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August 16 2016

Commentary by Eoin Treacy

Gas Glut Upends Global Trade Flows as Buyers Find Leverage

This article by Tsuyoshi Inajima for Bloomberg may be of interest to subscribers. Here is a section:

Historically, LNG has been sold on long-term contracts that guaranteed buyers supply and helped producers finance liquefaction plants at a time when less of the product was shipped. Now, a gas glut is causing LNG importing countries to support renegotiating existing deals that can run 20 years or more while suppliers offer more flexible terms to lock up customers spoiled for choice.

India already is encouraging importers to rework long-term accords to better align costs with spot market prices. Japan, the world’s largest LNG importer, may soon join them. That country’s Fair Trade Commission is in the process of probing resale restrictions in longer deals in an effort that could mean the renegotiation of more than $600 billion in contracts and boost the number of shorter-term agreements.

“There will be 40 million to 50 million tons of homeless LNG by 2020, which can go anywhere or doesn’t have any fixed customers,” said Hiroki Sato, a senior executive vice president with Jera Co., a fuel buyer that plans to increase spot and short-term LNG deals. “Homeless LNG will provide a great opportunity to improve liquidity in Asian and global markets.”

 

Eoin Treacy's view -

The evolution of a global transportation network for natural gas is creating the impetus to divorce pricing from long-term oil contracts. While Russia floated the idea of creating a natural gas equivalent of OPEC a few years back, as a way of preserving it pricing power, it was unable to reach critical mass. 

The reality today is that a substantial number of new entrants to the market, not least Australia, the USA and developing east Africa, all have a vested interest in capturing market share. Meanwhile major consumers like Japan, India and China would understandably like to avail of lower prices. The expansion of the Panama Canal also boosts the viability of US exports to Asia. 

 



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February 29 2016

Commentary by Eoin Treacy

Electric car war sends lithium prices sky high

This article by James Stafford for Mineweb may be of interest to subscribers. Here is a section:

That’s why Goldman Sachs calls lithium the “new gasoline”. It’s also why The Economist calls it “the world’s hottest commodity”, and talks about a “global scramble to secure supplies of lithium by the world’s largest battery producers, and by end-users such as carmakers.”

In fact, as the Economist notes, the price of 99%-pure lithium carbonate imported to China more than doubled in the two months to the end of December—putting it at a whopping $13,000 per ton.

But what you might not know is that this playing field is fast becoming a battlefield that has huge names such as Apple, Google and start-up Faraday Future throwing down for electric car market share and even reportedly gaming to see who can steal the best engineers.

Apple has now come out of the closet with plans for its own electric car by 2019, putting it on a direct collision course with Tesla. And Google, too, is pushing fast into this arena with its self-driving car project through its Alphabet holding company.

Then we have the Faraday Future start-up—backed by Chinese billionaire Jia Yueting–which has charged onto this scene with plans for a new $1-billion factory in Las Vegas, and is hoping to produce its first car next year already.

Ensuring the best engineers for all these rival projects opens up a second front line in the war. They’ve all been at each other’s recruitment throats for months, stealing each other’s prized staff.

And when the wave of megafactories starts pumping out batteries—with the first slated to come online as soon as next year–we could need up to 100,000 tons of new lithium carbonate by 2021. It’s an amount of lithium we just don’t have right now.

 

Eoin Treacy's view -

Describing lithium as the “new gasoline” is an interesting take on the projected demand for electric cars. Last week’s Bloomberg article proclaiming batteries would cause the next oil crisis would appear to be in the same vein. These estimates are based on the fact that large battery factories are going to come on line in the next 18 months and not just Tesla’s giga-factory in Nevada. With additional supply, prices can be expected to decline and demand should rise. Home batteries and home charging stations are likely to become much more visible and utilities are already installing industrial scale batteries to tackle intermittency of renewables and to become more efficient with fossil fuel use. 



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January 04 2016

Commentary by Eoin Treacy

8 Tech Breakthroughs of 2015 That Could Help Power the World

Thanks to a subscriber for this article by Wendy Koch for National Geographic which may be of interest. Here is a section: 

7. Better Batteries
Solar and wind power have seemingly limitless potential, but since they're intermittent sources of Energy, they need to be stored. That’s why there’s a race to build a better battery. The lithium-ion standard bearer, introduced by Sony two-plus decades ago for personal electronics, can be pricey—especially for large uses—and flammable. So every few weeks comes an announcement of a new idea.

Harvard researchers unveiled a flow battery made with cheap, non-toxic, high-performance materials that they say won’t catch fire. “It is a huge step forward. It opens this up for anyone to use,” says Michael Aziz, Harvard University engineering professor and co-author of a study in the journal Science. (Find out how this flow battery works.) Also this year, MIT and DOE announced promising advances that could make batteries better and cheaper.

The battery push has gone beyond the lab. In May, Tesla’s Musk unveiled battery products that he plans to mass-produce in his $5 billion Gigafactory in Nevada. The products include the sleek, mountable Powerwall unit that SolarCity, a company he chairs, is putting in homes. This month, in the first such offering from a U.S. utility, Vermont’s Green Mountain Power began selling or leasing the Powerwall to customers. (Here are five reasons this battery is a big deal.)

Other companies are challenging Musk. Pittsburgh-based Aquion Energy, a spinoff from Carnegie Mellon University, began selling its saltwater battery stacks last year. German storage developer Sonnen said this month that it’s ramping up production of its lithium-ion battery at its facility in San Jose, California, for use in U.S. homes.

 

Eoin Treacy's view -

Symbiosis is popular in nature but it is becoming increasingly clear that it also has a role to play in sustaining the pace of technological innovation. Renewable Energy technologies such as wind and solar are progressing rapidly but they will always suffer from intermittency without corresponding innovation in storage for both consumer and industrial uses. This has been painfully slow to follow because it takes time for capital invested in research to deliver results and yet the signs are promising that the next really big enabler with occur among chemical companies. 



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September 17 2015

Commentary by Eoin Treacy

Pure Energy Minerals drops the next lithium bombshell As Tesla seeks supply for its Gigafactory

This article by Peter Epstein for Mineweb may be of interest to subscribers. Here is a section: 

Stepping back for a moment, on September 3rd, Tesla’s Founder Elon Musk reiterated his commitment to source materials from Nevada. However, that pledge did not necessarily mean another sourcing deal, announced so soon, or that it would be for lithium. Other materials besides lithium will be required. Cobalt and graphite, (among others), will also be needed to feed Tesla’s massive giga-factory in Nevada. I find this agreement to be highly noteworthy in the sense that Tesla’s growing need for lithium, perhaps more so than that for cobalt and graphite, represents the single most important raw material need. I imagine that other lithium agreements will be signed in coming months. Without question, Nevada wants further lithium deals to come from Nevada.

Eoin Treacy's view -

The fall in oil prices has had a knock-on effect on most Energy related sectors as the relative economics of various alternatives have changed. Lithium miners have been no exception and this has been despite the fact lithium prices have not fallen. Demand for lithium-ion batteries in everything from consumer goods to cars and planes has helped fuel major investment and a large number of explorers are now listed. However securing an agreement to supply Tesla’s factory is a major coup for Pure Energy.



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June 29 2015

Commentary by Eoin Treacy

Coal Shares Jump After Supreme Court Strikes Down Mercury Rule

This article by Tim Loh for Bloomberg may be of interest to subscribers. Here it is in full:

U.S. coal shares jumped after the Supreme Court struck down the Obama administration’s mercury and acid gases power plant rule, saying it hadn’t considered the billions of dollars in costs before issuing the rule.

Arch Coal Inc. jumped as much as 19 percent, Peabody Energy Corp. climbed 15 percent and Alpha Natural Resources Inc. was up 14 percent in intraday trading after the ruling was announced Monday.

The court’s decision calls into question an Environmental Protection Agency rule that targets mercury and acid gases. The rule has led to the closing of dozens of coal-fired power plants over the last two years.

 

Eoin Treacy's view -

It’s been a long time since coal caught a break and a great deal of bad news is already in the price. Coal is dirty, antiquarian, low tech and contributes to pollution but is cheap and abundant.  Over the last few years investors and regulators have concentrated on the former points and forgot the latter ones. Coal is the feed stock for a substantial portion of electricity production and today’s decision will mean that fewer power stations in the USA will need to be closed as a result of stringent regulations. 



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August 19 2014

Commentary by Eoin Treacy

Tony Abbott expected to sign uranium deal with India on visit next month

This article by Daniel Hurst for the Guardian may be of interest to subscribers. Here is a section:

Tony Abbott is expected to sign a deal to sell uranium to India during a visit to the country next month.

The Australian prime minister’s scheduled visit follows the completion of negotiations surrounding arrangements for the export of uranium, according to multiple news reports.

Indian officials convinced their Australian counterparts that the uranium would not be used for nuclear weapons, the Australian Broadcasting Corporation reported on Monday.

The Times of India reported earlier this month that negotiations between the two countries had concluded and the deal was likely to be signed during Abbott’s visit to India in early September.

The Australian government would not confirm the reports on Monday, but the assistant minister for infrastructure, Jamie Briggs, told the ABC it would be a welcome development if true.

 

Eoin Treacy's view -

Despite the fact Australia has the world’s largest deposits of uranium, it has no nuclear power stations and has often had a difficult relationship with its uranium mining sector; with the result that some states and territories permit mining while others don’t. Signing a deal with India for exports is a welcome development for the sector which has been languishing in the aftermath of the Fukushima disaster.

Uranium prices collapsed from their 2007 peak near $140 and, following a relatively brief rally in 2010, extended the downtrend to fresh lows. The recent three-week rally has closed the overextension relative to the 200-day MA but a sustained move above it will be required to begin to suggest a return to demand dominance beyond the short term. 



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June 25 2014

Commentary by Eoin Treacy

Australia lowers 2015 iron ore price forecast to $94.60/t

This article by James Regan for Reuters may be of interest to subscribers. Here is a section

BREE's forecast iron ore price for 2015 is just above the current price of 93.30 .IO62-CNI=SI, following a 30 percent price drop this year. However, exports in fiscal 2014/15 were forecast to rise 13 percent to 720.7 million tonnes, BREE said, just below its previous estimate.

Jefferies has cut its earnings estimates for iron ore miners by 5-9 percent below consensus between 2014 and 2016, owing to expectations ore prices will continue to weaken as supply swells.

"This tsunami of supply is still rolling in, and supply growth is likely to be substantial until 2016," it said in a client note.

BREE also forecast a sharp dip in metallurgical coal prices to $118.90 a tonne in 2015, well down on its March forecast of $134.60. It slightly increased its forecast for exports to 180.5 million tonnes in 2014/15, just up on a year earlier.

Commissioning of new coal mines has more than offset lost production from ones that have closed, BREE said, but many producers were unprofitable at prevailing prices.

"This demonstrates the business of mining bulk commodities like coal and iron ore is almost exclusively the domain of big producers, which can benefit from their large economies of scale," said Minelife analyst Gavin Wendt in Sydney.

Eoin Treacy's view -

Over the last week iron-ore prices have stabilised near the 2012 low at $90. A short-term oversold condition is evident so even in a bearish scenario there is scope for a bounce from these levels. However investors are probably going to require some evidence of steadying before concluding a meaningful floor has been reached.

Coking Coal prices have fallen even further and are currently trading below their 2008 lows. A sustained move back above the 200-day MA would be required to begin to suggest more than a short-term low has been reached.



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May 07 2014

Commentary by Eoin Treacy

BlackRock World Mining boosts income

This article from the Investors Chronicle dated February 5th may be of interest to subscribers. Here is a section:

About half the trust's income comes from ordinary dividends, which Mr Hambro says are on the rise, but it has also boosted its income by investing in royalties. This is where in exchange for putting money into a company the trust, for example, receives a percentage of the revenue from the company's mine over its life. The trust holds three royalties, though can invest up to 20 per cent of its portfolio in these and is looking to increase exposure.

It entered into its first royalty agreement in 2012 with London Mining (LOND). For a consideration of $110m, the trust gets a 2 per cent revenue related royalty calculated from iron ore sales over the life of the mine from London Mining's Marampa licence in Sierra Leone. This is paid quarterly.

 

Eoin Treacy's view -

Over the last month we have highlighted a number of Energy and resources companies which have returned to positions of relative outperformance. As part of my search for suitable vehicles likely to benefit from this theme, I took a look at the Blackrock World Mining Trust’s constituents. 

While Rio Tinto and BHP Billiton remain its largest weighting, London Mining is its four largest at 6.7% of the portfolio. The trust may hold a royalty in the company’s production but the share remains in a medium-term downtrend and its market cap has declined to a mere £80 million. This underperformance may be contributing to the trusts inability to sustain a rally. 

 



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April 30 2014

Commentary by Eoin Treacy

Supreme Court upholds EPA rule limiting cross-state pollution

This article from the Washington Post may be of interest to subscribers. Here is a section:

EPA Administrator Gina McCarthy called the ruling “a resounding victory for public health and a key component” of the agency’s effort to “make sure all Americans have clean air to breathe.” She said the court’s decision underscored the importance of basing clean air rules “on strong legal foundations and sound science,” declaring it a big win and “a proud day for the agency.”

Richard Lazarus, an environmental law professor at Harvard, called the cross-state pollution rule “one of the most significant rules ever” promulgated by the EPA, and supporters said the cost of carrying it out would be more than offset by health benefits.

 

Eoin Treacy's view -

The last few years have represented a perfect storm for coal companies. Low natural gas prices took over market share among utilities. Stricter environmental standards have also increased the cost of using coal for the same utilities which has further bolstered the allure of natural gas. As a result a number of coal miners have run into financial difficulties. For example, James River Coal defaulted on its debt two weeks ago. 



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March 05 2014

Commentary by Eoin Treacy

Australian Growth Beats Estimates as Rebalancing Begins

This article by Michael Heath for Bloomberg may be of interest to subscribers. Here is a section: 

“The Coalition’s plan to reduce regulation and abolish taxes will help smooth the transition in the economy away from resource investment and toward growth in the non-mining sectors,” Treasurer Joe Hockey said in a statement today.

“That will be key to boosting annual growth to more than 3 percent, which is what’s needed to bring unemployment down.”

The nation’s unemployment rate climbed to a 10-year high of 6 percent in January. February jobs data is due on March 13.

“Some indicators of business conditions and confidence have shown improvement and exports are rising,” central bank Governor Glenn Stevens said in a statement accompanying yesterday’s decision to leave rates unchanged. “At the same time, resources sector investment spending is set to decline significantly and, at this stage, signs of improvement in investment intentions in other sectors are only tentative.”

Eoin Treacy's view -

The RBA has made its intentions clear by reducing short-term rates to historic lows and repeatedly earmarking the currency for additional declines. This has had the twin effects of boosting the allure of Australia’s high yielding shares and enhancing the export sector’s competitiveness.

While a great deal of commentary has focused on the slowing pace of investment in the resources sector, the equity markets have already priced in the fact that massive write-downs have already been announced and that miners are now running much more cost-efficient operations. 



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