3 Commodities Benefiting From New Technology
Investors love technology and technology stocks.
For proof, one needs look no further than the famous FANG or FAAMG stocks. These include the likes of Apple (Nasdaq: AAPL), Amazon.com (Nasdaq: AMZN) and Google parent, Alphabet (Nasdaq: GOOG). Other stocks like Tesla Motors (Nasdaq: TSLA) and Nvidia (Nasdaq: NVDA) are also in many portfolios.
But here’s a secret about technology many investors are unaware of. But I want you to know about it. Many of our wonderful technologies would not be possible without the ‘boring’ commodities that go into many of the components.
That’s right. . .without certain crucial metals and minerals, our technological world would not exist.
Let me explain by taking a closer look at one example, the electric car, where some think Tesla is the only way to play it. And then I’ll share a couple great investment ideas in this space, even if you’re more of a tech person.
Electric Car Future
New research from Bloomberg New Energy Finance (BNEF) indicates that battery prices – which are falling quickly – will mean that as early as 2025, it will be cheaper to buy electric vehicles (EVs) in the U.S. than conventional ones. BNEF further forecasts battery costs will fall about 77% by 2030.
This may turn out to be a conservative estimate thanks to what is happening in the world’s biggest emerging markets of China and India. Both countries have huge ambitions in battery technology.
That ambition seems to be already coming true in China, which is now the world’s largest EV market. The country plans to dominate the market for batteries too. Its biggest battery maker, CATL, will soon produce more lithium-ion batteries than the maximum future production of Tesla’s Gigafactory. And BYD Company Ltd. (OTC: BYDYY), a company in which Warren Buffett has nearly a 10% stake is not far behind. BYD produces both batteries and electric vehicles.
Overall, China plans to double battery production by 2020. This is beginning to look to me a bit like what happened in solar panels where massive Chinese output drove down costs by about 70%.
Here’s where this turns into investment opportunities. . . . .
Metals Party
Guess what? All of those lithium-ion batteries will need lots of lithium and cobalt, and even graphite and manganese. China seems to be well aware of this fact and is snapping up lithium and cobalt deposits all over the globe.
Demand from the battery industry has already sent prices for lithium and cobalt skyward. (Ed. Note: You’ll want to stay tuned as I discuss future investment opportunities in this specialized sector in the near future.)
Right now, I wanted to point out that other more common industrial metals are and will continue to receive a major boost from the rise of electric vehicles.
A perfect example of this is copper. You see, electric cars contain about three times as much copper as regular vehicles. And let’s not forget about those needed charging stations for electric vehicles. Forecasts here are that charging stations alone will add about 5% to copper demand by 2025.
Some estimate this rising demand will require the mined copper supply base – about 20 million metric tons currently – to double over the next 20 years. Even more conservative estimates say that between two and five million extra tons annually will be needed.
The increased supply cannot come from existing mines (some more than 100 years old) where ore grades are deteriorating. New copper mining projects need to happen and that will require a higher copper price. When production was lifted by 15 to 20 million tons during the commodity supercycle from 2003 to 2013, it required a price of $10,000 a metric ton. A far cry from the current $6,000 a ton price.
A noted player in the Canadian mining industry, Robert Friedland, told investors in July that “You are going to need a telescope to see the copper price by 2020.” He happens to be CEO of copper miner Ivanhoe Mines (OTC: IVPAF), which owns the world’s fifth biggest copper deposit, so he is biased. But his point about higher prices is spot on.
And just last week in its earnings presentation Glencore (LSE: GLEN) said that by 2030, there would be a need for an extra 2 million tons of copper, 1.2 million tons of nickel and 260,000 tons of cobalt.
Changes in the vehicles you and I will drive is also boosting other metals such as nickel (nickel sulfate is used in the cathodes of lithium-ion batteries) and aluminum. Already demand for aluminum from vehicle manufacturers has raised demand by 1.6 million metric tons over the past three years.
Other factors are at play too, such as the Chinese government clampdown on pollution. This confluence of factors has sent copper to a four-year high and aluminum to a three-year high.
Metals Investments
Fortunately, there are a number of ways you can play this renaissance in the price of industrial metals thanks to up and coming technologies like electric vehicles.
You could buy a small miner like the aforementioned Ivanhoe Mines. Or the world’s largest publicly-traded copper producer, Freeport-McMoran (NYSE: FCX). It will sell about 3.7 billion pounds of copper this year.
Or you could opt to play a broad basket of copper mining companies through an ETF – the Global X Copper Miners ETF (NYSE: COPX). Or even a play directly on the price of industrial metals through the Powershares DB Base Metals Fund (NYSE: DBB). Its portfolio consists of futures on the following metals: copper – 34.63%, zinc – 32.98%, and aluminum – 32.37%.
If electric cars and other new technologies are adopted as expected, these investments will shine.
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Category: Commodities
