Energy and metals meet national security interests
Head of Equity Strategy
Summary: The war in Ukraine is turbocharging big changes around globalisation with developed countries taking actions to define sectors such as energy, metals, military, cyber security, and food production as national security interest. Along this trend the Biden administration is rumoured to invoke the Defense Production Act so that domestic production of critical materials for batteries and electric vehicles can be expanded and prioritized. We take a look at what it means and what companies will potentially benefit from this policy change which is effective industrial policy.
US administration wants to expand domestic production of critical metals
This week have written about the importance of commodities for the world and investment portfolios in the years ahead, and how the war in Ukraine will turbocharge a reconfiguration of global supply chains with Vietnam as one of the big winners. Along those two vectors, the Biden administration is rumoured to invoke the Defense Production Act, which goes back to the Korean War, to mobilize domestic production of key materials for batteries/energy stocks, magnets and electric vehicles. These metals include lithium, nickel, cobalt, graphite, and manganese.
If the Defense Production Act is invoked by the Biden Administration is would mean a big policy shift and the early contours of industrial policies coming back in the developed world after decades of blind trust and hope in globalization without thinking about the fragility it has created. Electrification of heating through air-to-water heat pumps and transportation through electric vehicles are part of the green transformation trend and one of the biggest changes to society since digitalization changed all industries in the span of just two decades. The green transformation combined with urbanization and global supply chains being changed under national security interests will cause structural inflation in the developed world. To understand how fast electrification in transportation is going look at the battery EV delivery figures below and watch the lithium price explosion. Demand is outstripping supply by a large factor.
The list below highlights some North America listed companies that have more or less exposure to this potential policy change:
- Lithium Americas
- Standard Lithium
- Sigma Lithium
- Piedmont Lithium
- Sherritt International
- MP Materials
- Lundin Mining
Quarterly Outlook Q2 2022
Quarterly Outlook Q2 2022: The End Game has arrived
- Shocks from covid and the war in Ukraine have forced the global financial and political world to change, but what will the end game be?
Productivity and innovation have never been more importantAs the world economy hits physical limits and central banks tighten their belts, could equities be facing a 10-15% downside?
The great EUR recovery and the difficulty of trading itIf the terrible fog of war hopefully lifts soon, the conditions are promising for the euro to reprice significantly higher.
Tight commodity markets – turbocharged by war and sanctionsWith supply already tight, commodities keep powering on. But will it last for yet another quarter?
Between a rock and a hard placeGeopolitical concerns will add upward price pressures and fears of slower growth, while volatility will remain elevated.
The Great ErosionInflation is everywhere and central banks try to combat it. But will they get it under control in time?
Australian investing: Six considerations amid triple Rs: rising rates, record inflation and likely recessionWhile global financial markets are struggling in an uncertain world, the commodity-heavy Australian ASX index is poised to keep a positive momentum.
Cybersecurity – the rush to catch up with realityWith the invasion of Ukraine, governments and private companies are rushing to reinforce their cyber defenses.