Charge of the lithium brigade: Solid state batteries and metal demand

A recent Bloomberg article highlights the challenge facing the car industry if it is to deliver an electric vehicle that’s inexpensive, safe and capable of traveling 500 miles on a single charge. That quest has zeroed in on solid-state technology, an overhaul of a battery’s internal architecture to use solid materials instead of flammable liquids to enable charging and discharging.

If it can be mastered, the article suggests solid-state technology could help speed the demise of the combustion-engine car and potentially slash electric vehicle charging times to about 10 minutes from as much as several hours.

The challenges are enormous, but the opportunity is potentially enormous for investors betting on the right metal before the bullish narrative is born, and are swift enough to know when the narrative is getting tired.

But which metal? George Heppel from CRU had this to say on LinkedIn in response to the article (my highlight in bold):

The massive growth in interest in electric cars has prompted widespread speculation on what form the next-generation battery will take – but for now, conventional battery technologies are here to stay for the next 10 years at least. Nickel, cobalt and lithium will continue to be the key EV battery materials. Cobalt may continue to be thrifted out in exchange for higher nickel content, but it is unlikely that it will be removed entirely – and any thrifting will be more-than made up for by an increase in battery demand.

Looking further forward (10+ years), I broadly agree with the article that solid-state batteries are the most likely next major step in battery technology. This would result in a decrease in nickel and cobalt demand and a corresponding increase in lithium demand as graphite anodes are replaced with lithium metal. Interestingly, this additional lithium demand will most likely take the form of lithium metal as opposed to lithium carbonate or hydroxide. Major investments into lithium metal refining capacity will need to be made in order to meet demand.

As ever its important to know that any bet on a particular energy metal is a bet on innovation. Technological developments of all sorts involve a large dose of serendipity and its impossible to say for certain how innovation in batteries will evolve. The lesson from history is that metal price spikes (of all kinds but particularly minor metals like lithium and cobalt) tend to be spectacular, but ultimately brief.

Related article: Electric dreams: If you thought predicting oil prices was tricky, try cobalt or lithium

Related article: What lessons does rhodium have for commodity investors?

Unlock commodity market insight now and subscribe to our email updates or

Tin prices: The top 10 most important drivers

1) Low liquidity

The LME tin contract is simply too illiquid to be on the radar of most funds. Unlike the major base metals such as copper whose price is heavily driven in the short term by funds eyeing macro-related factors like currencies and trade flows, the tin market is just too small in terms of volume. That means its price can be volatile and driven by obscure tin related factors that maybe hidden from all but the most seasoned tin market observers.

2) Concentrated, volatile supply

Three countries account for 66% of global mined tin supply; China with one-third share of total supply, followed by Indonesia and Myanmar both with a 17% market share.

Indonesia has traditionally been the wildcard, and thats a problem given that it is also the largest global exporter of tin. Earthquakes, monsoons and regulatory battles with major producers have frequently curtailed production from the exporter. That being said, any hit to exports in the past have tended to be brief.

Myanmar emerged as a major new source of tin around 2013, when significant tonnages of mine concentrate first started being imported by China. The sustainability of the tin mines in Myanmar’s Wa region has been the question of much debate in the tin market, with suggestions that reserves are being depleted rapidly.

3) Soldering demand the primary driver

The main application for refined tin is for soldering (accounting for 47% of demand in 2017). Electronics component miniaturisation and economisation remain the greatest threat to tin use in solders – an ever-decreasing amount of metal is being used to achieve the same performance. This is offset by market expansion and the opening of new markets such as robots, e-bikes and electric vehicles.

Chemicals and tinplate account for 18% and 14% respectively, followed by lead batteries with an 8% market share leaving 13% for other uses.


Photo by Chris Ried on Unsplash

4) New technologies

According to the International Tin Association there were more than 5,000 scientific papers and patents on tin related technologies published in 2017 demonstrating a strong future for this versatile element. Energy uses and technologies are the strongest new use drivers, with tin additions to lead-acid batteries and solder used for joining solar cells already benefiting. Over the next decade tin has many opportunities in lithium-ion and other batteries, solar PV, thermoelectric materials, hydrogen-related applications and carbon capture.

The challenge for investors (as with nickel) is understanding the impact that new technology demands could have on the metal versus the established end markets.

5) Stock levels

In theory rising tin stock levels should be indicative of a weak market, as supply exceeds demand. It is normal for prices and inventory levels to generally move in opposite directions. When tin producers don’t like the market price and think that they can get a better one by waiting, they put their production into warehouse storage and wait for better times. When prices rise up to or above a price level that the producers like, tin starts coming back out of inventory and onto the market. So watching tin inventory levels can give us insights about where the producers think a fair price is.

Both the LME and the Shanghai Futures Exchange (ShFE) report tin stocks. Traders should monitor the change in tin inventories at both exchanges for clues about tin supply and prices.

6) US dollar

Like most internationally traded commodities tin is priced in US dollars. At its most basic a decrease in the value of the US dollar relative to a commodity buyer’s currency means that the purchaser will need to spend less of their own currency to buy a given amount of the commodity. As the commodity becomes less expensive demand for the commodity rises, resulting in an increase in the price and vice versa.

A weaker dollar can also act as a disincentive to producers to increase output. The prospect of a lower profit margin acts as an incentive to decrease the supply of the metal.

7) Conflict minerals

Under the Dodd Frank Act of 2010 companies are required to investigate their supply chains for tin, tantalum, tungsten or gold mined and then sold to finance insurgent militia groups in the DRC and surrounding central Africa region. Tin may pose the biggest challenge for companies looking to rid their supply chains of “conflict minerals” blamed for funding violence in the Democratic Republic of the Congo.

8) Chinese demand

As families furnish their homes with large appliances the demand for tin typically increases. Since China is the largest global end user of tin (accounting for around half of refined tin use) the price of tin typically reacts in advance to signs of faster or slower growth in Chinese demand.

9) Input prices

Tin occurs in cassiterite ore bodies, and breaking down these ore bodies to extract the metal expends energy. Producing tin requires ample supplies of coal, electricity and crude oil. Mines and blast furnaces utilize energy to extract tin ores from the ground and process it into tin. These costs can have a big effect on primary production. Similarly, the costs of scrap tin can impact the price of secondary production.

10) Political interference

In the past the Indonesian government has attempted to tighten its grip on the country’s independent tin sector. Meanwhile, China has cracked down on illegal mining operations in a bid to improve environmental standards.

Related article: Copper prices: The top 10 most important drivers

Unlock commodity market insight now and subscribe to our email updates or

The best of Materials Risk 2018

Of the 29 articles published on Materials Risk this year here are the top 10 as measured by page views and engagement.

1. Probably the best podcasts on macroeconomics, markets and geopolitics

Over the past year I have become a complete and utter convert to podcasts. Tired of spending most of my day staring at a screen they are the perfect means to keep on learning but also giving your eyes a rest. I am constantly amazed at the quality of many of the podcasts out there. Sure many of them have a team of researchers providing background information but still to produce weekly podcasts of such a high standard is amazing.

2. A long term view creates opportunities for commodity investors: Interview with Mike Alkin 

I had the opportunity to talk with Mike Alkin. Mike is the founder and Chief Investment officer of Sachem Cove Partners, a hedge fund that invests solely in uranium and nuclear fuel cycle companies, a newsletter writer and someone who has spent 20+ years in the hedge fund business as an analyst, portfolio manager and partner.  In this interview you’ll learn how to manage a commodity investment over a long cycle, factors to look for when a commodity market is turning and why the uranium market is so unusual, Mike’s views on geopolitics in the uranium market, that some uranium mines also produce a valuable by-product and finally future careers in finance.

3. Soybean prices: The top 10 most important drivers

From the weather to China and from protein demand to tariffs here are the top 10 factors affecting soybean prices.

4. A growth business: Potash market shows signs of life

As you may know I’m always on the look out for commodity markets that have fallen out of favour. Ones that are hated by investors so such that any sense of fair value is so far down the list that they start to look like there is little in the way of downside risks. This brings out the potential for asymmetric returns for us as investors where the downside is limited, but the upside is potentially (but not always) very high. In this article I highlight the potential upside for potash.

5. Positioning analysis in commodity markets: An interview with Mark Keenan

I had the opportunity to talk with Mark Keenan, Global Commodities Strategist & Head of Research Asia-Pacific at Société Générale. In this interview you will learn why it’s important to be aware of the objectives of all market participants in commodity markets and why using methods like positioning analysis offer very good insights into whose doing what, and what happens when they do too much of it and how much positioning then relates to other factors like price, curve structure and fundamentals.

6. Electric dreams: If you thought predicting oil prices was tricky, try cobalt or lithium

Implicit in any forecast of commodity prices is an assumption of how technology could evolve and how its adoption will affect commodity prices. Commodity prices provide the incentive for new technology, yet also influence commodity production and consumption. Innovations, once introduced, may lead to higher yields from agriculture, more oil being extracted from offshore wells and deeper mines to extract more metals and minerals – all of which could eventually lead to rising commodity supplies.

7. Platinum prices: The top 10 most important drivers

From the vehicle demand to emissions tests and from recycling to investment demand here are the top 10 factors affecting the price of platinum.

8. Buy the rumour: Wheat prices spike on Ukraine export ban social media post

Wheat futures spiked by almost 5% in August after comments from the Ukrainian deputy agriculture minister on Facebook of “export limits for wheat” were misinterpreted as an imminent export ban.

9. Shining a light on extractive industries: An interview with Åsa Borssén from Raw Talks

I recently had a chance to talk to Åsa Borssén from Raw Talks. In this interview you will learn more about why governments struggle so much with managing resources and what steps they are making to change things for the future. We also talk about what investors in resource companies should think about when allocating their capital to resource dependent countries, both now and in the future.

10. El Niño looks imminent – here’s what that means for commodity markets

First observed in the 19th century by Peruvian fishermen, the recurring weather phenomenon is known to affect Australasia as well South America. Its climatic effects can reach as far as West Africa triggering downpours or droughts. Previous episodes have had a significant impact on crop yields and the price of agricultural commodities as well as metal and energy prices.

More interesting things you might have missed.

  • I publish a fortnightly newsletter that includes links to the best research I’ve seen freely available on the internet. Mostly commodity related but lots of macroeconomics.
  • Check out my list of recommended books.
  • If you haven’t read them yet I’d encourage you to buy my books – Commodities: 50 Things You Really Need To Know and Crude Forecasts, Predictions, Pundits & Profits In The Commodity Casino.
  • I published a short email course on commodities on GoHighbrow.

Thank you

I really appreciate your support over the past twelve months. I’ve had the opportunity to connect with some great people through writing for Materials Risk. I hope to do more of the same in 2019.

Until then, happy New Year.

Peter

Unlock commodity market insight now and subscribe to our email updates or