By Andrey Dashkov, analyst, Casey Research
Severe droughts.
An unprecedented heatwave.
And a 6.8-magnitude, deadly earthquake.
These are some of the latest blows Sichuan, a southwestern region in China, was hit by in just the past month.
Besides endangering hundreds of millions of people, the tragic events are also negatively impacting factory production across the region.
Sichuan is a major manufacturing hub for the electric vehicle (EV) sector and home to many of Tesla’s suppliers.
As a result, these disasters are affecting global supply chains and causing a crisis in the battery metals market.
In a moment, I’ll tell you how China’s droughts are triggering a shift in the battery metals industry, and the ways you can take advantage…
Battery Metals Prices Are Surging
When it comes to electric vehicles, there’s no such thing as “battery-grade” or “pure” lithium. Or nickel, or cobalt.
These are just metals. 100% “pure” lithium can’t go straight into an EV battery. Neither can others.
This is what a lot of investors misunderstand.
Lithium companies don’t produce the stuff that goes into electric vehicles.
Instead, lithium miners send lithium to refineries and processors that produce lithium carbonate or lithium hydroxide.
These chemical compounds are what make up an EV battery.
And this is where China comes into the picture. It’s the country with the second largest refining capacity… but recently, its factories and production facilities shut down, or dramatically decreased momentum.
That’s because Sichuan, the province responsible for more than one-fifth of the country’s refining capacity, is battling an energy crisis.
Most of Sichuan’s electricity comes from hydro sources, fulfilling 80% of the province’s power demand. But the record high temperatures and historic droughts I mentioned earlier are drying up rivers.
When that happens, hydropower plants can’t produce much energy, significantly reducing the supply of electricity.
The result? Blackouts and power cuts that are shutting down factories. For example, the government of Sichuan suspended factory activity to reserve energy for residential use.
Following that, we’re seeing an uptick in the price of lithium carbonate and hydroxide, as well as cobalt sulfate and nickel sulfate. All of them grew between 2% and 9% in August, according to the latest Bloomberg data.
Compared to 2021, battery metals prices are still showing record growth, despite coming off their March peaks.
These energy crises and supply-chain disruptions aren’t easy to resolve. Even when these supply pressures ease, prices could stay elevated for a while as production capacity catches up with demand.
Profit From Locally Made Battery Metals
The drought in Sichuan sending battery metals prices soaring highlights China’s oversized influence in the battery metals market.
The U.S. government, naturally, wants to find a solution to this reliance.
And that means producing battery metals locally.
Right now, the U.S. and Canada refine about 3% of global lithium and cobalt. China refines 59%.
The gap is too wide. That’s why by 2030, the U.S. and Canada aim to more than double their share, to about 7%. They will do this through both public and private investing.
New refineries will solve a strategic problem…
But they will also be immensely profitable.
Earlier this week, we published the latest issue of The Super Spike Advisory – our premium research service focused on commodities.
In it, we provided an update on an early-stage mining company planning to produce one of the battery metals compounds outside of China.
This company has the potential to become one of the biggest players in the North American EV supply chain… It’s one of the most exciting opportunities I’ve seen in years.
I encourage you to check out The Super Spike Advisory and learn more about it.
Good investing,
Andrey Dashkov
Analyst, Casey Research