Investing in Electric-Vehicle Commodities Is Harder Than It Looks

Nickel can be a good investment given the proliferation of electric vehicles and the time it takes to supply new supplies. What that means for your portfolio is another question.

Hedge fund Elliott Management wants $456 million from the London Metal Exchange because it canceled trading in a spectacular short squeeze following Russia’s invasion of Ukraine. The owner of the LME, Hong Kong Exchanges and Clearing, is fighting the lawsuit. According to FactSet, officially, nickel hit a 15-year high around $48,000/mt on the exchange on March 8. But that doesn’t include canceled trades worth about $4 billion at high prices. much more.

Regardless of the legal merits of the case in question, Elliott’s lost profit highlights the challenge investors face when looking to buy into the trendy pin metal theme as sales electric car sales inflated – or sold it if they deem it excessive. Very few listed companies offer centralized exposure. And where there is a financial market for the metal itself, it has a complicated relationship with the underlying physical market involving automakers, battery manufacturers, miners and refineries.

March’s short-term squeeze was triggered by sanctions on Russia, a key supplier of nickel, combined with the strong bearish position of China’s stainless steel giant Tsingshan. The company, which has also become one of the world’s largest nickel producers, has a lot of the metal on its books but cannot use it to deal with LME because so little of the metal is in pure form. as high as the exchange requires. Much of it, however, is in a useful form for the battery industry — a large bull market for nickel.

The disconnect between the financial markets for nickel and the physical market it is supposed to mirror will only increase.


Image:

kirill kudryavtsev / Agence France-Presse / Getty Images

This disconnect between financial markets and the physical markets it is supposed to mirror will only grow. Lithium-ion batteries for cars need to be extremely safe (think General Motors’ Chevrolet Bolt recall), powerful, readily available and much cheaper – a formidable problem that means manufacturers Manufacturers want long-term supply agreements with suppliers they trust. Strict quality inspection procedures. This contradicts the purpose of the exchange, which is to create a homogeneous product for the buyer to transact, regardless of the seller.

Now that the car industry is more worried about a shortage of lithium than nickel, its production is expanding massively in Indonesia, despite questionable environmental credentials. Even more so than nickel products, the lithium compounds that go into batteries resemble specialty chemicals rather than traditional goods. The LME does not offer liquid lithium trading like nickel and cobalt, although it is experimenting with a new futures contract. Investors who want a piece of lithium can buy shares in US miners like Albemarle and Livent,

but they are locked in confidential agreements with buyers which means their profits may not have much to do with the latest spot prices.

The LME’s nickel market crash has many lessons. Elliott’s experience underscores the complex reality of investing in battery metals that can struggle to live up to a simple promise.

Lithium prices are rising as demand for the key component in electric car batteries grows, amid a broader shift away from oil and gas. But mining the metal is time-consuming and potentially harmful to the environment, and plans to produce more have sparked protests. Photo: STR / Getty Images, Oliver Bunic / AFP / Getty Images

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Edmund DeMarche

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