Wednesday has witnessed some mixed action among the key metals, with liveliness in silver, weakness in copper and platinum and exceptional strength in steel.
On the latter front, steel and iron-ore producers had a good day with the NYSE American Steel Index up 1% and within kissing distance of its May peak. Stalwarts like U.S. Steel (X) were up 4% to 5%, but it was our trading position in Cleveland-Cliffs (CLF) that really turned heads on Wall Street.
CLF was up a sensational 16% at the time of this writing (an hour before the closing bell), giving us a very worthwhile 18% gain from our initial purchase price on May 11. If you haven’t already done so, I recommend taking partial profits on this position per the rules of our technical trading discipline (which informs us to take some money off the table whenever a position has risen 8% to 10% from our initial entry point).
I further recommend raising the stop-loss on the remaining portion of this long position to slightly under the 19 level on a closing basis, where the 50-day moving average comes into play (I’ll have more to say about CLF in the next update letter).
On the negative side of the metals market, the front-month platinum futures contract was down by around 1% on Wednesday, as was the price of GraniteShares Platinum Shares ETF (PLTM). We purchased a conservative position in this ETF at 11.50 on May 11, which puts the position at a loss of just over 1%. Since my previously suggested stop-loss was triggered today, I recommend that we exit this trading position.
You may ask why I would recommend exiting a trading position with a mere 1% to 2% loss? Normally I’d give much more latitude to a stock or ETF position before electing to stop out. But I view 11.50 as particularly significant from a technical perspective, as well as from the standpoint of trader psychology since this level is clearly delineated on the daily chart as being a pivotal “support” level. As such, activity tends to build up around such levels and selling pressure can frequently occur once these levels are decisively violated.
More importantly, our trading position in PLTM has been intact for almost a month, which violated another rule of my trading discipline, the appropriately named “4-week rule.” Simply stated, it dictates that whenever a long position in a commodity or commodity-related stock fails to make a monthly high or show a meaningful profit after a month, it’s usually best to cut the position and move on to something else.
In this case, I’m going to recommend that we move the money previously allocated to PLTM into the Global X Lithium & Batter Tech ETF (LIT). This ETF is what I view as a nice fit with our somewhat related positions in the cobalt (via Wheaton Precious Metals) and neodymium-Praseodymium (via MP Materials) spaces.
As the world moves toward “cleaner and greener” sources of energy, as well as the electrification of vehicles and alternative forms of energy storage, lithium will play an increasingly pivotal role. That’s the conclusion of a recent forecast report by data analytics firm Fitch Solutions.
The lithium market is controlled by a relatively small number of producers, but Fitch foresees that more opportunities will open up and expand growth opportunities for new entrants around the world. Fitch predicts that global lithium production will more than triple, from 442,000 tons of lithium carbonate-equivalent (LCE) last year, to 1.5 million tons by 2030.
The most dominant lithium-producing nations are projected to keep growing in the coming decade, while several new lithium players will emerge during that time. Production growth is projected to increase in Australia, which Fitch says will maintain its top spot as the world’s biggest producer into 2030, based on an expected tripling of production over the next 10 years. Production in Chile, Argentina and China, meanwhile, are also forecast to more than double, and Brazil’s lithium production is expected to grow five-fold.
Driving the acceleration of alternative energy storage, according to Fitch, will be the growing demand for rechargeable lithium-ion batteries for the electric vehicle (EV) market, accounting for around 80% of total lithium demand by 2030, from 40% today. Further, lithium consumption could grow as much as seven times over the next 10 years, based on a projected EV annual sales growth from 3 million today to 21 million units by 2030.
Fitch sees Chinese lithium carbonate 99.5% prices averaging $13,450 per ton in 2021, increasing to an average $15,025 per ton 2022. Chinese lithium hydroxide monohydrate 56.5% prices, meanwhile, are expected to average $11,950 this year and $14,300 next year.
Finally, Fitch expects China to maintain its leadership role as the world’s largest battery maker by a wide margin, accounting for around 80% of installed manufacturing capacity as of 2020. By the same token, countries including Japan, South Korea and the U.S. will also likely increase battery manufacturing in the coming years.
What to Do Now
Investors can buy a conservative position in the Global X Lithium & Batter Tech ETF (LIT) on weakness down to around 62.50 (where the 50-day moving average comes into play). I’ll have more to say about LIT in the next issue. BUY A HALF ON WEAKNESS