Commodity investment: Changing energy sector trends

2018 changed the trade rules in commodities over the US-China trade war. The popular energy products traded at commodity exchange include crude oil and natural gas; however, the growing demand for renewable led to a change in the energy sector based on lithium battery metal, also called White petroleum, that underwent a correction of over 50 per cent as supply soared and demands declined. 

Commodities like base metals are demand-driven, and the energy products are supply-driven. Some commodities, like precious metals, are for long-term investment, and base metals are suitable for medium to short-term investment. Still, the energy sector based on oil remained changeable and inconstant over the geopolitical trade tensions and the US tariff restrictions. 

The rules in such trade changed fast, while it remained a highly uncertain and vulnerable sector affected by geopolitical policies. 

Lithium stocks are considered valuable as these can transform the energy sector demands where new technologies allow low-cost, fast extraction of lithium and can modify the markets in the sector. 

The supply-demand is tightening with growing demand from the technology and energy sectors. Currently, lithium deposits in Chile and China are the key suppliers, where a report by Morgan Stanley in February 2018 claimed the Chilean brine could increase production to 200 kt in the market by 2025, which could double the supplies. Such reports resulted in a decline in the price of lithium carbonate in China, which fell 50.31 per cent. 

Clean Energy and Lithium Demand 

Demand for EVs (Electric Vehicles) continues to increase; it is estimated in China itself, more than 2 million EVs will be sold in the year, which is 1.1 million more than last year, where the government expects to have a 50 per cent rise in market share of EVs by 2025.

The demand for EVs continues to grow in other parts of the world. In Europe, the total vehicle sales grew 67 per cent, where Renault and Nissan launched the most models. 

The Global media group AFP claimed the German car company Volkswagen AG (secured the 10-year lithium car batteries from Chinese sellers Ganfeng as these batteries are a key ingredient – a vital component in the new car. 

The firms entered a MoU on long-term supplies, which means Volkswagen will deliver at least one-fourth of the vehicles driven by electricity in 2025. The change in energy policies has created a rush for commodities and other components needed for greener vehicles. Further, the EU has been trying to impose stricter regulations against fossils by 2030. 

The market predicts EV penetration can be up to 15 per cent by 2025, up 2 per cent. The recent increase in demand in such areas has led to the idea of mega-factories of lithium-ion batteries. 

The cleaner energy idea continues to expand, where advanced technologies offer higher competitiveness to the traditional fossils, providing a better reason to replace the traditional resources.

In the US, the energy storage sector and wind dominated the revenue growth by 18 per cent and 23 per cent (as per AEE), respectively. 

The producers say this is the right time to venture into the area, which provides better ways to change the rules of the energy sector. The semiconductor-based systems and battery technology have replaced other energy options where the main growth areas are transportation and energy-efficient buildings. 

It is assumed the sector will gain due to rising demands in the residential and commercial markets, where globally tremendous investments in battery fast charging and other areas can be seen.