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For China, electrification of its economy is in large part about national security. It doesn't produce much oil, so the switch to EVs reduces its import needs.
With the US though, well... the US is the "Saudi Arabia of oil" as Heatmap reporter Matt Zeitlin puts it.
So an EV push here means less immediate need for what we produce in abundance domestically, and greater need for certain critical minerals that are mined more globally. This was one of Sen. Joe Manchin's big concerns in the debate over the Inflation Reduction Act, that China could "weaponize" the supply of key commodities needed for things like batteries.
Not only are many of these commodities, such as Lithium, not produced in abundance domestically, the markets for them are illiquid and volatile. High volatility and lack of liquidity creates problems for producers, affecting the economics of new mines. Sure, the long-term demand for lithium may be high, but low prices today may discourage breaking new ground on operations, perpetuating shortages in the future, and so on.
To this point, you should read a new proposal from the think tank Employ America by Arnab Datta, Alex Turnbull, and Alex Williams (disclosure: I play in a band with Alex, so assume I'm biased). They argue that the Loan Programs Office within the Department of Energy has within its capacity to work with an entity like the CME "to establish physically cleared benchmark contracts in critical minerals and other novel commodities."
They write:
“Without mechanisms that help consumers and producers alike by stabilizing prices and providing hedges to producers, it is unlikely that we will see sufficient capacity built out to address our decarbonization needs. In liquid commodity markets like crude oil, the presence of market makers can help producers (and others across the value chain) use benchmark financial contracts to hedge away unwanted risk, and focus more closely on core competencies. Unfortunately, most critical minerals markets are not as mature. Hedging away price risk is costly, both financially and in time. Even when firms can hedge through long-term offtake contracts, they are imperfect at best. The environment for innovation is ripe—with the right policy, the federal government could secure greater production and increased capacity by acting to lower the costs and frictions that hinder producers looking to hedge price risk.”
The whole proposal is worth reading. You often hear the word "financialization" used in a pejorative manner, when applied to certain aspects of the economy. But you can intuit why under-financialization, where players don't have the instruments to hedge their risks and ensure longer-term stability, is also problematic, particularly in this highly volatile, uncertain era of energy transition.
Joe Weisenthal is the co-host of Bloomberg’s Odd Lots podcast. Follow him on X @TheStalwart