source：FN Arena News
EV growth no panacea for battery metals; nickel rises in price as alumina falls; step-up in global LNG production projects; rare earths draw attention.
-Strong outlook for battery metals over long term, but short term weakness
-Nickel shortage expected to ease; alumina appears oversupplied
-LNG capacity to explode, but supermajor links vital for new projects
By Nicki Bourlioufas
Electric vehicles promise bright future for battery metals, but no guarantees
Battery metals including lithium, cobalt and graphite had a spectacular run in 2017 powered by expectations of a boom in electric vehicles (EVs), but prices have since tumbled on fears of oversupply.
Canaccord Genuity predicts that sales of passenger EVs will rise to 11m in 2025 and 28m in 2030, up from 2.1m in 2018. This means EVs will increase to 14% of new vehicles sold in 2025, from 2.6% in 2018.
Such growth would underpin a requirement for 927kt of lithium and 208kt of cobalt in 2025, up from 230kt and 111kt, respectively, in 2018, according to the broker. The need for greater battery density will also drive a transition to lithium hydroxide rather than lithium carbonate.
On the negative side, Canaccord Genuity notes that battery metals producers are not immune to the delays and technical problems common to all miners, and that traditional sources of equity finance are cautious given a series of blowouts in capital expenditure.
As well, the Democratic Republic of Congo’s share of cobalt production is likely to rise to 70% from 60%, while China controls nearly 90% of refining capacity of some battery metals and rare earths. The situation could trigger concerns about concentration in the supply chain.
Nickel on a roll, alumina on downward track
Nickel has retraced recent gains following its speculator rally this year, while aluminium and copper too have fallen on poor macro sentiment as fears of a sharp global slowdown grow.
Nickel supply grew by 9% in the first six months of 2019 compared to the same period in 2018, but that was still not enough to meet demand, according to analysts at Macquarie.
Nickel is trading at about US$14,520 a tonne, having risen from just over US$10,000 a tonne a year ago.
The fastest growth was in nickel pig iron (NPI), which grew 30%, while non-NPI declined due to a major fall in production at Brazil’s Vale. “The market should move into balance by the end of the year,” predicts Macquarie.
Almost all NPI is consumed in making stainless steel, and the rapid growth in supply is elbowing out class 1 nickel metal in its production, Macquarie says. NPI represents almost 10% of recoverable nickel ore, and the vast majority of it is produced in Indonesia and exported to China, raising doubts about whether this intense trade can be sustained.
Alumina is moving in the other direction, with Morgan Stanley saying the price has fallen sharply despite a short-lived disruption to supply at a Chinese refinery. “Falling prices for bauxite, caustic soda and energy have pushed down production costs and China is adding significant capacity this year.”
The alumina free on board (fob) price in Australia has fallen from US$650 a tonne in September 2018 to US$300 a tonne in late July. The less volatile price of China domestic alumina (ex-VAT) has declined from about US$450 a tonne to US$325 a tonne over the same period.
The gold price has rallied over US$1,400/oz in response to last week’s US Fed decision to lower interest rates. Silver has continued to gain on speculative buying by those who missed gold's initial rally, suggests Morgan Stanley.
For oil, the outlook is grim, according to Macquarie’s oil team who sees greater US supply and subdued demand as the key bear risks to oil's price outlook.
LNG gets set for major expansion, but links with supermajors are key
A new wave of investment is coming for the liquified natural gas (LNG) industry, highlights Morgan Stanley. This will be driven by the “Supermajors” - Royal Dutch Shell, Total, BP, Eni, Exxon Mobil and Chevron.
Companies that partner with the supermajors will benefit, but the challenge for investors is that there is a long list of projects vying for expansion. “Not all will proceed and some projects will be left stranded,” Morgan Stanley points out.
Today, more than 40 countries import LNG, compared to nearly 10 around 15 years ago. With China's recent increase in consumption, the industry is positioning for higher demand.
However, spot LNG prices moved lower recently “due to short-term over-supply, a disconnect between the price that buyers are willing to pay to support new projects (required to meet longer-term demand) and the price suppliers need to achieve to make sufficient returns and to secure the financing to develop them.”
Morgan Stanley has upgraded its rating of Oil Search ((OSH)) to Overweight and maintained its Equal Weight on Woodside Petroleum ((WPL)). “We view Oil Search's partnerships with ExxonMobil and Total, and their low-cost nature and proximity to Asia as keys” to its PNG projects moving forward, the stockbroker explains.
Rare earths worth eyeing as demand grows
Ord Minnett has initiated coverage of the rare earth sector and issued its first ratings of producer Lynas Corporation ((LYC)) and developer and explorer Hastings Technology Metals ((HAS)).