In today’s Money Morning…desperate times, desperate measures…cash splash for exotic metals…and much more…
It may be April Fool’s Day, but commodity investors may be the ones left laughing…
…laughing all the way to the bank that is.
Yesterday it was all about Tesla’s secret nickel deal. Today, US President Joe Biden decided to up the ante even further.
Stuck in a pinch, Biden has decided to tap the US’s key oil reserves. Over the next six months, some 180 million barrels of stockpiled oil will be released into the domestic market.
It’s clearly a short-term bid to try and curb fuel prices amidst upcoming midterm elections. But seeing as it’s the biggest withdrawal from the oil reserve since its inception, it will be interesting to see what, if any, impact it will have on prices.
I can tell you right now that it’s nowhere near enough output to replace Russian production. So the long-term energy supply issue isn’t going to go away with this simple fix.
However, Biden’s other big announcement yesterday might have a better chance…
Desperate times, desperate measures
As of last night, the US president has invoked the Defense Production Act.
This piece of wartime legislature is designed to spur local producers to start prioritising federal contracts. In other words, if the government needs something built or made to protect itself from a national emergency, this law will make it requisite.
So what is it that the US is so desperately in need of?
It seems as though Biden wants to speed up the transition to new energy solutions. In particular, I imagine he can see quite the benefit of getting more electric cars onto the road. That would certainly make the broader petrol price problem a lot easier to stomach.
However, making that happen without China’s raw materials isn’t easy. That’s why Biden is continuing what Trump started — a plan to foster local production capabilities in order to avoid relying on China.
As the White House press release states:
‘And, the President will issue a directive, authorizing the use of the Defense Production Act to secure American production of critical materials to bolster our clean energy economy by reducing our reliance on China and other countries for the minerals and materials that will power our clean energy future.
‘Specifically, the DPA will be authorized to support the production and processing of minerals and materials used for large capacity batteries–such as lithium, nickel, cobalt, graphite, and manganese — and the Department of Defense will implement this authority using strong environmental, labor, community, and tribal consultation standards.’
But it doesn’t stop there either.
It has also been revealed that the US is turning to Australia for some of these key minerals. And in order to secure them, the US government is willing to grease the wheels it seems.
Cash splash for exotic metals
Our federal minister for Trade, Tourism and Investment appears to have secured a big win for local miners. Dan Tehan has struck a deal with his US counterpart — Gina Raimondo — in order to help fund a handful of local critical mineral producers.
Granted, we have yet to hear about an official sum, but seeing how desperate Biden seems, one can’t help but imagine it will be significant. It’s money that should help get a lot of planned projects moved into the actual production stage.
For investors like yourself, that means it may be time to quickly jump into some related stocks. This includes some already-linked businesses, such as Australian Strategic Materials (Holdings) [ASX:ASM], Cobalt Blue Holdings [ASX:COB], and Iluka Resources [ASX:ILU].
Keep in mind, though, these stocks aren’t guaranteed to benefit. They’re just some of the names who had executives present at the announcement.
Just don’t be surprised if the US money goes to other projects instead. I would certainly be taking a closer look at some of the smaller niche producers and explorers.
Keep an eye and an ear out because this story looks as though it’s just getting started.
After all, this energy issue isn’t going away anytime soon. The need for immediate and long-term solutions are both going to be front of mind for a while it would seem. And for investors who are willing to identify this trend and its potential, it will likely be a lucrative source of strong gains.
Editor, Money Morning
Ryan is also the Editor of Australian Small-Cap Investigator, 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.