Price of energy metalsfrom - https://countingpips.com/2015/04/disruptive-stock-watcher-chris-berry-cautions-investors-about-the-real-potential-of-deflation/
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TMR: Will some commodities prices turn faster than others?
CB: The global economy is dealing with the excess capacity built up during the commodity supercycle in the last decade. This excess capacity will eventually be consumed, but it’s going to take time, and it’s going to vary from metal to metal.
Some of the energy metals—any metal or mineral used in the generation or storage of electricity—are growing well above global gross domestic product (GDP) and aren’t flooding their respective markets in the way that iron ore is. Examples include lithium, cobalt, vanadium, scandium, rare earth elements, uranium, and copper. I think this value chain is going to be an enormously profitable sector in the coming years. There is overcapacity in some energy metals today, but pricing, while soft, has seemed to stabilize.
In these smaller markets where many prices are negotiated from sale to sale, there is less elasticity than with other more liquid markets. Both lithium and cobalt are well supplied, just as base metals are. But lithium demand is growing at 8% and cobalt is growing at 6–7%. This has been fueled by a number of different catalysts including advances in technology and lifestyle changes that are pushing energy metals to the forefront. That said, it will likely be two or three more years before these markets equilibrate and we see stronger upward pricing pressure in these markets.
For any junior looking to be acquired, its financial metrics MUST match that of a major producer. For example, if a lithium junior is hoping to be taken out, it would need to show economics as strong as or stronger than anyone in the existing oligopoly. So if FMC Lithium Corp.’s (FMC:NYSE) EBIT margin on its lithium business is 10%, any lithium junior must show a margin of AT LEAST 10% to even be considered. With many of the juniors producing preliminary economic studies, it’s too early to tell which will be acquired and which will be forced to go it alone, as the economics in these studies can vary widely.
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