Critical Metals Surge

March 9, 2021

by Gerardo Del Real

I’ve written at length (here and here) about the recent energy grid failure here in Texas.

The failure of one of the country’s most prosperous state’s energy grid is going to make it tough to oppose a multi-trillion dollar infrastructure package being proposed by the new administration here in the U.S.

Infrastructure that the past month made clear is necessary. We can all disagree on the most productive way to pay for it but that’s another discussion for another day, and I’d rather focus on how we can make money from it.

Nickel is at its highest since 2014. Tin has risen sixteen weeks in a row. Platinum is this year’s top performing precious metal. Copper is seeing its highest price in nearly a decade, and headed to new all-time highs.

I rarely agree with Goldman Sachs but they are right when they warn of a historic copper shortage:

“These trends point towards a high risk of scarcity conditions over the coming months. In this context, the fundamental outlook for copper remains extremely bullish with no evidence that current price levels are yet stimulating softening effects to reverse both spot and forward fundamental tightening trends. We continue to forecast the largest deficit in 10 years in 2021 (327kt), followed by an open-ended phase of deficits as peak copper supply (2023/24) and a record 10-year supply gap on the horizon. To reflect the rising probability of scarcity pricing our new 3/6/12M copper targets increase to $9,200/$9,800/$10,500/t (from $8,500/9,000/10,000/t previously). We consider below the key bullish increments for copper supporting the revision higher in price targets.”

copper deficit chart

I couldn’t agree more, and the forecast may turn out to be a modest one.

Chinese demand is part of why the copper price is surging, but copper isn’t the only metal China is hoarding.

China has once again set its sights on weaponizing its rare earth dominance in a game of political chess that has led to a surge in prices... and a rush to expedite a domestic supply of the critical metals.

Earlier this month, The Financial Post reported that China is exploring whether it can hurt U.S. and European defense contractors by limiting supplies of rare-earth minerals that are critical to the industry.

China accounts for 80% of rare-earth imports into the U.S.

The Biden administration is continuing a Trump administration policy of exploring ways to develop a domestic rare earth supply.

The United States is now again part of the Paris agreement and a recent announcement to move the entire fleet of federal vehicles to electric underscores how mainstream EV’s are becoming.

Benchmark Lithium estimates that battery demand in Europe is set to increase at an annualized rate of 40.1% between 2020 and 2025.

In 2020, China mined 140,000 tons of rare earths. The United States came in second with an output of 38,000 tons, and Burma was third with 30,000 tons.

Outside of recycling, there are no quick fixes to the problem, which makes for a compelling investment theme that is anchored by a shortage of real options.

In a boom, an accelerating trend makes for a tide that lifts most boats.

Keeping those gains will require some diligence and a separation between companies with real assets doing real work and companies riding the wave.

That’s what I provide in Junior Resource Monthly.

Let's get it!

Gerardo Del Real
Editor, Resource Stock Digest

For the past decade, Gerardo Del Real has worked behind-the-scenes providing research, due diligence and advice to large institutional players, fund managers, newsletter writers and some of the most active high net worth investors in the resource space. Now, he is bringing his extensive experience to the public through Resource Stock Digest, Junior Resource Monthly, and Junior Resource Trader. For more about Gerardo, check out his editor page.

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