In our portal, you may have encountered the fact that the competition for hydrocarbons between countries (the origin of many tensions in erstwhile decades) will be increasingly moving towards competing for selected metals. I shared this reflection with you in my lecture “]]>Raw materials wars]]>“ at Invest Cuffs Conference in 2023.
Over the nearly 3 years that have passed since then, there have been changes in the world, which have only confirmed my conviction: the modern war on natural materials focuses on metals. Among the most fresh events in this area is Donald Trump's announcement on task Vault. In short, this is to be a federally supported strategical warehouse of critical natural materials (to a large extent, metals), modelled on the strategical Petroleum Reserve (SPR), or strategical oil reserves. For the purposes of this article, I would like to pay any attention to the SPR, and then we will examine task Vault.
SPR – strategical Oil Reserves
They were established in the 1970s after the oil crisis to stabilise the energy marketplace and defend against price shocks (e.g. hurricanes that destruct refineries). Oil purchases under the SPR are mainly carried out with home producers, but besides abroad erstwhile needed. Purchases of natural material under the provisions shall be made for public funds. The reserves are managed by the US Department of Energy (DOE) and are stored in immense salt quarters on the Gulf of Mexico coast. SPR has been repeatedly utilized in the past to stabilise oil prices in the US. For example, evidence amounts of SPR were released in 2022 in consequence to the global energy crisis.
According to the above graph, there are presently about 415 million barrels of oil in the SPR. So the SPR is about 58%, as their maximum capacity is 714 million barrels. Starting in 2024, strategical oil reserves in the US are gradually being rebuilt.
I would like you to remember at this point, first of all, that strategical oil reserves in the US are built mainly on the basis of purchases of this natural material from home producers and solely for public funds.
Project Vault, the Treasury Project
Project Vault is simply a fund worth about US$12 billion (US$10 billion in public backing + US$1.7 billion in private capital), which will buy metals erstwhile prices are low or unchangeable to defend home producers of these metals from cost pressures during periods erstwhile China increases exports of individual natural materials. So this is the first objective: to support native natural materials companies.
The second objective: to supply US companies (e.g. arms manufacturers) with access to key natural materials in times of crisis – regardless of whether we are referring to a crisis arising from geopolitical conditions, trade restrictions, wars or supply chains, as in COVID. simply put, task Vault is expected to buy time erstwhile the marketplace is moving out of metals.
In my opinion, Trump's task is alternatively an authoritative admission that the problem of dependence on China on natural materials exists, not its actual solution. This is simply a designation of the fact that geologists, engineers and natural materials marketplace analysts have warned against for years. And while this second objective, i.e. the creation of a warehouse of key metals, in my opinion, will be more or little achieved, the first nonsubjective (support for native natural materials companies) is simply a large question mark. Why? I'm in a hurry to explain.
The United States no longer produces many natural materials on which their operation depends (including national security). In the case of a long list of specified natural materials, the USA is highly dependent on Chinese imports. For example, according to the diagram below, 74% of the uncommon earth metals imported into the United States and the products from these elements come from your middle.
Thus, the group of critical metals utilized in the USA originates in China and imports from another countries and their own production are liable for the rest. In many cases, however, this home production practically does not exist. In another words, it will be hard to accomplish the nonsubjective of supporting native producers, due to the fact that they simply do not exist. Therefore, task Vault itself will not rebuild / abruptly make a fresh supply of critical metals in the US. However, there are any natural materials industries in the US, where task Vault can be real support and include uncommon earth metals. However, I will make this subject in the remainder of this article.
In my opinion, in order to have a real impact on the reconstruction/creation of a fresh supply of selected natural materials in the US, it would be essential for each individual to make something like the strategical Uranium Reserve (SUR), a 2020 initiative. I would like to remind you that in this case, the aim was to reduce the dependence on Russia on uranium imports and to support US producers of this natural material through direct purchases of uranium exclusively from these companies. In 2020, legislature allocated US$1.5 billion for this purpose, and purchases began between 2022 and 2023. The first contracts for the acquisition of tiny quantities of uranium were signed with:
- Energy Fuels,
- Uranium Energy Corp,
- Peninsula Energy,
- Ur-Energy.
They were tiny volumes, more symbolic than strategic. However, this was a large adequate incentive for Uranium companies to start investing in fresh supply. It is worth noting that SUR buys as much as American companies are able to produce – this is not much for the moment. Therefore, the strategical uranium Reserve Initiative is likely to play an crucial role.
What does task Vault mean to investors?
As I mentioned earlier, for many critical natural materials, the US does not have adequate home production. any of these natural materials do not even be in the United States. Therefore, Trump's strategical reserve cannot be built solely on American companies. This means that the US will buy natural materials from companies from allied countries: Canada, Australia, EU countries, Latin America and more politically unchangeable African countries.
The U.S. industry, which in my opinion will make tangible usage of the vault project, is American companies producing and processing uncommon earth metals. I am referring to companies like MP Materials or Energy Fuels. They are gaining any kind of “cyclical shock absorber”. I'll explain what I mean.
Raw materials, especially niche ones, specified as uncommon earth metals, are characterised by advanced price volatility. This variation is at least a consequence of how US-China trade relations are shaping. If within task Vault, the U.S. will buy uncommon earth metals from MP Materials or Energy Fuels, this should reduce price decreases. This is good news for investors who have been discouraged by this volatility. Especially for long-term investors. task Vaut may make it easier to "park capital" for a longer word in previously variable companies like MP Materials or Energy Fuels.
Companies of this kind will most likely besides have an easier way to rise capital. task Vault means permanent/foreseeable purchases, and so besides permanent/foreseeable revenues, and that is surely not indifferent to possible creditors.
It should besides be noted that task Vault will buy both metals and semi-finished products (concentrations, oxides, etc.). These intermediates will should be processed into a final product somewhere. Indirectly, therefore, Trump's initiative is an incentive to make natural material processing in the US. The improvement of processing is frequently hampered by the request to get various licences, permits. task Vault may indirectly make these consents issued faster and mostly shorten the time needed to run specified establishments. It should be stressed here that in the case of uncommon earth metals, processing is crucial. China is simply a monopolist in this area.
In summary, task Vault gives selected US natural materials companies more unchangeable demand, easier funding, protection against dumping and asset value growth – precisely what is missing to rebuild the national critical natural materials sector. However, there are very fewer specified companies in the US, and task Vault will besides support companies from the above mentioned alliance countries.
Author: ]]>Konrad Parsley]]>
Source: ]]>https://independenttrader.pl/another-element-war-raw-analysis-project-vault/]]>