Given the increase in wholesale gas prices you’d expect that investment vehicles and companies involved in the energy transition would have shot up in value. However Tesla’s share price is down by almost a third (-31%) in the year to date, while Umicore, a major player in recycling strategic metals, is down 13%. As for funds, L&G Battery Value-Chain ETF (LSE: BATT) has fallen 18% in the year to date while WisdomTree Battery Solutions ETF (LSE: VOLT) is down 21% over the same period.
The share prices of nuclear energy-related firms have also not moved that much given the renewed focus on nuclear. Yellow Cake (LSE: YCA), a London-listed uranium oxide physical holding company, has seen its share price advance by 20% in the year to date. However, Geiger Counter (LSE: GCL), which invests in uranium-exploration companies, has seen its share price fall by 3%.
There’s also a handful of newly listed uranium ETF trackers. HANetf partnered with Canadian commodities giant Sprott to launch the HANetf Sprott Uranium Miners ETF (LSE: URNP), while Global X launched Uranium ETF (LSE: URNG). Over the last three months these funds have increased by between 24% and 16% respectively. Those numbers are certainly an improvement on the S&P 500’s decline of 4% but they’re hardly off to the races.
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Buoyant battery market will be good for strategic metals
Part of the reason for these mediocre returns is that investors in the battery complex and nuclear-power spectrum have grown jittery about over-capacity and some short-term price weakness in key metals. Chinese nickel-sulphate prices peaked at RMB56,000 per metric tonne on 10 March, but have come down around 34% to RMB36,900/mt as of 12 July, according to Scott Yarham at S&P Global Commodity Insights. One contributory factor has been the weakness of the steel sector in China – which accounts for more nickel demand than batteries, resulting in lower overall demand.
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However, this analysis also points to a much more buoyant overall battery market. Lithium carbonate hit all-time highs of $78,000/mt in April and at S&P’s recent assessment was at $71,000/mt, up nearly 450% year on year due to increased demand for electric vehicle batteries and tight supply.
Cobalt hydroxide prices have also increased nearly 32% year on year, while battery-pack costs have increased and battery makers have made public announcements that prices will increase, says Yarham. “This is very unusual for battery costs, which have been consistently moving down for over a decade.” Some lithium producers are said to be fully booked for 2022.
Electric-vehicle growth will strain mining capacity
Short-term pricing pressures aside, it seems to me markets haven’t priced in long-term structural drivers. There will be a huge increase in electric vehicle deliveries over the next decade. This will strain mining capacity, especially in lithium. Prices must rise to stimulate investment in new capacity.
That’s also true for the uranium sector but with an added twist. Most deals avoid the spot market for uranium and opt for longer-term contracts. However capacity constraints will arise as demand from the developing world increases, forcing public sector buyers into the spot markets, which are thinly traded.
Finally, both the battery complex and nuclear sector lack the capacity to refine raw materials. Too much lithium-processing capacity is in China and uranium processing in Kazakhstan and Russia. If these countries were to use this capacity for geostrategic ends, prices would jump.
In short, if you think we are embarking on a structural transformation to wean us off increasingly expensive hydrocarbons, then recent price weakness in these alternative energy niches might represent a real opportunity.
