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Lithium Miners can be a Good bet for the Long-Term

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Long-term trends, if identified early can be a profitable investment. In such stories, the investor can buy and hold a stock till there is a clear visibility of earnings. One such sector that fits the bill is the Lithium miners. Let’s analyze in detail.

Key observations

  1. Electric vehicles will slowly replace the fossil fuel powered vehicles
  2. As a result, demand for Lithium-ion battery will grow exponentially for the next few years
  3. There is no replacement for lithium-ion batteries
  4. Lithium supply is unlikely to keep up with the demand
  5. Lithium miners will be direct beneficiaries

What are the uses of Lithium?

After debuting 26 years ago in a Sony CCD-TR1 camcorder, lithium-ion batteries have gained widespread use in consumer products, electric vehicles and energy storage.

Last year, lithium-ion batteries equal to a storage capacity of about 45 gigawatt-hours (GWh) were used by the consumer products, according to The Economist. In comparison, the electric vehicles (EVs) only needed about half of the capacity: 25GWh.

However, with the boom in the electric vehicles, demand will increase exponentially. Lithium prices have already doubled in just over a year.

How much demand will the electric vehicles industry generate in the future?

According to Goldman Sachs, EVs will increase their market share from 0.2% of all vehicles sold in 2016 to about 5% in 2030.

However, with advances in technology and price of EVs dropping rapidly, it is likely that the above assumption of Goldman Sachs will be reached much earlier, especially if China and India adhere to their plans.

China wants 12% of all car sales to be from battery-powered or plug-in hybrids by 2020, whereas, India wants all its vehicles to be electrically powered by 2030.

Lithium-ion battery production to skyrocket

Strong EVs sales will stoke demand for the lithium-ion batteries. The top battery manufacturers are gearing up for this challenge by increasing their capacities rapidly. Leading the way is Tesla, with their huge $5 billion gigafactory, which is expected to produce about 4GWh a year from this year. By 2018, Tesla wants to produce 35GWh, a nine-fold jump within two years.

Bloomberg New Energy Finance forecasts lithium-ion battery demand from electric vehicles to increase from 21 gigawatt-hours in 2016 to 1,300 gigawatt-hours in 2030.

Some of the other areas where lithium demand is expected to grow is shown in the table below.

Agreed that the demand for the lithium-ion batteries is going up. But, is there a shortage of Lithium?  Will the raw material prices shoot up or is there abundant supply that can push prices down?

Lithium demand and supply

Considering the huge demand for lithium, several projects have been announced that are likely to increase the supply in the near future. However, will this lead to a supply glut similar to crude oil? Let’s listen to some experts in the field.

Joe Lowry, lithium industry consultant and commentator, believes that even with all the new supply additions, “supply shortage will cause significant issues in the battery supply chain by 2023.” (“Lithium Investment at the Crossroads”, July 17, 2017).

Chile’s SQM has been a leader in lithium production for almost two decades. Its Chief Executive Patricio de Solminihac believes that the present demand for lithium is about 200,000 tonnes LCE, which is likely to grow by about 14% per year.

“We believe it is highly probable that worldwide demand will exceed 500,000 tonnes by 2025,” said Solminihac, reports Reuters.

A few analysts, however, believe that lithium supply will overtake demand as soon as next year.

Rebecca Gordon of the UK-based consultancy CRU believes that by 2018, lithium supply will meet demand if all the new projects come online. This will cause a sharp drop in prices from the current levels.

Can the demand stall due to advance in battery technology?

The popularity of electric cars is unlikely to slowdown anytime in the near future. However, is there a technology that can make the lithium-ion batteries redundant or replace them?

Recently, Bill Joy, the Silicon Valley guru and Sun Microsystems Inc. co-founder, announced a new alkaline battery that can compete with lithium-ion and better it in certain areas. Though this is a revolutionary find, it is yet years away from mass adoption. According to Joy, it may take another five years for it to gain wider acceptance.

Lithium-ion battery prices are dropping with new advances in technology. Prices fell 73% between 2010 to 2016. Therefore, any new entrant will find it difficult to displace lithium-ion from its leadership position.

Hence, lithium demand is here to stay, at least for the next decade.

Now, after having established a strong demand growth for lithium, let’s search for a stock to invest in.

What companies do we like and why?

We shall cover two companies in short. If the readers feel that the lithium story is compelling, we shall delve into greater detail in examining these stocks in the future.

Sociedad Quimica y Minera (NYSE: SQM)

Sociedad Quimica y Minera is one of the largest producer of lithium in the world. It is based in Chile, which has the largest lithium resources in the world.

Source: Statista

It is a dividend paying company, though the dividend amount keeps varying depending on the company’s profitability. However, with greater demand, SQM is likely to increase its earning and thereby its dividend.

Payment Year Amount
2016 $1.46
2015 $0.47
2014 $1.4
2013 $1.04
2012 $1.26

In terms of valuation, the stock is quoting at price/earnings of 35.3, which is way above its 5-year average of 21.7 and the industry average of 21.7.

Nevertheless, with its leadership position and a growing demand, the results are likely to surprise on the upside and the price/earnings multiple will look more reasonable after a few quarters.

What do the charts suggest? Is it time to buy?

SQM was stuck below the $32.8 level for more than three and half years. Finally, the stock broke out of the resistance in March of this year. The stock successfully retested the breakout levels twice and has since then resumed its uptrend. The stock doesn’t have any major resistance until it reaches $59 levels. However, periodically, every stock corrects.

Therefore, at the current levels, we shall only buy 25% of the allocation. Rest 50% should be purchased when the stock falls to the trendline support and the final 25% allocation should be done once the stock resumes its uptrend after a correction. We don’t want to hold the stock if it starts to trade below the $32 levels. That will signal a change in the fundamentals of SQM or the sector as a whole.

The stock can easily surpass its lifetime highs in a couple of years if the demand projections prove correct.

Orocobre Limited (OTCPK: OROCF)

The second stock that we like is an Australian based company Orocobre limited. The company holds 66.5% interest in the Olaroz lithium brine mine in Argentina, which is operated by them and is their flagship project.

They plan to ramp up production in the next 2-3 years, without issuing any new equity, according to the company’s latest presentation. If they are able to achieve their target, the stock is likely to get re-rated.

Currently, the stock is being punished as its production in June quarter was 2,536 tonnes of lithium carbonate compared to 2,784 tonnes in the March quarter. The company attributed the fall to bad weather. Nevertheless, the markets did not buy the argument and punished the stock.

This is a risky stock. We are not buying this for its past track record, but are expecting it to get its act together and reap the benefits of the lithium boom. Therefore, the allocation to this stock should be low.

When should one buy? Let’s look at the charts.

This is a volatile and trendless stock as seen in the charts. It is stuck in a range of $1 to $4.

Nevertheless, it has already fallen from its highs of $4, thereby reducing the risk. We can keep a stop below $1 and buy 25% of the allocation at the current levels. Next 50% can be bought if price falls to $2 levels. The last 25% should be invested once the stock breaks out of $4 and makes a new lifetime high.

We believe that the downside risk in the stock is limited, whereas its upward potential is attractive.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.7 stars on average, based on 9 rated postsRakesh Upadhyay is a Technical Analyst and Portfolio Consultant for The Summit Group. He has more than a decade of experience as a private trader. His philosophy is to use technical analysis for momentum trading and fundamental analysis for long-term positions. Rakesh likes to keep himself fit by lifting weights and considers himself to be a spiritual person.




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  1. fermera_dany

    September 17, 2017 at 11:37 am

    If one is to follow this articles advises, which platform shall the one choose / use to buy some stocks?
    Living in EU (Bulgaria).

    Regards,
    Daniel

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Commodities

Oil Prices are Surging Again as Supply Pressures Build

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Crude oil is on track for its fourth gain in five days after U.S. government data showed a much larger than expected draw in commercial crude inventories last week, adding to growing evidence of supply pressures.

Oil Price Update

U.S. West Texas Intermediate (WTI) for October settlement rose $1.68, or 2.6%, yo $67.52 a barrel on the New York Mercantile Exchange. The black commodity is on track for its highest settlement in 12 days after prices plunged to multi-month lows last week. The U.S. benchmark has gained 4.5% over the past five days.

Brent crude, the international futures contract, rose $1.68, or 2.3%, to $74.31 a a barrel on London’s ICE futures exchange. Brent futures have returned 4.8% over the last five days.

Inventories Drop

The U.S. Energy Information Administration (EIA) reported Wednesday that commercial crude inventories fell by 5.836 million barrels in the week ended Aug. 18. Analysts in a median estimate had called for a decline of 1.497 million barrels. Inventories spiked by 6.805 million barrels the previous week as imports surged.

In gasoline, EIA reported a build of 1.2 million barrels and an average production of 10.2 million barrels per day.

EIA’s report corroborated separate industry data showing a large draw in inventories last week. The American Petroleum Institute (API) on Tuesday reported a decline of 5.17 million barrels. According to analysts, this may have sparked the early morning rally leading up to the EIA report.

Earlier in the week, the U.S. government announced it would sell 11 million barrels from the Strategic Petroleum Reserve to keep the market well supplied in anticipation of renewed sanctions on Iran.

Dollar Softens

The U.S. dollar’s recent struggle to hold 13-month highs has also contributed to crude’s upward momentum. The U.S. dollar index (DXY), which tracks the greenback’s performance against a basket of six currencies, declined 0.2% to 95.10, a fresh two-week low. Since peaking at 96.73 on Aug. 14, DXY has declined 1.7%.

DXY has gained 3.1% since New Year’s Day in what has been a dramatic reversal for the greenback, which got off to one of the worst starts to a year in decades.

Oil and the dollar often exhibit an inverse relationship due to the fact that futures contracts are priced in greenbacks. A decline in the value of the dollar makes oil futures more attractive for holders of other currencies.

Global trade tensions and multiple interest rate hikes on the home front are expected to keep the dollar on firm footing in the near term. Next month, the Federal Reserve is widely expected to raise interest rates for the third time this year, possibly paving the way for a fourth upward adjustment in December.

Based on Fed Fund futures prices, the likelihood of a September rate hike is currently pegged at 96%. The probability of another lift-off in December is 62.8%.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 601 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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Analysis

Platinum Update: Faces Life or Death Showdown

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The Platinum/US Dollar (XPT/USD) pair has been in a decade-long downtrend. In July 2008, the pair broke out of a double top pattern on the weekly chart after taking out support of $1,850. There were numerous attempts to reverse the trend and break out of the slump. However, every single effort was denied as bears held $1,850 resistance. As a result, XPT/USD is now trading around $800.

While bears seem to have the upper hand, there’s a case for a bullish reversal. In this article, we explore the bearish and bullish scenarios for the XPT/USD pair.

The Bearish Case for Platinum

In technical analysis, the prevailing trend remains until there’s a clear sign of trend reversal. As mentioned, XPT/USD is still in a downtrend. The downtrend was recently confirmed by a breakout from sideways consolidation on the daily chart in June 2018.


XPT/USD daily chart

The breakout quickly brought XPT/USD down to $800 support. While bulls are managing to hold on, it appears that their mettle will be tested soon.

Large Descending Triangle on the Monthly

The descending triangle is often a continuation pattern with a bearish bias. The lower highs of this pattern put enormous pressure on the support that it eventually snaps. We see this pattern emerging on the monthly chart of Platinum/US Dollar.

XPT/USD monthly chart

The pattern is enormous. It is large enough to keep many retail investors on the sidelines. From the looks of it, XPT/USD appears to have just completed the E-wave or the final dead cat bounce. With a new lower high in place, bulls are in for the fight of their life at $800.

The Bullish Case for Platinum

The good news for the bulls is that not all descending triangles are bearish. Sometimes, bulls use the price compression at the apex to take out the resistance.

The key issue to understand is that the pattern must be triggered first. If bears take out $800, then the market sinks deeper. If bulls breach the resistance, then that might just be enough to kickstart a bull run.

Double Bottom on the Monthly

If bulls win this battle, then many investors will look at the possibility of a double bottom reversal pattern on the monthly chart.

Possible double bottom of XPT/USD

The preservation of $800 support amidst the threat of a huge descending triangle paints a bullish picture. It should send a reverberating message that $800 is bull territory. This would attract all types of investors and may generate sufficient momentum to push the market back up to previous highs and create a double bottom reversal pattern.

Bottom Line

Bulls and bears are bound to have a showdown at the $800 support level. Whoever wins this fight gets to control the market in the coming months or even years. Bears have the upper hand but it looks like bulls have what it takes to pull out one big surprise.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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3.6 stars on average, based on 234 rated postsKiril is a financial professional with 4+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and ETFs, as he does his own crypto research and is the subject matter expert at ETFdb.com. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.




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Commodities

Gold Price Is Getting Crushed as Dollar Reaches New 2018 Highs

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Gold’s brisk selloff deepened Thursday, as investors put higher interest rates on the front burner following two days of testimony from Federal Reserve Chairman Jerome Powell.

Gold Price Levels

According to Bloomberg data, the price of gold bottomed at $1,212.70 a troy ounce on Thursday, extending a three-month selloff that has shaved 11% from the yellow metal’s value. Gold peaked slightly above $1,360 in March and April before plunging over the next three months.

Bullion is trading at its lowest level in over a year, with technical charts putting the next major support level around $1,200-$1,202 an ounce.

Silver, which often trades in the direction of gold, was off more than 2% Thursday to a low of $15.19 a troy ounce. The grey metal later recovered around $15.30 but was still down more than 12% from January’s settlement high of $17.61.

Dollar Rally Intensifies

A surging dollar has largely underpinned the massive exodus out of gold over the last three months. The U.S. dollar index (DXY), which tracks the performance of the greenback against a basket of currencies, has gained nearly 7% compared to three months ago. DXY is up 3.6% for the year, more than offsetting its worst annual start in decades.

On Thursday, the dollar index rose more than half a percent to a high of 95.65, its best level of the year.

The dollar’s strength combined with Brexit woes triggered a fresh slide in the British pound, which fell on Thursday to its lowest since August.

The Canadian dollar declined sharply on tariff fears, sending the USD/CAD currency pair to its highest level of the month.

A stronger U.S. currency makes the purchase of gold and other commodities more costly for international buyers, which reduces their relative demand. On Wall Street, investors have shown a renewed penchant for stocks in anticipation of a strong earnings quarter.

Fed Chairman Jerome Powell on Thursday wrapped up his semiannual testimony before Congress where he fielded questions on the economy, protectionism and cryptocurrency. Although Powell didn’t strike an overly hawkish tone, he left little doubt about the central bank’s plan to raise short-term interest rates.

On Wednesday, Powell told lawmakers they can expect several years of economic growth under the current policy regime.

“With appropriate monetary policy, the job market will remain strong and inflation will stay near 2% over the next several years,” Powell said in prepared remarks.

The central bank “believes that – for now – the best way forward is to keep gradually raising the federal funds rate” in a way that keeps pace with the economic recovery, he added.

Federal Open Market Committee (FOMC) members will next meet July 31-Aug. 1 to set short-term interest rates. No change is expected before September.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 601 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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