China tries to throw cold water on base metals… EV / AV megatrend continues to gain momentum… and oil trade prints money
There’s a lot going on in the news this week beyond yesterday’s Federal Reserve meeting. So, today let’s go over several stories affecting your wallet.
*** China scares investors in base metals
As we have followed here in the Digest, copper and other base / industrial metals have been in tears for months – until recently …
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Below, you can see copper climb over 85% over the past year, before giving up some gains starting in May. The metal is down 8% from its recent high about a month ago.
Note also the sharp fall of the last few days.
What is going on there?
Of the Wall Street newspaper:
China has said it will start selling major industrial metals from state inventories, in an effort to stifle ex-factory price increases that have peaked in 13 years and are fueling fears of ‘global inflation.
As the world’s largest buyer of a range of industrial products, China is using its market weight to try to suppress the sharp rise in global metal prices over the past 12 months, including a 67% increase in copper, an indicator of macroeconomic health.
Ordinary Digest readers know we are very bullish on copper and other base metals. To reach this conclusion, we relied on the analysis of our macro specialist, Eric Fry, who points to a multi-year supercycle of key commodities.
Does this news from China change all that?
China could perhaps temporarily ease the pressure from soaring commodity prices, but – to borrow from the Fed – that would be “transient” … a bit like trying to block sprays from a fire hose with your hand.
As the world shifts to green energy over the next few years, the demand for copper and base metals is going to be massive. The reserves of a country – even a country as large as China – cannot stop this.
Of The edge (added bold):
Something does not come from nothing. This fact can be easily overlooked when it comes to seemingly abstract concepts like “energy”.
As the climate change crisis worsens, more and more politicians are starting to stress the importance of the clean energy transition.
More clean energy means more solar panels, wind turbines, electric vehicles and large-scale batteries. But it also means increased demand for the materials that make these technologies possible..
In some cases (like silicon for solar panels) higher demand is unlikely to be a problem …
But our supply chains for other materials, such as neodymium for wind turbines, lithium and cobalt for batteries, and copper for almost everything – may need to change.
And of Axes (added bold):
The global transition to renewable energies and electric vehicles will require unprecedented amounts of copper from potential new mining operations …
The Global copper requirements could increase by around 350% by 2050, current reserves running out between 2035 and 2045 as wind and solar power generate an increasing percentage of electricity and more people are adopting electric vehicles.
Now, to adjust expectations, the price of copper is under pressure. Below we add a 50-day simple moving average to its one-year chart.
As you can see, it just fell below that support line. If it does not rebound quickly, we should expect prices to fall further in the coming days.
But if that were to happen, we would see it as an opportunity to add this “green” commodity to your portfolio as a long-term investment.
Bottom line: stay copper for a long time.
By the way, if you missed it, Click here read our recent Digest featuring Eric’s thoughts on vanadium and how you might play it. He believes it is the next base metal to offer investors huge returns.
*** Continuing the transition to green energies, the electric vehicle (EV) / autonomous vehicle (AV) megatrend continues to strengthen
Copper and base metals play an important role in the batteries of electric and autonomous vehicles.
Interestingly, yesterday we learned that GM will increase spending on electric and autonomous vehicles to $ 35 billion through 2025. That’s a 30% increase from plans announced late last year. .
The additional money will be used to expand its deployment of electric vehicles and accelerate production of its battery and fuel cell technologies, including two new battery plants in the United States with two under construction, by 2025. .
Keep in mind that yesterday’s news comes less than a month after Ford announced it was increasing its spending on electric vehicles to over $ 30 billion by 2025.
And speaking of expenses, we also learned that Alphabet’s autonomous driving subsidiary, Waymo, just raised an additional $ 2.5 billion. This money will be spent on his continued efforts to develop autonomous driving technology for passenger cars and freight transportation.
Of the Wall Street newspaper:
The company said on Wednesday it wanted to use Waymo Driver technology to move people and goods. Its autonomous rideshare service, Waymo One, has made thousands of trips on the Phoenix subway, where some customers are transported in minibuses with no one behind the wheel, Waymo said. Waymo is testing its autonomous vehicle technology with bikers in San Francisco.
For its Waymo Via delivery unit, the company said it has partnered with JB Hunt Transport Services Inc. to move freight across the country. Its local customers include United Parcel Service Inc. and AutoNation Inc.
Here, too, Eric has positioned his Investment report subscribers to benefit from this EV / AV megatrend. Her choice of electric vehicles in February is up 60% as of this writing. But the signs suggest there are much bigger gains to come.
*** Green is the future, but right now the “black” is making a lot of money
We are talking about the oil trade.
Below you can see the price of West Texas crude skyrocketing over the past 12 months, surpassing $ 72.
In our February 19 Digest, we have noticed that in the long term, our world is moving away from oil, towards renewable energies.
We highlighted a series of facts and statistics to support this conclusion, one of which was the Biden administration’s plans to make the United States a 100% clean energy economy with net emissions. zero by 2050.
But as we wrote in this Digest…
There is plenty of time until 2050 for a profitable oil trade.
We put three potential short and medium term games on your radar …
The first was the ETF Energy Select Sector SPDR Fund (XLE) which owns oil heavyweights including Exxon, Chevron, ConocoPhillips, Schlumberger, Occidental and Valero to name a few…
The second was Diamondback Energy (FANG), which is a Texas-based energy exploration company …
And the third was Exxon (XOM), the large multinational oil and gas company.
It’s been four months since that suggestion, so where are things as of this writing?
In a period in which the S&P climbed only 8% and the Nasdaq only 1%, XLE, FANG and XOM climbed 25%, 40% and 26% respectively.
Oil is grafted onto the economic reopening as life returns to normal, resulting in increased demand.
Meanwhile, supply has been limited as production has been slower to get back on line after the 2020 shutdowns.
The result is a classic supply / demand imbalance that has helped drive up prices.
We believe this trade has more legs as the supply / demand imbalance resolves. Also, if we continue to see higher inflation numbers, it will be an additional tailwind.
But see this trade for what it is – it is a dynamic trade in the short to medium term. We still think electric will be the big winner of the decade, not oil. So, as it has been said, “Rent this business, don’t buy it”.
That said, this rental treats us pretty well, so let’s stick with it for now.
We will keep you updated on copper, electric vehicles and petroleum here in the Digest.
Have a good evening,
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