By Chris Berry (@cberry1)
With earnings season winding down and news of vehicle electrification hitting the wires daily, it makes sense to take stock of Q2 results from some of the major players in the Energy Metals space and position as necessary. After all, this is a cycle. There is a great deal of “macro” news I could discuss here, but decided to keep this note short and focused on the producer side of the Energy Metals business.
· Lithium segment results from Albemarle (ALB:NYSE) and FMC (FMC:NYSE) were unsurprisingly strong (Ed note: SQM doesn’t report until later this month, but based on previous guidance, results similar to ALB and FMC can be expected).
o ALB reported lithium segment sales of $244M in Q2 up 55% driven by higher pricing (up 31%) and volume (up 25%). Adjusted EBITDA margins of 47% continued a streak of at least eight straight quarters of +40% operating margins in the lithium segment. The company forecast higher costs going forward due to expansion and exploration expenses and also LOWER average lithium pricing for customers saying that Q3 and Q4 lithium results are likely to match Q1 – perhaps managing investor expectations downwards. The stock sold off hard, falling as much as 6% and is down another 2% as I write this. Given that ALB has returned over 40% in the past year and pundits on CNBC are recommending buying the stock at close to all-time highs, perhaps a pullback was long overdue.
By Chris Berry (@cberry1)
The Trump-induced reflation trade has been a popular one on Wall Street with the major equity indices such as the SPX at all-time highs and up slightly YTD (+5.57), and the US 10 Year Government debt market and the USD both range bound.
By Chris Berry (@cberry1)
Cobalt is finally getting its due. Driven by anticipated strong growth in electric vehicle sales, the LME price has increased 35% year to date with the cobalt chemicals pricing showing similar strength.
It's been a busy few months and I'm pleased to announce that I've completed a thorough review of the cobalt market which is available for purchase.
The report covers all aspects of the cobalt supply chain from mining, to refining, to end uses with supply and demand forecasts as well.
I'm offering the Executive Summary and a portion of the Introduction for free. You can download a PDF version here. The cost of the full report is $500 USD which can be paid through PayPal (or we can make arrangements for a wire if necessary). As an added bonus, I'll give the first 20 people to purchase the report an opportunity for a 20 minute phone call to ask any question they want regarding the outlook for the cobalt market.
To be clear, this is not a "stockpicking" report and so you won't find any "flavor of the month" stock picks here. What you will find is in depth data and insights into the cobalt supply chain and how the companies along it are shifting their business to capture the anticipated high growth of downstream industries.
For more info on purchasing the report, please email me at info@house-mountain.com.
Thanks,
Chris
By Chris Berry (@cberry1)
For a pdf copy of this note, please click here.
Ed. Note: The following remarks were those I made to investor audiences during a recent bus tour in Munich, Geneva, Zurich, and Frankfurt.
Ladies and Gentlemen, thank you for coming today and investing your most valuable asset in us, which is of course, your time. Speaking of time, what I’d like to do today is take a look back and a look forward and briefly offer some thoughts on where we’ve been in the global economy in the past year and what some of the key questions are in 2016 likely to drive the commodity and broader markets altogether.
Rather than make excuses or guesses as to why commodities continue to under perform, I’d like to examine some of our thoughts from a year ago when we were last here in Europe and see what has transpired.
By Chris Berry (@cberry1)
For a PDF version of this note, please click here.
Regular readers will know of my optimism regarding cobalt. The fundamentals look sound in a metals market that, already under pressure, appears headed lower. To wit:
· Cobalt demand is growing by 6% overall with demand in the battery supply chain growing by some estimates at a CAGR of 10% out to 2020 - a good chink of the overall market. Current estimates for battery usage put the actual tonnage demanded at between 35,000 and 40,000 tpy. This is driven almost exclusively by cobalt’s use in the cathode of the lithium ion battery.
· Cobalt is mainly a by-product, produced as a consequence of nickel and copper mining rendering cobalt production hostage to the bullish or bearish tendencies of these other metals.
By Chris Berry (@cberry1)
For a PDF version of this note, please click here.
As China’s equity markets continue to sink, calling into question the ability of Chinese officials to prop up the market (and maybe the economy), it appears that collateral damage has already begun.
Both Kazakhstan and Viet Nam have devalued their currencies by 4.4% and 1% respectively in a bid to remain competitive with their Asian neighbors. The MSCI Emerging Markets Index has entered a bear market and a gauge tracking 20 currencies is in its longest slump since 2000, according to Bloomberg. Emerging markets as a whole are dealing with a major slowdown in global trade and collapsing commodity prices and must confront the cheaper Chinese Renminbi as a threat to their balance of payments in the absence of structural reform. The performance various currencies from last week is shown below:
By Chris Berry (@cberry1)
For a PDF of this note, please click here.
To anyone involved in commodity markets, the events of the past two weeks should make one thing abundantly clear: a new paradigm in commodity investing is in play. The most recent iteration of the commodity super cycle (2001-2011) was unlike anything many of us had ever seen. Unfortunately, the aftermath (2011-????) and subsequent correction may also be unlike anything we’ve ever seen (at least in terms of duration and intensity). I’m fully aware of the cyclical nature of the commodities business, but clearly the greater the bull market, the more severe the bear market.
Here is the Bloomberg Commodity Index since 2011, down 28% over the past year alone:
