For the first time since 11 May, oil is trading below US$100 per barrel.
A huge mid-week sell-off in the key commodity has sent shockwaves across markets. It seems as though all the indicators are beginning to price in a US recession.
For that reason, consumers and businesses alike should have mixed feelings about this development.
Cheaper prices on the one hand should ease the pain at the pump, as well help ease the brunt of rising costs for many companies.
But this sell-off is also likely due to the fact that traders are expecting demand to ease. And the only way that happens is if growth slows — which is bad for overall consumer sentiment.
For investors worried about inflation, this should be seen as a good sign.
Because while a recession certainly isn’t what anyone wants, this kind of sell-off in oil could indicate that ‘peak inflation’ is behind us. We’ll only know for sure once the data starts getting released in the months ahead.
That uncertainty, at least for now, has put a whole lot of pressure on all commodities. We saw a huge sell-off across the ASX of major miners and energy stocks yesterday.
Somewhat surprisingly, though, one particular commodity held up stronger than most…
White gold holds strong
As most metals and ores saw drops in their price this week, lithium hasn’t budged.
The price of a tonne of lithium carbonate is still trading around US$70,000, only slightly below the all-time high of roughly US$74,500 reached in March this year.
In other words, lithium prices have remained incredibly resilient in the face of external factors.
While other commodities are floundering, white gold is still in hot demand. And, more importantly, that demand isn’t going away anytime soon…
Morningstar’s chief market strategist Dave Sekera recently talked about this with Reuters. Because not only is his team forecasting lithium demand to reach 2.3 million tonnes by 2030, but he suspects ‘true demand’ to be even higher:
‘The true demand for lithium, the amount that we think would be used if there was enough supply out there, would actually be about 3.3mt.’
And this is the key takeaway for investors like yourself.
Undersupply is the real distinction here, not demand. Because as you likely know by now, demand is not the problem when it comes to lithium. There are plenty of sectors going all in on battery power.
It’s getting a hold of the key ingredient for these batteries — lithium — that’s the real challenge. It’s why we’re seeing so many electric carmakers sign offtake agreements right now. They know that they need to secure enough supply now, to keep up production in the years to come.
So if you’re looking for opportunities in Aussie mining stocks, then lithium certainly needs to be on your radar.
More than just a one-horse race
Beyond lithium, though, as exciting and volatile as it is, it’s important to remember that batteries require many more metals. Their complexity and composition is what makes them such a prolific thesis for investment.
As my colleague Callum Newman has been telling his readers lately, promising mining companies are a good place to stash your cash right now. In his own words:
‘Mining timelines are long ones. But that’s how you hunt for the big percentage gains.
‘It’s not as if the themes of electrification, decarbonisation, and ESG are going away.
‘Plus, we know that the mega miners like BHP and Rio see their future in metals like copper and lithium and have gigantic financial resources to go shopping here.
‘Rio was already thwarted in Serbia with their lithium project over there and BHP has multiple headaches in Chile with its copper operations.
‘They can buy up whatever they want, as long as it suits their style and operations.
‘Anything in Australia would surely be on that list considering the increasing sovereign risk around the world.
‘Think about the COVID 2020 collapse in the ASX. That turned out to be the biggest gift to mining investors.
‘I doubt we’ll see an equivalent opportunity like that for years to come. But any sell-offs are opportunities to add, not get out.
‘After all, the net-zero targets around the world are for 2030, usually. There’s a long way to run yet.
‘And, yes, the world may go into — or be in — a short-run recession. However, the US went into recession in 2001 as well.
‘But that didn’t stop the rise of China, right? And resources went into a giddy bull market until the brick wall of 2008.
‘That’s my playback for the next five years, anyway. You don’t have to limit yourself to lithium, or even battery metals really.
‘There’s been so little investment into future mineral production that supply is likely to be an issue for the next decade.’
For investors looking for big gains that can stomach the risk, Cal knows that lithium is the place to be looking. That’s why he put together a report of his favourite battery metal plays that could be crucial to supplying this next decade of demand.
As he likes to call them, they could be ‘Elon’s Chosen Ones’. Don’t take my word for it though, check out Cal’s full findings and analysis for yourself, right here.
Because at the end of the day, whatever happens in commodity markets, it all boils down to supply and demand. And right now, no matter what way you look at it, lithium is set up for a bull run on both sides.
Regards,
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Ryan Clarkson-Ledward,
Editor, Money Morning
Ryan is also co-editor of Exponential Stock Investor, a stock tipping newsletter that hunts down promising small-cap stocks. For information on how to subscribe and see what Ryan’s telling subscribers right now, click here.
