Lithium Isn’t the Only Commodity We’ll Need for the Energy Transition

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In today’s Money Morning…keeping an eye on copper…copper supply is looking shaky…commodities are a great place to be…and more…

Want to make some money? Get into lithium mining…at least that’s Elon Musk’s advice.

As he said when he announced Tesla’s first-quarter results late last week:

To be clear, it’s not that there’s a shortage of lithium in the world …  it is present almost everywhere.

It’s a very common element. However, you still need to to dig up … the clay with the lithium, and then you need to go through a whole series of refinement steps. And that’s a lot of industrial equipment that’s needed.

Lithium margins right now are practically software margins. Correct me if I’m wrong, but I think we’re seeing cases where the spot lithium price is 10 times higher than the cost of extraction.

So like we were talking 90% margins here. More people, please, get into the lithium business. It’s … do you like minting money? Well, the lithium business is for you.’

As I’ve mentioned before, Tesla isn’t the only automaker worried about the lithium supply.

Lithium is a key commodity for electric vehicles.

And as countries move toward the green energy transition, there’s been a great disconnect between supply and demand for lithium.

It’s why lithium has been on an incredible run. Lithium carbonate prices are up more than 450% in the last 12 months…and have increased by 122% since the beginning of the year.

You see, while we’ve seen more than US$500 billion go into building 285 gigafactories worldwide, there hasn’t been as much investment flowing into mining and the raw materials needed for batteries.

And building this supply takes time.

While it only takes a couple of years to build a gigafactory, getting a lithium project up and running can take close to a decade.

Of course, lithium isn’t the only commodity we’ll need more of for the energy transition. To name a few, we’ll need more graphite, nickel, copper…and speaking of copper…

Keeping an eye on copper

Copper is also a key material for the energy transition.

Copper has many properties like high conductivity, making it ideal for use in many types of clean energy like wind turbines and solar.

But also, electric vehicles.

While a regular petrol car has around 20kg of copper, a battery-electric vehicle needs much more copper, about four times more, or around 83kg.

Not only that, but you also need copper for the EV infrastructure required to charge all those EVs.

So we will need plenty of copper and investment in copper as we move on with the transition.

Rystad, for example, expects that global demand for copper could exceed supply by more than six million tonnes by 2030.

Goldman is even more bullish. They’ve even gone as far as calling copper ‘the new oil’.

They expect the metal to hit US$15,000 a tonne as early as 2025, with the renewable energy transition creating a long-term supply gap of 8.2 million tonnes by 2030.

In short, we’ll need more copper, and there could be a growing disconnect between supply and demand over time.

It’s why prices have been rising.

When the pandemic started in 2020, copper prices were trading just under US$5,000 a tonne. In March this year, they hit an all-time high of US$10,910 per tonne.

And it’s an interesting time for copper.

For one, global stockpiles are running low. This is mainly because of decreased investment, but also the cost of extracting copper has been increasing.

And then there’s been some issues with supply.

Copper supply is looking shaky

Chile is the largest producer in the world, followed by Peru. Both countries make up about 40% of global copper mining.

But there’s been fiscal and social instability in both.

In Peru, protests have even forced the Las Bambas and Cuajone mines to close, which account for about 20% of Peru’s copper production.

And then, of course, copper supply could take another hit from the Ukraine-Russia conflict. In 2021, Russia produced about 5% of the world’s copper, or 850,000 tonnes.

So far, copper from Russia continues to flow, but last month the London Metal Exchange committee recommended banning new supplies of Russian metals from the bourse, which, if it happens, could affect the market.

At the moment, copper prices have fallen under US$10,000 a tonne, mainly over concerns about how COVID lockdowns will affect demand from China. China is the largest copper consumer in the world, accounting for 55% of total refined consumption.

Of course, much of it depends on what happens with China’s demand. But copper prices could stay high for a while as supply looks shaky and demand increases for the energy transition.

The point is, with negative interest rates, inflation biting, and demand increasing from the energy transition, commodities are a great place to be, in my view.

Until next week,

Selva Freigedo Signature

Selva Freigedo,
For Money Morning

Selva is also the Editor of New Energy Investor, a newsletter that looks for opportunities in the energy transition. For information on how to subscribe, click here.

About Selva Freigedo

Selva Freigedo is an analyst at Money Morning. She has a background in financial economics, but what makes Selva´s experiences different to many are the places she has lived and worked. Born in Argentina, she has also lived in Brazil, the US, Spain, and now Australia. She has seen up…

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