Theme and Background
This chapter discusses the fundamental transformation of the critical mineral supply chain landscape amid accelerating deglobalization. The report points out that the world is shifting from a system of free and fair access to commodities to a new order characterized by interregional competition, supply instability, and sharp price volatility. China has secured a first-mover advantage through aggressive positioning over the past two decades, but the West still maintains strong competitiveness in areas such as capital markets.
Core Thesis
The author’s core investment argument is: capital alone no longer guarantees unrestricted access to critical minerals, and deglobalization will lead to rising resource nationalism and increased price volatility. The counterintuitive judgment is that, despite market panic triggered by financial system stress in March (the collapse of Silicon Valley Bank and the emergency acquisition of Credit Suisse), policy tools such as the Federal Reserve’s BTFP ultimately improved market conditions, and the critical minerals index held onto its recent gains during consolidation, demonstrating resilience.
Key Arguments and Data
- March Market Performance: The Nasdaq Sprott Energy Transition Materials Index (NSETM) fell 4.47%, with rare earths and lithium leading the decline. The collapse of Silicon Valley Bank and the emergency acquisition of Credit Suisse led to falling bond yields, and the market began pricing in Fed rate cuts (previously expecting a terminal rate of 5.7%).
- Macro Landscape Evolution: The post-WWII global free-market system is unraveling, and regional competition will lead to resource supply instability and economic/price volatility. Resource nationalism may intensify as countries attempt to retain and secure their share of critical minerals.
- China’s “Hyper-Finance Model”: Through state-led investment, high debt levels (debt-to-GDP ratio exceeding 300% in 2021), and the Belt and Road Initiative (BRI, with estimated costs exceeding $1 trillion), China has locked in a vast amount of critical resources globally.
- EV OEM Vertical Integration: Automakers are reverting to the vertical integration model of a century ago, directly investing in mining companies to secure supply chains, rather than outsourcing solely based on lowest production costs.
Companies/Assets Involved
| Company/Asset |
Role |
Key Data |
Direction |
| Nasdaq Sprott Energy Transition Materials Index (NSETM) |
Benchmark for critical minerals market performance |
Down 4.47% in March, in a consolidation pattern |
Neutral to bullish (held recent gains) |
| Silicon Valley Bank |
Trigger of financial system stress |
Sudden collapse |
Negative event (triggered market panic) |
| Credit Suisse |
Trigger of financial system stress |
Emergency acquisition |
Negative event (exacerbated market concerns) |
| Federal Reserve |
Policymaker |
Launched BTFP, restarted dollar swaps with five central banks |
Positive (stabilized markets, weakened the dollar) |
| China (via BRI and hyper-finance model) |
Major competitor in critical minerals |
Debt/GDP over 300%, BRI cost over $1 trillion |
Competitive (clear first-mover advantage) |
| EV OEMs (not specifically named) |
Drivers of supply chain vertical integration |
Returning to direct ownership of mining and manufacturing operations |
Structural trend (positive for mining companies) |
Investment Implications
- Go long on upstream critical minerals: Accelerating deglobalization and rising resource nationalism will push mineral prices higher. The EV OEM investment model of directly holding equity in mining companies validates the scarcity of upstream assets.
- Focus on Western capital market advantages: Despite China’s first-mover advantage, the West remains competitive in capital markets and financing capabilities. Related ETFs (e.g., SETM, LITP, URNM) may benefit from policy support and capital inflows.
- Beware of short-term volatility: Financial system stress (e.g., banking crises) can trigger commodity sell-offs (as commodities are often used as collateral), but policy intervention typically leads to a recovery rebound, making it suitable for buying on dips.
- Avoid assets overly reliant on Chinese supply: China has locked in substantial resources through the BRI, and Western companies may face supply disruption risks. Opportunities in regional supply chain alternatives (e.g., Americas-based resources) warrant attention.
Theme and Background
This chapter focuses on the strategic dilemma faced by electric vehicle (EV) manufacturers in the critical materials supply chain, as well as the evolving landscape of the scramble for critical minerals in the context of global deglobalization. The report argues that EV manufacturers are returning to a vertical integration model to hedge against supply bottlenecks and price volatility risks. While China holds a dominant position in the battery materials market due to its first-mover advantage, the West remains competitive in capital markets, technology, and management expertise. Additionally, the report analyzes that demand for critical minerals is in the early acceleration phase of the S-curve, which will intensify price volatility.
Core Thesis
The author's core investment thesis is that EV manufacturers are locking in long-term supply through direct investments in mining companies, but their biggest competitor is not their peers but China. China leads by at least a decade in geographic coverage, financial capacity, and technological capability, and has secured a large volume of downstream commodities and midstream capacity through its "super financial" model and the Belt and Road Initiative. However, the West is not invincible; its advantages in capital access, extraction technology, and project management are being activated, particularly with legislative support such as the Inflation Reduction Act and the Critical Raw Materials Act. The report emphasizes that pricing for critical minerals is shifting from regionalized negotiations to exchange-based pricing, and price volatility will intensify due to deglobalization trends.
Counterintuitive insight: Although China dominates the critical minerals sector, the depth of Western capital markets and supply growth constraints imposed by ESG regulations may allow the West to regain pricing influence in investment flows (rather than physical flows).
Key Arguments and Data
- Vertical Integration Trend: EV manufacturers (e.g., General Motors and Volkswagen) have announced large-scale future capital commitments, directly investing in mining companies to secure long-term supply. Long-term fixed-price contracts are rare for strategic metals because miners are reluctant to lock in prices below market levels, but they are willing to accept capital investments.
- China's Dominance: Chinese companies CATL and BYD together control half of the global EV battery market. Through its "super financial" model and the Belt and Road Initiative, China has secured supply for virtually all necessary commodities and built midstream capacity (e.g., smelting, refining, and processing). China and its state-owned enterprises are unlikely to sell any operations to Western EV manufacturers.
- Western Advantages:
- Capital Access: Western developed financial markets can provide substantial capital for resource projects, with a strong track record in capital management.
- Extraction Technology: The West holds advantages in innovative technologies such as extraction, processing, and environmental remediation.
- Management Expertise: The West has extensive experience in negotiations, supply chain management, and handling environmental and social issues.
- S-Curve and Price Volatility: The use of critical minerals is in the early acceleration phase of the S-curve, where demand growth combined with limited supply will lead to severe price volatility. Globalization over the past decade was accompanied by commodity oversupply, minimizing the impact of physical flows while overemphasizing financial macroeconomic price relationships. Deglobalization will lead to protectionism, reshoring, trade flow restructuring, and resource nationalism, affecting all commodities, especially critical minerals.
- Lithium Price Plunge: In March, the spot price of lithium carbonate fell by 37.46%, but it still rose by 408.88% over the past three years (more than fivefold). Scotiabank estimates that lithium mining stocks are already pricing in lower prices (approximately $6–10 per pound). Lithium mining stocks fell by 4.55%, consistent with the overall decline of 4.47% for energy transition materials miners. Over the long term, lithium demand (primarily driven by EVs) may once again outpace supply.
Comparative Data Table:
| Indicator |
March Change |
Change Over Past Three Years |
| Lithium Carbonate Spot Price |
-37.46% |
+408.88% |
| Lithium Mining Stocks |
-4.55% |
- |
| Energy Transition Materials Miners (Overall) |
-4.47% |
- |
Companies/Assets Involved
- CATL (Contemporary Amperex Technology Co., Ltd.) and BYD (Build Your Dreams): Chinese battery manufacturers that together control half of the global EV battery market. The report does not explicitly take a bullish or bearish stance but notes China's dominant position.
- General Motors (GM) and Volkswagen (VW): Western EV manufacturers that have announced large-scale future capital commitments, directly investing in mining companies to secure supply. The report implicitly takes a bullish view on their vertical integration strategy.
- Lithium Miners: Not specifically named, but Scotiabank estimates their valuations already reflect lower lithium prices ($6–10 per pound). The report does not explicitly take a bullish or bearish stance, but the long-term demand outlook is positive.
Investment Implications
- Focus on the West's Repricing Power in Capital Markets: As deglobalization intensifies, the West's dominance in investment flows (rather than physical flows) may strengthen, particularly through exchange-based pricing mechanisms. Investors should monitor supply constraints arising from Western critical mineral project financing and ESG compliance.
- Lithium Mining Stock Valuations Already Reflect Price Declines: Current valuations for lithium mining stocks already incorporate lower prices ($6–10 per pound), while long-term demand (driven by EV growth) may once again outpace supply, presenting potential buying opportunities. However, short-term price volatility risks remain high, and investors should wait for signals of supply-demand rebalancing.
- Beware of Regionalized Pricing Risks Under China's Dominance: Pricing for critical minerals is currently dominated by regional market negotiations in China, but as demand expands, the role of exchange-based pricing will increase. Investors should diversify exposure across different regions and metal types to hedge against geopolitical risks.
Theme and Background
This chapter focuses on the market performance and supply-demand dynamics of two key industrial metals—copper and nickel—in March 2023. The report argues that macro factors (banking crisis, interest rate expectations) and micro fundamentals (inventories, electric vehicle demand) jointly drove price fluctuations, but the long-term structural deficit logic remains unchanged.
Core Views
- Copper prices are swayed by macro sentiment in the short term, but China's demand recovery and historically low inventories serve as upside catalysts. The report believes that once demand surges unexpectedly, copper prices could spike sharply.
- Nickel prices are weighed down in the short term by weak electric vehicle sales and the LME liquidity crisis, but the supply-demand gap will continue to widen over the long term due to rising demand for battery-grade nickel and Russian supply risks. Low inventory levels foreshadow high price volatility ahead.
- Although lithium prices have corrected significantly, they remain at historically high levels, and the long-term trend of accelerating the S-curve of electric vehicle penetration remains unchanged.
Key Arguments and Data
Copper
- In March, copper spot prices fell first and then rose, ending the month up 0.59%. In the first half of the month, recession fears triggered by the banking crisis drove prices down 5.25%, followed by a rebound as the market repriced expectations of peak interest rates.
- Global exchange copper inventories fell 35% in March, primarily driven by a decline in Shanghai Futures Exchange (SHFE) inventories, signaling a recovery in demand from China, the world's largest copper consumer. Inventories are at five-year historical lows, setting the stage for a price surge.
Nickel
- In March, nickel spot prices fell 3.82% but remained above historical levels. The short-term decline was driven by weak electric vehicle sales and recession fears, followed by a rebound as expectations of rate hikes cooled.
- Exchange nickel inventories are extremely low. LME inventories have been impaired by the liquidity crisis following the Tsingshan Holding Group short squeeze incident in March 2022, with Asian trading hours only resuming on March 27, 2023, resulting in subdued market volumes. Low liquidity means prices will remain volatile.
- Over the long term, NMC cathodes (nickel-manganese-cobalt oxides) drive growing demand for high-grade nickel, as nickel enhances battery energy density and driving range. Russia is a key producer of Class 1 nickel (battery-grade), and sanctions will continue to constrain supply. Even with new capacity from Indonesia, supply struggles to keep pace with demand.
Key Comparison Data
| Indicator |
2023/3/31 |
2023/2/28 |
Monthly Change |
Monthly % |
Year-to-Date % |
| Lithium Carbonate Spot Price ($/lb) |
15.15 |
24.23 |
-9.08 |
-37.46% |
-55.63% |
| Copper LME Spot Price ($/lb) |
4.08 |
4.06 |
+0.02 |
+0.59% |
+7.64% |
| Nickel LME Spot Price ($/lb) |
10.73 |
11.15 |
-0.43 |
-3.82% |
-20.86% |
| Uranium U3O8 Spot Price ($/lb) |
50.70 |
50.85 |
-0.16 |
-0.30% |
+4.93% |
Companies/Assets Involved
- Tsingshan Holding Group: A Chinese stainless steel and nickel giant. In March 2022, a short squeeze on its nickel positions caused LME nickel prices to spike, leading to the LME's controversial decision to cancel trades, which damaged market liquidity.
- Nasdaq Sprott Energy Transition Materials Index (NSETM): Fell 4.47% in March, performing slightly better than the S&P Metals & Mining Select Industry Index (-5.21%).
- Solactive Global Copper Miners Index: Rose 2.63% in March and 9.31% year-to-date, making it the best-performing key materials mining index for the month.
- Nasdaq Sprott Junior Copper Miners Index: Rose 3.03% in March and 11.13% year-to-date, indicating greater resilience among smaller copper miners.
- Nasdaq Sprott Nickel Miners Index: Fell 1.94% in March and 4.53% year-to-date, dragged down by weak nickel prices.
Investment Implications
- Copper: Go long on China's demand recovery and price elasticity under low inventories. Global exchange inventories are at five-year lows, and China's demand rebound is the core catalyst. Copper miner indices (especially junior copper miners) have already posted positive year-to-date returns, suggesting the market is pricing in the recovery ahead of time.
- Nickel: Beware of short-term volatility, focus on the long-term supply-demand gap. LME liquidity issues make nickel prices prone to extreme swings, but the structural deficit in battery-grade nickel (constrained Russian supply + growing EV demand) provides a logical basis for long-term bullish positions. Investors should focus on high-purity nickel projects outside Indonesia.
- Lithium: Price corrections present long-term accumulation opportunities. Lithium prices have plunged 55.63% from highs, but EV penetration remains in the early stages of the S-curve, and demand growth will absorb current excess supply. The miner index fell only 4.55%, indicating continued market confidence in the long-term outlook.