Two weeks ago marked a sudden dramatic shift in sentiment for Rare Earth (REEs) metals…
That was thanks to Tesla’s announcement that it would remove the commodity from its next-generation vehicles. You can read my coverage on Tesla’s new plan here.
That surprise announcement caught most commodity investors off guard, with a dramatic sell-off amongst producers tied to the extraction of REEs.
It just goes to show…sentiment can turn quickly in the commodity space.
But was it warranted?
In my mind, there’s still plenty of potential for this poorly understood critical metal.
The recent sell-off doesn’t account for its broad use through different industries…defence, healthcare, manufacturing, and tech all rely on this critical resource.
They’re in your oven, your TV, digital camera, and your fluorescent and LED lights.
They’re the magnetic property in your computer hard drive, the glass of your computer monitor smartphone screen, and just about every other electronic display.
Rare earths are also the key components in wind turbines, x-rays, and defence.
In fact, former Australian Defence Minister Kim Beazley recently told The Strategist that rare earth production needs to become a priority for the military.
Estimates suggest that well over 3,000 items of US military equipment require rare earths.
Yet most of that supply comes from China.
Not only that, but REEs are STILL the primary choice for permanent magnet technology. They offer the most efficient option for electric vehicle motors.
In my mind, producers tied to rare earths still have much to offer for investors…despite Tesla announcing they intend to exclude them from its next gen vehicles.
Notwithstanding, though, changes to technology remain a key threat to mining producers looking to capture a slice of the green energy transition…
My colleagues Selva Freigedo and Kiryll Prakapenka over at Money Morning have covered that point in detail over recent weeks.
As commodity investors, it’s a risk worth paying attention too.
Green metal producers are at the mercy of engineers looking to improve efficiency, while reducing costs and finding alternative metals with stable supply chains.
With each technological breakthrough, there’s a winner and loser in the commodity space.
As Tesla demonstrated, the outlook for miners can literally change overnight thanks to this underappreciated risk.
However, some metals are more exposed than others…
Step back to 2022 and lithium stood alone as one of the few investment themes that boomed…in a year that was, overall, a terrible one for most investors.
Why?
Well, there were several factors…inflation, lithium royalties being hiked in Chile, and rising oil prices boosting the need to push EV uptake from a pie in the sky idea to mainstream reality.
While it’s been a great ride for investors, there’s an elephant in the room facing lithium producers…its demand outlook is exclusively tied to just one source…EV batteries.
That puts mining stocks tied to lithium in a precarious position.
Rolling Stone magazine credits the ’80s song ‘Take on Me’ as the greatest one-hit wonder of all time.
That’s why, with just a single demand driver, lithium tops the charts as the ‘one-hit wonder’ in the commodity world.
A change in technology here could spell doom for lithium producers.
It’s a threat worth considering…
But focusing on commodities with diverse industrial uses could mitigate the risk from any changes to technology.
Nickel, aluminium, copper, REEs, zinc, and cobalt have varied demand drivers that go beyond EV batteries and in many cases, outside the green energy transition more broadly.
However, there’s one metal that sits uniquely among all others…
Copper.
As the only viable option for conducting electricity, copper holds unique physical properties that make it the critical metal for the ages.
This is NOT a one hit wonder commodity.
In a future ‘electrified’ world, copper cannot be replaced with an alternative metal.
The laws of physics all but guarantee that.
It makes copper the commodity equivalent of the Beatles, Rolling Stones, or Led Zeppelin.
It sits at the heart of the green energy transition but is also crucial for traditional manufacturing and construction.
Future wars won’t be fought over oil
In the years ahead, future energy security won’t be about oil and gas…instead, it will be the critical metals integral to an electrified economy.
But out of the many critical metals set to play a role in the energy transition, copper stands out.
That’s why it could become the NEW crude oil.
For all the good and bad that entails, copper is set to become a contentious commodity in the years ahead…
It seems unlikely right now, but history shows nations will do all it takes to maintain their energy supplies…will future wars be fought over copper?
Decades of war in oil-rich Middle East nations, demonstrate the lengths superpowers undertake to maintain control over national energy supply.
Oil and gas have dictated American foreign policy for decades.
Russia has used it to weaponise its trade with Europe.
No doubt when it comes to energy security, governments DO NOT tread lightly.
Given the tumultuous history of CRUDE OIL…copper stands next in line as the main contender for future geopolitical tensions.
Declining grades, riots, nationalisation, drought, or lack of new discovery across important copper producing nations will only magnify hostilities over coming years.
As I’ve explained to my subscribers, copper mines can take up to 15 years to go from discovery to production…
A major copper shortage appears inevitable, but Australian EXPLORERS are uniquely positioned to take advantage of this monumental opportunity.
I’ll have more to say about that next time.
Until then, have a great week.
Regards,
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James Cooper,
Editor, The Daily Reckoning Australia
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