The Lithium Revolution
How the shift to clean energy has opened a window of opportunity for energy metals.
“The Lithium Revolution” infographic presented by: Dajin Resources
Commodity investors know that it in recent years, the sector has had a rough ride. Recently, factors such as China’s slowdown have weighed on short-term prices of industrial commodities like fuels and base metals.
However, not all of the energy sector has struggled. The rise of clean energy has continued to gain momentum, which could be a boon for energy metals producers and explorers.
Simply put, energy metals are metals used in the creation or storage of energy. Here are some examples of energy metals needed to make lithium-ion batteries, which are the storage mechanism of choice for many green energy producers:
Lithium: Lithium is the main ingredient to lithium-ion batteries – the metal’s ions move back and forth to charge and discharge the battery.
Cobalt: Widely used in lithium-ion cathodes
Graphite: The most common anode material for lithium-ion batteries.
Note: Uranium is also used for nuclear power, and copper is fundamental for creating and transporting energy around the world. However, in this infographic we focus on specialty metals.
Electric cars and energy storage for renewable sources have been driving the increases in price and demand for these sectors. Let’s take a look at the specific momentum that has been growing since 2014.
Political and social:
- Obama reveals clean energy plan: The push will involve more than $1 billion in government funds to back new clean energy and energy efficiency projects along with funding research and development of new energy technologies.
- Who were the biggest investors in renewable energy in 2014?
China ($83.3 billion), USA ($38.3 billion), and Japan ($35.7 billion)
- Volkswagen DieselGate scandal causes uproar, as it becomes clear that millions of the company’s vehicles have cheated emissions tests for years
- Elon Musk announces a mandate for Tesla Motors to acquire raw materials from the USA when possible.
- 4,000 people die, each day, of pollution related deaths in China alone.
- The United States deems lithium as a strategic metal and doesn’t give any statistics of its reserves or production.
- Tesla reveals plans to build $5 Billion Gigafactory in the Southwestern US.
- Tesla announces Nevada as the site of its already-famous Gigafactory project.
- The 1 millionth electric car is built in September 2015.
- Report surfaces that Apple plans to ship driverless cars by 2019.
- Google’s self-driving cars reach the milestone of 1 million miles driven autonomously.
- Tesla takes $800 million in orders for its new home batteries in just two weeks.
- A TSX-V traded company was the most recent recipient of an off take agreement to supply Tesla with Lithium Hydroxide.
- Volkswagen’s stock price gets crushed over 30% in the aftermath of DieselGate.
- FMC recently announced an “across the board 15% increase in price” in all finished lithium products. Lithium Hydroxide rose from $9,500 per ton, up to $10,870. Lithium Carbonate from $6,500 per ton up to $7,475 USD.
- Charging stations have increased rapidly around the world.
- Every major auto manufacture has more than one fully electric car. Some automakers mandate is to have an electric version of every model.
- The oil price has hit a 6.5 year low, yet electric vehicle sales have held momentum.
- Lithium battery manufacturing costs are dropping in price while lithium battery technology is getting better.
- New technology is decreasing the charge time for electric cars. Meanwhile, “miles per charge” is rising, and some cars can even recharge wirelessly.
- There’s a greater interest in looking after the environment with a continued scare of global warming.
- Wind and solar storage needed to regulate output of electricity back to the grid.
- China is a nation now giving priority to EV cars on their highways and parking lots.
The above momentum means energy metals like lithium could continue to buck the general trend of global commodities. So far, the price of lithium has increased steadily since 2011.
Visualizing the Biggest Risks to the Global Economy in 2020
The Global Risk Report 2020 paints an unprecedented risk landscape for 2020—one dominated by climate change and other environmental concerns.
Top Risks in 2020: Dominated by Environmental Factors
Environmental concerns are a frequent talking point drawn upon by politicians and scientists alike, and for good reason. Irrespective of economic or social status, climate change has the potential to affect us all.
While public urgency surrounding climate action has been growing, it can be difficult to comprehend the potential extent of economic disruption that environmental risks pose.
Front and Center
Today’s chart uses data from the World Economic Forum’s annual Global Risks Report, which surveyed 800 leaders from business, government, and non-profits to showcase the most prominent economic risks the world faces.
According to the data in the report, here are the top five risks to the global economy, in terms of their likelihood and potential impact:
|Top Global Risks (by "Likelihood")||Top Global Risks (by "Impact")|
|#1||Extreme weather||#1||Climate action failure|
|#2||Climate action failure||#2||Weapons of mass destruction|
|#3||Natural disasters||#3||Biodiversity loss|
|#4||Biodiversity loss||#4||Extreme weather|
|#5||Humanmade environmental disasters||#5||Water crises|
With more emphasis being placed on environmental risks, how much do we need to worry?
According to the World Economic Forum, more than we can imagine. The report asserts that, among many other things, natural disasters are becoming more intense and more frequent.
While it can be difficult to extrapolate precisely how environmental risks could cascade into trouble for the global economy and financial system, here are some interesting examples of how they are already affecting institutional investors and the insurance industry.
The Stranded Assets Dilemma
If the world is to stick to its 2°C global warming threshold, as outlined in the Paris Agreement, a significant amount of oil, gas, and coal reserves would need to be left untouched. These assets would become “stranded”, forfeiting roughly $1-4 trillion from the world economy.
Growing awareness of this risk has led to a change in sentiment. Many institutional investors have become wary of their portfolio exposures, and in some cases, have begun divesting from the sector entirely.
The financial case for fossil fuel divestment is strong. Fossil fuel companies once led the economy and world stock markets. They now lag.
– Institute for Energy Economics and Financial Analysis
The last couple of years have been a game-changer for the industry’s future prospects. For example, 2018 was a milestone year in fossil fuel divestment:
- Nearly 1,000 institutional investors representing $6.24 trillion in assets have pledged to divest from fossil fuels, up from just $52 billion four years ago;
- Ireland became the first country to commit to fossil fuel divestment. At the time of announcement, its sovereign development fund had $10.4 billion in assets;
- New York City became the largest (but not the first) city to commit to fossil fuel divestment. Its pension funds, totaling $189 billion at the time of announcement, aim to divest over a 5-year period.
A Tough Road Ahead
In a recent survey, actuaries ranked climate change as their top risk for 2019, ahead of damages from cyberattacks, financial instability, and terrorism—drawing strong parallels with the results of this year’s Global Risk Report.
These growing concerns are well-founded. 2017 was the costliest year on record for natural disasters, with $344 billion in global economic losses. This daunting figure translated to a record year for insured losses, totalling $140 billion.
Although insured losses over 2019 have fallen back in line with the average over the past 10 years, Munich RE believes that long-term environmental effects are already being felt:
- Recent studies have shown that over the long term, the environmental conditions for bushfires in Australia have become more favorable;
- Despite a decrease in U.S. wildfire losses compared to previous years, there is a rising long-term trend for forest area burned in the U.S.;
- An increase in hailstorms, as a result of climate change, has been shown to contribute to growing losses across the globe.
The Ball Is In Our Court
It’s clear that the environmental issues we face are beginning to have a larger real impact. Despite growing awareness and preliminary actions such as fossil fuel divestment, the Global Risk Report stresses that there is much more work to be done to mitigate risks.
How companies and governments choose to respond over the next decade will be a focal point of many discussions to come.
The Periodic Table of Commodity Returns
Which individual commodities were the best performers in 2019, and how do those numbers compare to the past decade of data?
The Periodic Table of Commodity Returns 2019
In 2019, every major asset class finished in the black.
And although the broad commodity market finished up 17.6% on the year, the performances of individual commodities were all over the map. For those familiar with the sector, that’s pretty much par for the course.
That said, the lack of an obvious correlation in commodity markets also makes for a thought-provoking and humbling exercise: comparing the annual returns of commodities against the data from the past decade.
A Decade of Commodities (2010-2019)
Today’s visualization comes to us from U.S. Global Investors, and it compares individual commodity returns between 2010 and 2019.
You can use the interactive tool on their website to toggle between various settings for the table of commodity returns, such as breaking them down by category (i.e. energy, precious metals, etc.), by best and worst performers, or by volatility over the time period.
Let’s dive into the data to see what trends we can uncover.
Palladium: The Best Commodity, Three Years Straight
In 2019, palladium finished as the best performing commodity for the third straight year — this time, with a 54.2% return.
You could have bought the precious metal for about $400/oz in early 2010, when it was a fraction of the price of either gold or platinum.
Nowadays, thanks to the metal’s ability to reduce harmful car emissions and an uncertain supply situation, palladium trades for above $2,000/oz — making it more expensive per ounce than both gold and platinum.
Oil and Gas: Opposite Ends of the Spectrum
As key energy commodities, oil and natural gas have an inherent connection to one another.
However, in 2019, the two commodities had completely diverging performances:
Crude oil prices gained 34.5% on the year, making it one of the best commodities for investors — meanwhile, natural gas went the opposite direction, dropping 25.5% on the year. This actually cements gas as the worst performing major commodity of the decade.
“That’s Gold, Jerry!”
Finally, it’s worth mentioning that gold and silver had a bounceback year.
Gold gained 18.3% to finish with the best return the yellow metal has seen in a decade. Silver followed suit with a similar story, rallying 15.2% over the calendar year.
Precious metals now sit at multi-year highs against an interesting economic and geopolitical backdrop to start 2020.
Where do you see the above commodities ending up on next year’s edition of the rankings?
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