Punched in the solar plexus

Punched in the solar plexus

Hear that sound like someone being punched in the gut?

That’s because the coal industry just got another fist in the solar plexus. The team at global bank Standard Chartered released an announcement saying they are no longer willing to finance the construction of new thermal coal power plants.

This follows on from a previous decision not to be involved in new coal mines, including the Adani mine in Queensland.

Things are really moving here. Certainly the coal industry is at risk of being removed from bank financing completely.

This is not just climate concern pushing against coal. Renewable power is becoming cost-competitive.

And the emerging markets are now driving a high adoption rate. The Financial Times reports that they will overtake the developed world this year in terms of solar energy installed.

It’s not hard to see why. The price of solar modules is down 80% since 2009.

We have to be watching this space.

Metal to watch: nickel

Here’s one thing to keep an eye on as part of the shift to clean energy: what BHP decides to with its Nickel West business.

The Australian reported this morning that a fire broke out at BHP’s Kalgoorlie nickel smelter. This is just as the company is considering whether to upgrade its nickel assets back into their core portfolio.

A bit of backstory helps here. BHP previously wanted to sell these assets and actually gave up on finding a buyer. It didn’t even bother to include them in the South32 spin-off.

The recovery in the nickel price and the improving outlook for the metal, thanks to the rollout of electric vehicles, is changing all this.

I was at a conference in Melbourne last week. It was on the outlook for battery metals like nickel, lithium and cobalt.

There remains a lot of opportunities around all of them for the foreseeable future.

However, the commodity space is full of price projections and favourable scenarios that never eventuate.

One way to gauge how confident industry players are on a particular sector is to see what they do with their money.

BHP’s management has made it known they’re only going to spend precious capital conservatively and with great care.

If they decide to invest in expanding their Nickel West division, we know they see the electric vehicle trend as genuine and compelling.

I keep an eye on Rio Tinto and their Serbian lithium project for the same reason.

Another player to follow here is SoftBank, the Japanese firm. It’s looking to lock up supply of lithium. It’s already the top shareholder in development company Nemaska Lithium and is on the hunt for more, according to the Nikkei Asian Review.

The expansion required could be very large.

VW to launch Tesla rival

Current lithium carbonate production, for example, is around 200,000 tonnes a year. It will need to hit 1.2 million tonnes over the next decade if electric vehicle uptake hits current estimates.

It’s going to take a lot of financing and development for the mining industry to meet that target.

And don’t forget that the hard rock miners then need to send their concentrate to the companies that convert it for use in the battery sector.

So conversion capacity needs to go up as well.

What can’t be denied is how the car makers are pushing into this market aggressively.

VW is close to launching its affordable electric car, the NEO, next year. The early suggestion is that it will undercut Tesla’s Model 3 on price.

It will also have multiple battery options to meet different buyers.

This follows on from a string of announcements all year that the electric models are being developed.

But this isn’t even the full story.

The rise of renewable energy is going to usher in demand for large-scale batteries to store it.

The proof of that is right here in Australia.

The battery at Hornsdale Wind Farm in South Australia is a great success.

These large-scale batteries are going to keep popping up all over the world.

That throws in another source of demand that’s arguably being under-priced by the market right now.

We can only keep track of developments as they come. But I suggest the surprise will be to the upside on how fast the announcements keep coming.

This is a major theme I’ll be tracking in my new Profit Watch service. If you’re unaware, I’m leaving the Daily Reckoning Australia to provide a new service for you.

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Callum Newman Signature

Callum Newman,
Editor, The Daily Reckoning Australia