Bumps Ahead as The Transition to Renewables Speeds Up
Daily SITREP for Thursday, February 9, 2023
A few articles on the transition to renewable energy I found this week are worth a read.
The first explains why crossing 5% usage is the ‘tipping point’ for mass adoption and what the current uptake looks like in different countries, and for different technologies. Read ‘Clean Energy Has a Tipping Point, and 87 Countries Have Reached It’ from Bloomberg here.
The others concern the minerals we need to create the hardware and infrastructure needed to sustain this switch. This all comes down to mining enormous tracts of land to get at the minerals needed to make solar panels, EV engine components, and batteries. Congo and Indonesia are two places developing new mining projects at the moment, but China dominates the entire sector as either a source of rare earth minerals or as the backer of these enormous projects. As the US dominates the oil and gas sector, China now dominates the rare earth sector.
Raw cobalt is processed at a mine near Lubumbashi, the Democratic Republic of Congo. Photographer: Lucien Kahozi/Bloomberg
These are projects at massive scale that can cause environmental damage in their own right if not managed properly, but there are also geopolitical aspects and human rights considerations to take into account.
For decision-makers, that’s going to mean a different type of due diligence on the provenance of materials in your supply chain: I’ve already seen articles equating batteries made with minerals sources in the DRC with ‘blood diamonds’ from Sierra Leone because of the widespread use of children to mine cobalt. We may also be swapping out dependency on Russia and the Middle East for oil and gas for a dependency on China.. This will result in a different but nonetheless potentially fragile supply chain to think about.
So while decarbonization is necessary for the climate, as well as hugely beneficial for our security, getting there won’t always be pretty and we’ll have a repeat of many of the same issues we’ve seen with other resource-intensive projects. All worth keeping in mind as you look to the future.
On to the numbers
Relative Values (90-Days)
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Potentially impacting: Fuel prices | Gound shipping costs. | Plastic prices | Changes to fuel subsidies (potentially leading to unrest) | Cost of living (especially transport and heating) | Changes to traffic volume/transportation choices | Demand for automotive products | Theft and smuggling.
Brent Crude is mid-range for this 90-day interval. Prices decreased moderately over the last 21 days after significant fluctuation.
Iron and Steel
Potentially impacting: Cost of construction projects | Construction project timelines | Cost/availability of raw materials | Infrastructure project timelines/costs | Cost and availability of finished metal goods | Value of scrap | Value of 2nd hand equipment/vehicles.
Iron and Steel are very high for this 90-day interval. Prices increased moderately over the last 21 days after slight fluctuation.
Market Volatility (VIX-US)
Potentially impacting: Availability of capital for investment | Interest rates| Share prices | Consumer confidence | House prices/rent | Financial certainty/uncertainty | Financial models | Stock-based compensation values.
Market Volatility (VIX) is very low for this 90-day interval. The index decreased moderately over the last 21 days after moderate fluctuation.
Potentially impacting: Bread, pasta, couscous & noodle prices | Changes to food subsidies (potentially leading to unrest) | Cost of living | Movement from low-income to food insecure to undernourished | Increased theft or graft in loosely governed areas | Demand on charities.
Wheat is high for this 90-day interval. Prices ended relatively flat over the last 21 days with little fluctuation.
Ocean Freight (FBX)
Potentially impacting: Supply chain costs (direct and indirect) | Supply chain delays | Port capacity/throughput speed | Customs clearance | Availability of goods and materials | Consumer demand/hoarding.
Shipping (FBX) is very low for this 90-day interval. Prices decreased moderately over the last 21 days after significant fluctuation.
February 12: Cyprus, Presidential run-off
February 25: Nigeria, President, House of Representatives and Senate
Apparently, you can have too many friends...
Twitter seems to be capping the maximum number of people you can follow. (Not an issue I have TBH.)