I know Bolivia. Me and others in the company have personal relationships with the country,” Schmutz said in a phone interview. “Whatever we promised we made it happen so far. There is a trust relation that we want to continue building up.”

ACI recently signed an agreement with Bolivian President Evo Morales to build a $250 million lithium operation, the first step towards manufacturing cathodes and batteries in Bolivia. The deal is expected to be formalized this month into a 49-51 joint venture with YLB. The German company has not yet secured financing for the project.

“Bolivia doesn’t host any established cathode producers,” said Andrew Miller, a senior analyst at Benchmark Mineral Intelligence. “There are significant hurdles in them producing lithium, let alone developing a downstream industry for battery cathodes.”

The reason to try is clear: Demand for lithium is expected to more than double by 2025. The soft, light mineral is mined mainly in Australia, Chile and Argentina. Bolivia has plenty—9 million tons that have never been mined commercially, the second-largest amount in the world—but until now there’s been no practical way to mine and sell it.

Bringing Bolivia’s supply to market would help lithium miners who have so far struggled to match global demand. Top producers FMC Corp. and Albemarle Corp. in the U.S., SQM in Chile and Tianqi Lithium Corp. in China are investing billions to expand their existing operations. Even the most experienced are suffering setbacks, with SQM reporting delays and unexpected difficulties in expanding in Chile. Albemarle reported stoppages in its operations in Chile, China and Australia for different reasons during the third quarter.

FMC and South Korea’s steelmaker giant POSCO have in the past attempted to ink deals with Morales’ government that would have set up lithium operations in Uyuni. Those attempts failed, with talks stalling and investors walking out in the face of uncertainty or unreasonable government demands.

Latin America’s poorest nation has had at least 27 different presidents and military juntas rule in the last five decades. President Morales, elected in 2006, is the country’s longest-serving leader and the last of a generation of leftists, including Venezuela’s Hugo Chavez, that came to power promising social justice.

Morales nationalized hydrocarbons, Bolivia’s main source of revenue, as well as the electricity grid and telecoms. He vowed to “industrialize with dignity and sovereignty,” promising that raw lithium would not be exploited by foreign corporations but instead processed by state-controlled entities in Bolivia and transformed into batteries. Morales once said he wanted to see “a lithium-powered Toyota made in Bolivia.”

“Bolivia is quite frankly very risky relative to other parts of the world for lithium investment,” said Chris Berry, an analyst and founder of research firm House Mountain Partners LLC. “Investors are concerned with both return on capital and return of capital.”

In South America, lithium is found mixed in a salty mud sitting beneath salt flats high in the mountains. To extract it, miners pump the brine into massive ponds, where it is left to evaporate for months. This concentrated liquid is transformed into industrial chemical plants for processing, where it is tuned into lithium carbonate or lithium hydroxide. Battery giants like Samsung SDI and Panasonic turn these products into the rechargeable batteries that go into electric vehicles.

ACI has no track record dealing with brine or manufacturing battery parts. But it has very optimistic goals in Bolivia.

The German company’s agreement with YLB calls for an initial investment of $250 million to build lithium processing plant in Uyuni, with production starting in 2021 and reaching full capacity of up to 40,000 tons of lithium hydroxide per year by the end of 2022. That would be roughly double the capacity that FMC, the world’s fourth-largest producer, has in its operations in Argentina.

To pull off this feat, ACI is going to rely on new, untested technology from another German company, K-UTEC AG Salt Technologies, that it believes will speed up the process by producing lithium hydroxide directly from brine. Brine found in Uyuni has high levels of magnesium, which make its lithium less pure and more expensive to produce than that of neighboring salt flats in Chile and Argentina.

“There are too many loose ends and a lot of secrecy on the government’s side,” said Juan Carlos Zuleta, a Bolivian professor and lithium analyst. “ACI Systems doesn’t have the technical nor the financial capacity to undertake a challenge of this magnitude.”

In the next few weeks, YLB will also start building a $96 million industrial plant with capacity to produce up to 18,000 tons of lithium carbonate by early 2020, Montenegro said. He said the state-owned company has already seen interest from companies, mainly serving the Chinese battery market, to sign multi-year supply contracts once the plant starts operating.

But mining lithium from brine is not easy, and neither is manufacturing a product with the chemistry composition that battery makers demand at a competitive cost. With the world’s top manufacturers already ramping up production, Bolivia and ACI’s push to produce lithium might have started too late.

“Producing lithium to a certain level of purity for cathode production can take a great deal of time,” Berry said. “For this project to get to where other players are globally, it’s going to take years.”

Previous attempts to exploit Bolivia’s lithium resources with companies including Mitsubishi Corp. and Sumitomo Corp. “have so far failed to materialize,” HSBC Holdings Plc said in a report emailed Monday. “However, the rise in lithium demand, long-term supply contracts, confidence in government policy and attractive prices could now motivate investment in lithium projects.”

Lithium prices reached historic levels earlier this year, with lithium carbonate from South America selling at an average of $15,700 per ton in May and June before prices fell to around $14,375 per ton in October, according to Benchmark Mineral Intelligence. Berry expects lithium prices to plateau at around $12,000 per ton, at which nearly a third of the projects currently in the pipeline would fall off the cost curve. Bolivia’s big gamble would be marginal at best.

Market dynamics might not matter as much to the Bolivian government, which sees lithium industrialization as the next step after the nationalization of mining and hydrocarbons. “I am certain that lithium will be like an insurance on the economic and political side to contribute to the free and sovereign development of our beloved Bolivia,” Morales said in August.

The country is holding presidential elections next year, and Morales’ government is expected to make an effort to close the lithium deal beforehand, following a significant blow at the International Court of Justice on a case related to Bolivia’s dispute for sea access to Chile.

“In Bolivia we have a government that’s just been selling illusions, telling fairy tales and now they’re in a rush to show that they did a very good job and that lithium advances at a steady pace,” Zuleta said. “They’re not interested in whether the country wins or loses —they’re interested in remaining in power.”

Is it a ceasefire, a truce or the opening to a lasting peace deal?

The jury is very much out on exactly what Presidents Donald Trump and Xi Jinping agreed during their talks at the G20 summit in Buenos Aires. But for industrial metals it’s enough.

The London Metal Exchange (LME) suite of base metals is today enjoying a relief rally after weeks of bludgeoning from bearish funds.

Speculators have been running short positions across the board, according to LME broker Marex Spectron. It estimates the spectrum runs from marginal in copper to an extreme 40 percent of open interest in nickel.

The LME base metals index has fallen by 14 per cent since the start of the year.

Macro-driven price weakness has contrasted with positive micro signals from the physical marketplace, particularly falls in visible stocks.

This tension has been playing itself out in LME time-spreads, most eye-catchingly in the zinc market, where the premium for cash metal has hit record highs.

Any ceasefire in this metallic bear-bull battle is going to be over a lot faster than the 90-day pause before more U.S. tariffs are imposed.

MACRO HEADWINDS REMAIN

The Chinese version of this weekend’s meeting, however, was curiously silent on the 90-day hiatus.

Other than noting that “the two sides decided to avoid escalation of trade restrictive measures,” official Chinese news agency Xinhua did not go into many details at all.

This narrative gap leaves markets both uncertain about whether the truce can hold and beholden to news flow from the planned U.S.-China consultations.

Discretionary money is unlikely to recommit to industrial metals on the long side until the smoke signals become clearer.

Fund managers, meanwhile, have another reason to be negative about metals.

One of the reasons metals such as copper were sold so heavily when the trade tensions began to escalate around the middle of the year is because of their sensitivity to China’s economy. And even as the threat of further tariffs recedes, a Chinese slowdown looms ever larger.

The country’s manufacturing sector stalled for the first time in two years in November, the purchasing managers index sliding to the dividing line between growth and contraction.

The metal markets are looking for Beijing to respond with infrastructure-heavy stimulus. Until it does, “demand conditions may well worsen” through year-end, to quote analysts at BMO Capital Markets.

They noted, moreover, that “wider activity across Asia put a dampener on economic prospects, with factory activity and export orders weakening across the region in November.”

There are bullish voices out there, most noticeably Goldman Sachs, but Julius Baer probably speaks for the consensus when it says it remains neutral on cyclical metals.

Against this backdrop the G20 “agreement” may be enough for bearish funds to reduce short positions, but it is unlikely to turn them bullish. Nor will it persuade the uncommitted that now is the time to buy into metals.

STRESSED SPREADS

Timing is everything in markets and funds turned negative on metals just as physical signals started to strengthen.

The disconnect has been manifest in contracting LME time-spreads with shorts having to maneuver in a shrinking LME stocks landscape.

The tightness has become extreme in the LME zinc contract, the benchmark cash-to-three-months spread closing Friday at an unprecedented cash premium of $113 a ton.

Funds sold out of zinc’s bull rally in the first quarter and have been collectively short ever since.

However, the supply-side driver of that rally – a shortage of mined production – is still working its way through the physical marketplace. New mines may be starting to refill the supply pipeline, but the refined metal part of the chain looks stressed out.

Most disconcerting for LME shorts is how little metal is being delivered to exchange warehouses, even with such a high cash premium.

Total inflow last month amounted to only 8,475 tons, not enough to stop headline inventory sliding to today’s 10-year low of 112,575 tonnes.

The cancellation of another 4,250 tons leaves on-warrant stocks at 84,350 tons, most seemingly owned by one entity, according to the LME’s positioning reports.

The same theme is playing out, albeit a little less acutely, in the copper market.

The cash-to-three-month LME copper spread closed Friday at a cash premium of $29 a ton.

More copper has been arriving in LME sheds, but it hasn’t been enough to stop inventory sliding to a multi-year low of 134,200 tons with on-warrant stocks lower still at 91,850 tonnes.

There is always more metal beyond the LME storage network, but it’s not a lot of use to anyone shorting the time-spreads.

Moreover, the combination of multiple copper smelter outages, both planned and unplanned, and still-robust Chinese imports is reducing physical availability.

Aluminum and lead have both traded in persistent backwardation at times this year and both look poised to do so again.

The aluminum cash-to-three-months spread tightened last week from a contango of $14 a ton on Monday to a contango of only $0.75 at Friday’s close.

The same time-spread in lead contracted from $25 to a $10.50 contango.

LME lead stocks have also been dwindling daily. The headline figure is now at its lowest in nearly 10 years at 105,125 tonnes, with no inflow registered over the course of November.

BULL-BEAR BATTLE CONTINUES

Such micro details have done no more than mitigate the price downside for metals such as zinc and lead over recent months.

But they continue to cause pain for LME shorts trying to roll positions in the face of low stocks liquidity, dominant stock holders and the resulting spread volatility.

This micro-macro tension has been a running theme of the LME market this year and looks likely to continue a while yet.

The macro picture may have brightened just a little after the weekend meeting of the U.S. and Chinese presidents. But signs the global economy is losing momentum, and the Chinese economy in particular, do not bode well for metals demand.

Funds are unlikely to change their broadly neutral-to-negative positioning. And until micro signals start agreeing with them, LME time-spreads will remain dangerously unpredictable.

The quest to create affordable, durable and mass-produced ‘smart textiles’ has been given fresh impetus through the use of the wonder material Graphene.

An international team of scientists, led by Professor Monica Craciun from the University of Exeter Engineering department, has pioneered a new technique to create fully electronic fibres that can be incorporated into the production of everyday clothing.

Currently, wearable electronics are achieved by essentially gluing devices to fabrics, which can mean they are too rigid and susceptible to malfunctioning.

The new research instead integrates the electronic devices into the fabric of the material, by coating electronic fibres with light-weight, durable components that will allow images to be shown directly on the fabric.

The research team believe that the discovery could revolutionise the creation of wearable electronic devices for use in a range of every day applications, as well as health monitoring, such as heart rates and blood pressure, and medical diagnostics.

The international collaborative research, which includes experts from the Centre for Graphene Science at the University of Exeter, the Universities of Aveiro and Lisbon in Portugal, and CenTexBel in Belgium, is published in the scientific journal Flexible Electronics.

Professor Craciun, co-author of the research said: “For truly wearable electronic devices to be achieved, it is vital that the components are able to be incorporated within the material, and not simply added to it.

Dr Elias Torres Alonso, Research Scientist at Graphenea and former PhD student in Professor Craciun’s team at Exeter added “This new research opens up the gateway for smart textiles to play a pivotal role in so many fields in the not-too-distant future. By weaving the graphene fibres into the fabric, we have created a new technique to all the full integration of electronics into textiles. The only limits from now are really within our own imagination.”

At just one atom thick, graphene is the thinnest substance capable of conducting electricity. It is very flexible and is one of the strongest known materials. The race has been on for scientists and engineers to adapt graphene for the use in wearable electronic devices in recent years.

This new research used existing polypropylene fibres — typically used in a host of commercial applications in the textile industry — to attach the new, graphene-based electronic fibres to create touch-sensor and light-emitting devices.

The new technique means that the fabrics can incorporate truly wearable displays without the need for electrodes, wires of additional materials.

Professor Saverio Russo, co-author and from the University of Exeter Physics department, added: “The incorporation of electronic devices on fabrics is something that scientists have tried to produce for a number of years, and is a truly game-changing advancement for modern technology.”

Dr Ana Neves, co-author and also from Exeter’s Engineering department added “The key to this new technique is that the textile fibres are flexible, comfortable and light, while being durable enough to cope with the demands of modern life.”

In 2015, an international team of scientists, including Professor Craciun, Professor Russo and Dr Ana Neves from the University of Exeter, have pioneered a new technique to embed transparent, flexible graphene electrodes into fibres commonly associated with the textile industry.