Macrosynthesis

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An OPEC for Lithium?

Lithium is a key component of the batteries powering electric vehicles, and worldwide supply of it is becoming political. Demand is forecasted to rise significantly over the coming decade, as evidenced by the chart above.

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In April, lithium carbonate prices fell to an 18-month low, down 70% from November 2022's record high, due to abundant supply, weak demand, and expectations for a surplus this year.

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However, reduced processing rates, the EU's decision to phase out carbon-emitting cars by 2035, and expectations of stockpile thinning and demand recovery suggest a bottoming out of prices.

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The Curveball

On Thursday, Chile's President, Gabriel Boric, announced plans to nationalize the country's lithium industry, with plans to create a national lithium company. Two of the world's largest lithium miners are based in Chile: Albemarle and SQM.

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According to President Boric, ALB and SQM will continue operations until their contracts expire in 2043 and 2030, respectively. Future lithium licenses will only be issued as public-private partnerships with state control.

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This development and Chile's focus on minimizing environmental impacts and favoring direct lithium extraction over evaporation ponds may lead to lower output and profit.

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SQM sold off heavily Friday on the news out of fear shareholders will lose everything as the government seizes control of the companies.

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Chile aims to double lithium production by 2025 and anticipates global lithium demand to quadruple by 2030. With nationalization initiatives in Chile and Mexico, a regional lithium association with Argentina, Bolivia, and Chile is being explored to expand South America's lithium processing capacity and tap into the electric vehicle manufacturing sector.

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These moves, coupled with the potential formation of a lithium cartel among Argentina, Chile, Bolivia, and Brazil, could significantly influence lithium prices in the coming years, affecting intermediate investors' decisions regarding the lithium market. Think OPEC for lithium.

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In this week's Level 2 weekly analysis, we'll discuss how to trade this event and which companies stand to benefit the most. Signup to the monthly plan to get access.

China's Reach in the Middle East

The Middle East is witnessing China's growing influence as it expands its regional investments. China recently bought a stake in a Qatari gas field and plans to invest $10 billion in Afghanistan's lithium reserves. Additionally, China has facilitated negotiations between Iran and Saudi Arabia, with progress toward ending the Yemen conflict.

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Both countries seek to join BRICS, potentially impacting global economic and political dynamics.

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Peace Maker Yellen  

US Treasury Secretary Janet Yellen has cautioned against attempts to decouple the US and Chinese economies, stating that such a move would be "disastrous" for both countries and destabilizing for the world. In a major speech, Yellen called for a "constructive and fair" economic relationship between the two nations, emphasizing that the US would continue working with allies to resist Beijing's "unfair" economic policies.

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Good Credit? Who Cares!

To promote credit lines for those with bad credit, the Federal Housing Finance Agency is implementing a new rule, effective May 1, to raise mortgage rates and fees for homebuyers with good credit scores. These changes will subsidize mortgages for buyers with riskier credit ratings and will affect loans originating from private banks nationwide.

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Buyers with credit scores of 680 or higher will experience a monthly increase of around $40 on a $400,000 home loan, while those making down payments of 15% to 20% will face the largest fees. These changes apply only to house purchases and refinancing after May 1.

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Critics argue that the rule unfairly penalizes those with stronger financial positions, potentially frustrating high credit score homebuyers and homeowners seeking refinancing.

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Last Week's Top Events

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Noteworthy Events

US stock indexes finished marginally higher on Friday, as mixed corporate earnings and uncertainty surrounding the Federal Reserve's policy direction influenced market sentiment.

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Procter & Gamble, HCA Healthcare, and CSX saw significant gains after reporting strong financial results. However, disappointing quarterly results from Tesla and AT&T, coupled with a slowdown in the labor market, dampened investor enthusiasm.

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Despite the overall cautious tone, US business activity reached an 11-month high in April, alleviating some fears of an impending recession. For the week, the Dow broke its four-week winning streak with a 0.3% loss, while the S&P 500 and Nasdaq declined 0.1% and 0.4%, respectively.

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More Layoffs

Buzzfeed, Amazon, Lyft, Disney, and Clorox all announced new layoffs or expansions to existing layoffs.   As is often the case, layoffs for profitable companies drove stock prices higher as it is the easiest way for a company to increase earnings per share.

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Tesla stock drops on poor earnings report, as gross margins decrease following price cuts and expiring government incentives.

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Nasdaq boosts its dividend

The company which owns the NASDAQ stock exchange continues to produce. Last week, NDAQ upped its dividend by 10% in a move that showed management's confidence that things are going well and will continue to do so. 2022 was a horrible year for IPOs, following one of the best in 2021.

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Nasdaq earns revenue from IPO listing fees, which dried up last year. This boost to their dividend may be a signal they expect IPO revenues to come back while their other revenue lines (data, services) remain robust.

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Consistent dividend increases of this size are an indicator for long-term success at companies and Nasdaq is not exception. It's had a decent 10X run over the past 20 years, and it looks like that run will continue.

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CASE STUDY: SABS Breakthrough Therapy

The FDA awarded Breakthrough Therapy Designation to SAB Biotherapeutics' SAB-176, a potential treatment for post-exposure prophylaxis of Type A and B influenza in high-risk patients, including those resistant to antivirals. SAB Biotherapeutics, a biopharmaceutical firm established in 2014, focuses on immunotherapies for infectious diseases, autoimmune conditions, and oncology, with a portfolio including SAB-142 and SAB-301.

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LevelFields users were alerted to the Breakthrough Therapy announcement on Tuesday morning, which resulted in a +41.56 1D return in the SABS share price.

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The Breakthrough Therapy scenario, on average, has a +5.44% 1D return. Turn on alerts for the scenario and avoid missing out.

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Upcoming Catalysts:

Notable Earnings

Monday

• First Republic Bank (FRC)
• Alexandria Real Estate Equities (ARE)
• Packaging Corp (PKG)
• Coca-Cola (KO)
  
  

Tuesday

• Microsoft (MSFT, $286.11) is set to report Q3 earnings next week, with its stock up 19% YTD.
• 3M (MMM)
• Alphabet (GOOGL)
• Boston Properties (BXP)
• Biogen (BIIB)
• Halliburton (HAL) - beneficiary of high oil prices and demand
  
  

Wednesday

• Meta Platforms
• Boeing (BA)
• American Water Works (AWK)
• American Tower (AMT)
• General Dynamics (GD)
• Waste Management (WM)
  
  

Thursday

• Amazon (AMZN)
• American Airlines (AAL)
• Capital One (COF)
• Amgen (AMGN)
• Cloudflare (NET)

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Friday

• Exxon Mobil (XOM)
• NIO (NIO)
• Chevron (CVX)

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Economic Reports That May Shift Investor Sentiment

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Thursday

• US GDP
• Jobless Claims
• Pending Home Sales

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Friday

• US PCE
• Consumer Sentiment

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This is not financial advice. All information represent opinions only for informational purposes.

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The LevelFields Team