MARKET REPORT
SHORT READ PART 3
2022 OCTOBER QUARTERLY ISSUE
Written by : Andrew Sia
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This time we are looking at lithium, the most important material for the batteries to be used in the electric vehicles. We can find them in Congo Basin, also in many of the Latin American countries, and we singled out Chile, being the largest producer of lithium.
We also mentioned that the six largest economies in South America are leaning to the left-wing governments.
We reported the future of electrified-transportation where the e-bikes are also playing an important role.
And having said all these, the investment in the semiconductors of which the chips are found in many things, ranging from transportation, military equipment and healthcare devices. That has brought up the wearable devices are relying on chips as well.
Finally the battery supply where the Asian countries are jockeying for their positions and it is not just the investment is important, but also the geopolitical situation is playing a role there.
Contents:
IMF Global Outlook on Growth
Congo’s Latest Move to Save Its Economy
Latin Americas Are Shifting to the Left
Lithium Mining in Chile
Policy to Deal with Threats from Russia for Restricting Gas Supply
Position of the U.S. LNG Supply
Electric Vehicle and Its Role in Reducing Carbon Emissions
U.S. Retailers’ Woes
Germany Prepared for Winter Season
Electric Transportation Solution, the Electric Bike
Gold Rush for the Chip-Making Production
Wearable Technology is Transforming Health Care in an Effective Way
EV Battery’s Mineral Supply is in Jeopardy
IMF Global Outlook on Growth – WSJ, July 27, 2022
IMF sees the global growth of this year slowing to 3.2% globally after January’s 4.4% and April’s 3.6%. This came from the result of 2021 at 6.1%.
The IFM warned that the actual outcomes could be worse due to the series of downside risks as triggered by the stop of gas imports from Russia; uncontrollable inflation; debt distress in poorer countries; crisis in China and their net-zero Covid policy; cracking of the world trade and the change of trade policy due to the geopolitical wrestling.
This can further lower the growth of this year to 2.6% and can carry on to next year’s growth of only 2%.
The latest forecast for the inflation of the rich countries to be expecting 6.6% and 9.5% in the emerging markets and the developing nations.
For the U.S. it is expecting the growth to slow down to 2.3% and only 1% for 2023. It came down from 2021’s 5.7%. Earlier on in April, it was predicted for 3.7% growth for 2022 and 2.3% for 2022.
The IMF predicted China’s growth at 3.3% this year from last year’s 8.1%. This was reduced from the prediction of 4.4% earlier on. China’s lockdown has the effect on the global situation as it constrains the global supply. With its worsening crisis in its property sector, it adds the burden in its domestic spending and affects also its trade partners in the world.
Congo’s Latest Move to Save Its Economy – New York Times, July 25, 2022
Congo Basin is second in size only to the Amazon. It is one of the largest rainforests on earth, the world’s most important sanctuary for the gorillas, and it has the tropical peatlands that store vast amounts of carbon from going into the atmosphere that can cause global warming.
This time it will be auctioning its oil and gas reserves and allow the new oil drilling company to drill in the environmentally sensitive area to save the country’s economy challenge.
It was in the last global climate summit, COP 26 in Glasgow, Congo and the other nations signed a 10-year agreement to protect its rainforest and in return the committee agreed to pledge $500 million to Congo as the aid over the first five years.
Things have changed since Russia made the invasion in Ukraine that sent the oil and gas price soaring, and Congo is set to earn enough foreign revenues to help the country to reduce the poverty and to build its economic growth.
This behavior has angered the environmental groups when Congolese officials expanded the offer of the blocks of land for auction, from 16 to 30, comprising 27 oil and three gas blocks. So far, no oil companies have made any comments at this point.
But on the other hand, the Congolese officials have formed their own opinion as things that have to do with the climate change have carried the double-standard. First of all, the Western countries have built their fortune by developing the fossil fuel, and Congo and the other African states were colonized and their benefits were disregarded in the history of the modern economy.
Once the oil drilling starts, roads are to be constructed, trees will have to cut down through the rainforest, peatlands will be drained and many damages will take place.
It is known that the selling of the land blocks would only benefit a few people and the inequality in Congo will still remain. We have seen countries like Nigeria, Angola and Equatorial Guinea who are the biggest oil producers in Africa. Something known as the “resource curse” where people of the nations would not benefit and inequality would have continued to expand.
But the government of Congo has mentioned that by allowing the mining of minerals and metals like cobalt and lithium which are the key to the renewable energy industry. Furthermore, it has agreed to develop the hydropower. Congo has presented the country as part of the solution for the climate change.
It seemed that the country has no better alternatives except to allow the auction of the rights to exploit its oil and the gas reserves. Unfortunately, the logging and the protection of the gorillas would have to come under protection after a more thorough plan can be mapped out.
Latin Americas Are Shifting to the Left – New York Times, July 31, 2022
Chile’s President, Gabriel Boric, a former student activist who won the presidency, pledged to oversee the change to widen the social safety net and shift the tax burden to the wealthy.
Peru’s President, Pedro Castillo, the son of a poor farmer who won the presidency, vowed to prioritize struggling families, feed the hungry people and correct longstanding disparities in access to health care and education.
Colombia’s President, Gustave Petro, a former rebel and longtime legislator, promised to champion for the rights of the Indigenous, black and poor Colombians, and build an economy that works for everyone.
We have seen the general sentiment that the power has now tilting to the left, and this has all began in 2018 when Mexico’s President, Andrés Manuel López Obrador, was elected into the office.
In Argentina, its leftist President, Alberto Fernández, took over the presidency from a right-wing president in late 2019, after protesting rising prices and inflation.
And later this year when Brazil will vote for its president, and a leftist candidate can win the election. Its former president, Luiz Inácio Lula da Silva, a fiery leftist, has a wide lead on the right-wing incumbent, President Jair Bolsanaro.
This will leave the region’s six largest economies run by leaders elected on the leftist platforms.
Lithium Mining in Chile – WSJ, August 11, 2022
Chile is known for some 55% of the world’s known deposit of lithium, a key component in electric-vehicle’s battery. Together with Bolivia and Argentina, the area is known as Lithium Triangle, these leftist governments are looking for more control over the mineral and a bigger share of profits. This activism is representing the Andean communities who want not to be exploited by outsiders who would go there and start their mining activities all because of the exploding demand that has sent the price of the lithium up by 750% since the beginning of 2021. There are already talks that the lithium may not be enough as most manufacturing of electric vehicles have just started.
The Chilean government plans to create a state-lithium-company after the previous government privatized the operation that weakened the control over environmental rules and indigenous rights over mining.
Unlike oil, which is produced all over the world, lithium can only be found in South America, Australia and China as the key locations.
Lithium is extracted from hard-rock and it is found in salty, underground water which can be evaporated under the sun after being pumped into the large manmade ponds. This can create the impact on water supplies. It takes 2,800 cubic meters of water to produce one ton of lithium in Chile for instance. When compares this with copper, which takes only 70 cubic meters. It is already less expensive to extract lithium in South America compare with other places, but the drawback is the longer time it takes to build a mine—about eight years.
Lithium is a strategic resource because it is also a component in nuclear bombs.
To produce lithium in Chile has been very difficult due to the rulings from its government. First of all, the land would need to be rented from a state-agency. Not only it would require royalties, but also domestically added value than just the export of the raw material. With the new leftist government, it doesn’t make the matter easier. Chile has been developing the lithium for 14 years but it failed due to the greediness.
At this time the economies in the Latin American countries are all battered by the pandemic with the runaway inflation, the control of lithium can save them. But the greediness can only add difficulties to those foreign investors who would want to tap into the resource. The mismanagement of the resource may mire the situation due to the corruption and nepotism of those states.
The only brightest spot for lithium output is Argentina in South America because of the tax stability agreement and have also the easy foreign currency control. Investors like Anglo-Australian miner Rio Tinto PLC, China’s Ganfeng Lithium Co. and French multinational Eramet SA. Even the giant auto companies, Toyota and BMW have deals in Argentina.
In 2031, Argentina will have 19 lithium mines in operation, and the annual production could reach 230,000 tons by the end of the decade, which is about six-times of today’s output.
In order to be a reliable and successful resource for the lithium, the advice is not to kill the goose that lays the golden eggs.
Policy to Deal with Threats from Russia for Restricting Gas Supply – WSJ, August 11, 2022
All across Europe, countries and their governments are pushing policies to curtail energy usages to deal with Russia’s reaction to sanctions due to the war in Ukraine. All the policies are focusing on air condition, traffic lights, city-lights, water heater, sauna and swimming pool. And even traffic lights would be disabled when the traffic is getting lighter. But these are all emerging policies for the preparation of further cut down from Russia and try to reserve the natural gas for the winter season.
I recalled that in 2005, there was this campaign in Japan known as the “cool biz” where the government set the temperature in the government buildings not lower than 82 degrees Fahrenheit. Employees went to work without neckties and jackets and wore only short-sleeved shirts.
Position of the U.S. LNG Supply – WSJ, July 23, 2022
The U.S. is rushing to supply natural gas to Europe to deal with the threat for cutting back the supply from Russia. And already the supply of the liquified natural gas (LNG) imported from the U.S. has doubled from the year before. Russia has further threatened the European states that the gas supply from the Nord Stream pipelines would be completely shut down for maintenance. This would make Europe more vulnerable than at any time.
The U.S. has evaluated the energy exports as a significant tools for geopolitical and economical. But it has realized the limit it can go as the present capacity has maxed out and it will take years to add new export terminals for LNG and the cost will also be prohibitively high.
Electric Vehicle and Its Role in Reducing Carbon Emissions
Electric vehicle is now the biggest thing in the automobile world. It is part of the environmental awareness for reducing the carbon emissions and the rest has been played out by the industry for creating something to attract the owners of motor vehicles. Instead of staying with something that has been around for a long time, all the talks and the attentions have been given to the electric vehicle’s top-of-the-line EVs like Ford’s Mustang Mach-E, or Ford’s F-150 Lightening Pickup and GM’s Hummer EV.
The EVs are running on large-batteries for the long-range electric vehicles. When producing these batteries, they would produce a lot of carbon emissions. We have to be aware of this very important point.
In order for these vehicles to justify for their savings in gasoline, electric vehicles would have to be driven for tens and thousands of miles before they can make up for the saving of the fossil fuel.
It is already said by the consultancy firm, AlixPartners, that some $526 billion is currently being used to create dozens of mostly high-end electrical vehicles aimed at the 17% of buyers who constitute the luxury car market. And its impact on climate of these cars would be zero. But they would have an impact on taxpayers as regulators have introduced subsidies like the tax credit of $7,500 for new electrical vehicles as the vast majority of Americans found that the EVs are too expensive.
The real incentive is to introduce the smaller EVs with the adequate batteries to power them. Even the hybrids are suitable for running across town but not taking the highway trip unnecessary. These cars stand a better chance to offsetting their lifecycle emissions.
At this moment, few of the car manufacturers are focusing at the customers from the lower income bracket to meet their need. This has driven those car manufacturers like Nissan to give up their pioneering electric Leaf in favor of the big SUVs aiming at those affluent customers.
U.S. Retailers’ Woes – FT, August 2, 2022
Most of the discretionary spending is going to experiences that the consumers missed out during the pandemic, such as traveling and eating out, rather than on clothes, furniture or appliances. Because of the difficulty in predicting the demand, many of the big retailers feared the repeat of the supply chain delays that they suffered from the last holiday, have been stocking up early this year. This has resulted the excess stock that they would have to clear and make room for fresh products that can entice the consumers’ appetite.
Walmart’s growth has been built on aggressively competitive prices and tempting promotions. It has to do now more markdowns than planned, especially with the apparel category.
Target also announced the need to discount their products and cancel orders to clear excess stock in categories from outdoor furniture to televisions.
Bed, Bath & Beyond, Macy’s and Gap are facing the same kind of challenge.
Mattel, Barbie dolls and Hot Wheels cars, have reported their inventories were up 43% year-on-year. Their rival, Hasbro, has the same issues.
Last autumn’s extensive backlogs at the U.S. and China ports delayed shipments that caused rising freight costs and shortages of goods. Later the shipments arrived turned them into excess stocks that the retailers had either made huge discounts in the spring season or put in storage to resell in the coming holiday season.
Shipping rates have fallen from last year’s peak. It costed on average $6,593 to ship a 40-footer container in July from Asia to the U.S. West Coast. This is down by two-thirds year-on-year. But it is still four times more than what the importers were paying in 2019.
We are looking at the freight cost of a 40-foot container at $1,648 in 2019, and in 2021 it was at $19,978. Now it is at $6,593 which is still too high. It is no wonder that the shipping companies are enjoying the best years in their operation.
There are still the threats of labor shortage that are causing trucks and railway disruption.
The renting for warehouse space has gone up by 54% year-on-year and the average occupancy rate has gone up from 96% to 97.6%.
Entering into the new holiday season, the sales forecast is full of uncertainty and not only they have to clear the old stock but make room in the stores to show the new merchandise. They are now waiting to see what the back-to-school will bring them.
With the high inflation and the historically low unemployment, they have added more unpredictable factors. No wonder the retailers are admitting that they have never seen this situation before.
But two weeks later, we have seen Walmart’s shares rose more than 5% and Home Depot’s rose by more than 4%.
Walmart reported this time that the revenue rose 8.4% to $152,86 billion in the July quarter. Consumers are paying more for the grocery items. And for Home Depot’s, the quarterly sales rose 6.5% to $43.79 billion.
Germany Prepares for Winter Season – FT, August, 2022
It is said that Germany must cut its gas use by 20% to avoid a shortage this winter. Germany would also need to source about 10 GW of extra gas supply from other sources to make up the missing of the supply from Russia. This is about 9% of its current gas consumption. This is also due to the threatening from Russia about their gas supply through the Nord Stream 1 in mid-June citing the technical problems. This also representing 20% of the supply to Europe. This decline in deliveries resulted the European benchmark from €66 per mega-watt hour to €206 in the middle of August.
Measures like all companies and local authorities would have to reduce the minimum room temperature in their workplaces to 19° C during the winter.
Electric Transportation Solution, the Electric Bike – WSJ, August 6, 2022
On the road to electrified-transportation future, many Americans are travelling on e-bikes. Last year, the American bought 880,000 of them, and 487,000 e-vehicles. Electric vehicles now represent more than 5% of all vehicles sold in the U.S. compared with 2020 when it was only 2%.
This is all because of the gas price and the scarcity and the expensiveness of the EVs that people are looking for e-bikes and e-scooters, make them a viable alternative choice for some riders and on some trips.
In the first half of 2022, about 326,000 were imported into the U.S. There can also be a seasonality to the sales of e-bike, for the whole of 2022 it will probably be 700,000 in total.
The base model for e-bike can cost less than $1,000, but for mid-range they can be up to $3,000. But for the luxury models, like the one from Porsche, can reach $10,000.
The first half of 2022, about 370,000 EVs were sold in the U.S. and it was a record.
The existing bicycle companies. Including Shimano, Giant and Accell, all have over $1 billion in revenue, have all planning to invest in e-bike.
Seattle-based Rad Power Bikes have invested more than $300 million to build its direct-to-consumer e-bike business. Models for commuters, a folding e-bike, a cargo e-bike capable for taking a couple of kids or a load of grocery, and a moped-style step-through model with a padded seat for carrying a second adult as passenger.
In Europe, according to the Confederation of the European Bicycle Industry, five million e-bikes were sold in 2021, more than five times the number in 2021.
In China, according to Shanghai Metals Market Information & Technology, consistently 30 million e-bikes are sold annually.
It is also part of the culture, unlike the U.S. where there is these car-obsessed Americans, but in other international cities, where bicycles and scooters are often used for commuting. These cities, you can find them mostly in Europe, where there are more significant bicycle-and-pedestrian zones that have been designed in their city planning.
Advocacy groups are trying to encourage the city-planners to take the cyclists and pedestrians into their consideration, but it has still a long way to go. Safety is the biggest concern.
The cost concern is the battery and materials that are critical for the manufacturing of batteries are lithium, cobalt and nickel. Their prices have all been taking a hype especially since the war in Ukraine began. It is hard to predict the future that can affect the EVs the most for the cost and the supply. But the electric bike is definitely a very good solution.
Gold Rush for the Chip-Making Production – WSJ, August 1, 2022
We can find semiconductors going into just about every electronic device. They are critical to a range of major industries from smartphones, to cars, military equipment and healthcare devices. We have experienced the recent shortage of chips that crippled the world economy, all because of the absence of these tiny tech components. The world is in the race to control the supply of the chips in order that they can hold the future in their own hands.
The U.S. government has assigned $77 billion in subsidies and tax credits to boost the manufacturing of the chips.
China has prepared to invest of more than $150 billion through 2030.
South Korea has planned for an aggressive array of incentives aiming for spending $260 billion in chips investment over the next five years.
The European Union is prepared to spend $40 billion in public and private chip investments.
Japan is spending about $6 billion to double its industry in chips by the end of the decade.
Taiwan has around 150 government-sponsored projects for chip production over the past decade. It is in the leading role in this arena.
Singapore finalized $5 billion earlier this year and has announced that this had been drawn by the city-state’s vision to attract high-tech companies to investment there.
The new U.S. incentives which were approved by the Congress will help to reduce the high investment for an advanced chip factory on the American soil. And now the American chip maker, Intel Corp. can proceed with its ground-breaking ceremony for a new $20 billion chip-making plant in Ohio.
We have never seen the scale of investment in this tiny chip which holds the future of everything.
Wearable Technology is Transforming Health Care in an Effective Way – The Economist, May 7, 2022
We know that when the heart’s chambers beat out of sync, blood pools and clots may form. We are talking about atrial fibrillation which causes a quarter of more than 100,000 strokes in Britain each year. Test are inaccurate and costly, but this has to be detected first. Already, the Apple Watch, and soon the Fitbits, can detect this. This can save lives in danger.
Smartwatches and -rings, fitness trackers, and a rapidly growing array of electronically enhanced straps, patches and other “wearables” can use to record 7,500 physiological and behavioral variables. This machine learning can reveal a continuous, quantified picture of our health.
We can call this digital health and this is in the early stage. Together with the wearables and artificial intelligence, they are set up for reshape health care in three big ways: early diagnosis, personalized treatment and the management of chronical disease. They are also set to lower costs and save lives.
Wearables can be used for early diagnosis. When health symptoms can be detected at their early stage, they can lead to less severe disease and cheaper treatment. Sensors can reveal if an older person’s balance is starting to weaken. People’s gait and arm-swinging change can detect early-stage Parkinson’s. Strength exercise can help to prevent falls and broken limbs.
A smart ring can help a woman conceive by predicting her menstrual cycle. It can also detect pregnancy less than a week after conception. This may alert many women to stop drinking or smoking weeks before they realize they are pregnant.
Wearables can transform chronic diseases, such as diabetes. Almost 80% of the diseases can be prevented by changes in how people lead their lives. Apps using small devices and clever tactics that are often applied by a personal trainer to make us exercise more, eat better and sleep soundly. Now even small increases in exercise is good as adding 1,000 steps (0.7 km) a day reduces mortality by 6-36% depending how much you spent by sitting down daily. By continuous monitoring the smartwatch that we can do by ourselves can be most effective.
America spent s $10,000 to $20,000 per year for every diabetes patient, which is $280 billion national-wide on a yearly basis. A diabetes-control app can reduce the cost per patient by $1,400 to $5,000.
This technology is ripe and the scale of the benefits can be very big when wearables can create data. Already 200 million devices have been sold in 2020 worldwide, and this number will double in 2026. By then one in every four Americans will have a wearable device.
Smartphones serve as a platform for innovators. Very soon, in a year or two, the device on the wrist can measure non-invasively our blood sugar, alcohol and if there is any sign of dehydration, as well as various markers of inflammation, kidney and liver dysfunction. Currently, these will all require blood to be drawn for testing.
EV Battery’s Mineral Supply is in Jeopardy – FT, August 11, 2022
It was not so long ago that Volkswagen, the world’s second-largest car maker believed that the battery cells could always be better ordered in Asia. The time was 2018, its former boss, Mattias Müller, dismissed the idea of the group following Tesla’s move to produce its own battery cells with the help of Panasonic in Nevada. Instead VW was signing purchase orders with mostly Asian producers. He added that it was not their core competencies, but a few months later VW invested €450 million in Sweden’s Northvolt, before it decided to bring the battery cell manufacturing in-house to deal with EU’s stricter emissions regulations and decided to expand its capacity more significantly by 2030.
American competitors, General Motor and Ford, followed VW and signed deals with Korean battery producers, LG and SK On. In the case of GM, SK On helped GM to build four dedicated plants in the U.S. with a total of 160 gigawatt hours of production by 2025.
Stellantis, the group behind Peugeot, Fiat Chrysler and Jeep, has established similar partnership with LG and Samsung SDI.
Ford has announced that it has secured 60 gigawatt hours of annual cell production by late 2023 for 600,000 electric vehicles. And in July formed a partnership with China’s CATL to supply lithium iron phosphate batteries, a cheaper version with less range than a chemistry one that used more nickel and cobalt.
There are threats that are jeopardizing the production of the battery cells. First of all, 85-90% of materials that use in the battery are coming from China. Then the cost of critical materials is soaring and the price of lithium carbonate is at all-time high in April and it is still eight times of what it was in last year.
Supply of nickel and cobalt would likely fall into shortage, just like what is happening with lithium. The energy supply in Europe is affected by the war in Ukraine and when all gas supplies would be cut off, the battery plants would be forced to stop.
Lately, the supply from CATL for Ford and Tesla have faced uncertainty after the Speaker of the U.S. House of Representatives, Nancy Pelosi, visited in Taiwan. Not to mention that the supply chain is still affected by the pandemic and the war in Ukraine.
