Lithium. Cobalt. Rare earths.
These three commodities have one thing in common — batteries. Today, batteries are revolutionising the world by powering electric vehicles.
A lot of professionals were crazy about the battery revolution at the Mines and Money conference in Hong Kong in April. There were well over a thousand attendees there (by my estimate), dominated by fund managers. And what really struck a note with me is that institutions, investment banks and company directors were all hungry for battery plays.
Lots of figureheads told me specifically that they wanted to buy cobalt projects. That hasn’t changed today, mind you. No resource sector has been exciting since cobalt. That’s why the professionals are thinking cobalt will see another great run. The story still lives on for that reason.
I think they are crazy…
Resource Speculator tipped cobalt plays in June last year. It recommended selling them for massive profits in February. It was a great trade. And while cobalt prices remain at elevated prices today, I’d say the base metal’s seen its best run. I’d avoid the sector for now. There are far better ways to play the next phase of the battery boom. A good example is vanadium…
Of course, similar to what we saw with cobalt, the so-called ‘smart money’ won’t realise it until it’s too late.
What the executives are thinking
My view is that decision-makers are generally late to the game. That shouldn’t be surprising. Remember, corporate decisions tend to be reactionary.
Decision-makers wait for profitable opportunities. Those generally pop up during periods of innovation or higher prices. The mainstream media gets excited around that time. And that generally presents the ‘green light’ to go ahead.
For example, large miners generally acquire projects at lofty prices during a bull market. The sentiment is favourable. The mainstream is bullish. However, when the situation changes, realising they overleveraged their balance sheets during the good times, the big miners sell their project at bargain-basement prices.
It’s a similar story for the junior minors.
And it’s a wealth-destroying process…
In my experience, lots of directors are terrible forecasters, and therefore terrible decision-makers. They are great salespeople who listen to the big investment banks, and corporate advisors, for investment advice.
But investment banks and corporate advisors tend to sit on the fence and don’t forecast outside the bell curve, as we do. That’s not a problem in a raging bull market, or bear market. The trend and momentum is on their side.
Unfortunately, the majority of their forecasts are wrong. That’s because markets are volatile, which is why they flip-flop with their forecasts all the time. Most investment advisors are also too scared to risk their reputation. That’s why they were bullish heading into the global financial crisis of 2008. If a firm turns bearish on a sector or a company, when everyone else is bullish, it could easily lose business.
Who wants to deal with someone who’s bearish?
Not many people.
Most people (company directors included) want to read analysis that’s favourable, and matches their own opinions, on a company or sector outlook.
And that bring us back to cobalt…
Lots of my readers got involved with cobalt plays mid last year and made a handsome profit. There might be some good cobalt stocks out there. But the ship has mostly sailed today.
Vanadium, however, is a different story. I believe it could become the next hot commodity.
Oddly enough, though, the commodity wasn’t discussed much at the Mines and Money conference. A panel discussion, titled ‘What does the growing demand for energy storage mean for battery metals?’, tried to touch on it. Jay Roberge, Managing Director of Tehama Capital, asked the panel: ‘Do you think vanadium could be the next sector to run?’
I was ready to stand up and scream ‘Yes!’ But, hoping that no one would talk about the commodity, I didn’t scream out loud. I wanted to tell Resource Speculator readers about it first. Needless to say, when no one on the panel talked about vanadium, I was shocked…but quietly pleased.
My readers are now set in the two best ASX vanadium plays. That’s why I’m telling you about the commodity. But I’ll need two days to tell you about it. Let’s focus on the battery specifics tomorrow and the prices today.
Forget cobalt…think vanadium
Vanadium pentoxide (fuel for batteries) prices remain near two-year highs:
[Click to enlarge]
Prices have doubled from roughly US$2.38 per pound to about US$5.70 since early January 2016. The vanadium rally has paused, though, as it prepares for what I’m confident will be the next move higher. Uptrends normally take a breath. This one is shown by the red box on the chart above.
As I wrote to readers when tipping the sector, and before the current pause:
‘Technically, vanadium looks primed to run — it’s starting to move vertically. Normally, I would say that’s a risk. But, given the number of pull backs and consolidation patterns, it looks like a healthy move. I’d love to see it break through US$6 per pound — the 2014 high. If that happens, vanadium could become the next hot battery sector.’
That technical analysis played out on target — prices hit US$6.18 per pound last month. If battery-grade vanadium surges through that level once more, look out. Vanadium pentoxide should retest the 2013 high of $6.75.
That move would get the market interested. And it looks possible.
The recent pullback made ‘higher lows’. That’s technically bullish. As long as prices don’t move back below US$5.00 per pound, vanadium should surge from here. If that happens, vanadium should become the next hot sector.
Now take a look at the following chart from Infomine.com — a free commodities-charting website — which doesn’t quote pentoxide:
[Click to enlarge]
Ferro prices are trading at US$9.59 per pound, up from US$8.77 at the time of recommendation. And while both prices tend to move in the same direction, I couldn’t find any ‘free’ price data for pentoxide. Infomine.com quotes the ferro spot price used by the steel industry. In other words, the ‘free’ market is looking at the ferro spot price as a gauge for the vanadium sector.
The market is looking at vanadium prices at one-year highs, not two-year highs:
[Click to enlarge]
That shouldn’t be ignored. Infomine.com vanadium prices are delayed by a few months. I’d say the market will start to wake up when prices surge above US$12 per pound — the 2014 high. That could happen next quarter, especially if vanadium pentoxide breaks through technical resistance.
This is the time to start buying vanadium stocks. To find out the best stocks, check out Resource Speculator here. I’ll be back tomorrow with more reasons on why you should buy vanadium stocks.
Editor, Markets & Money