Comment of the Day, video and podcast
Huawei's chip success discussion and investment implications, sticky coal and nuclear renaissance, lithium volatility and stock M&A, round the world review in the video.
November Chart Seminar Interest
I am considering holding a Chart Seminar in London in November. Please contact Sarah at sarah@fullertreacymoney.com to register your interest.
Huawei Chip Shows US Curbs Are Porous, Not Useless – This article from Bloomberg may be of interest. Here is a section:
It’s highly unlikely Chinese chipmakers can squeeze more out of old tools to get them beyond 5nm, which means they’ll be stuck while foreign rivals continue to advance. And if they do make further breakthroughs, the US and its allies have plenty of ways to tighten up their curbs, including broadening the scope of the equipment ban and adding materials to the list.
My view – Predictability in the semiconductor sector ended in 2017 when the International Technology Roadmap for Semiconductors was last published. Instead of 18 months it now takes around 30 months to deliver the next generation of chips. That’s what the end of Moore’s Law amounts to.
As the physical limits of silicon are approached, the difficulty of cooling a chip becomes exponentially more difficult. A silicon atom has a diameter of around 0.2nm, so transistors with a diameter of 3nm are already very close to the physical limits of the atom. This has created a bottleneck in chip innovation because totally new technology will be required to deliver fresh innovation.
The reason new computers come with both a CPU (central processing unit) and GPU (graphics processing unit) reflects that bottleneck. Nvidia’s success is based on providing chips designed specifically for a dedicated task. That limits potential but maxes out utility for that single use case. The model works well because most chips are only used for a small number of similar functions.
Money, Politics Imperil Indonesia's $21.5 Billion Climate Deal – This article from Bloomberg may be of interest. Here is a section:
The initial promise of peaking Indonesia’s power sector emissions by 2030 at no more than 290 million tons of carbon dioxide, about 20% below a baseline level for the year, looks out of the question. An alternate scenario laid out in the draft plan would raise the target maximum to 395 MT of CO2, to account for the construction of new captive plants to serve growing industrial power needs.
Officials have said they are aiming to have a revised—perhaps final—investment plan before COP28 begins in Dubai at the end of November, taking on public feedback. But to do that, they will need to come to agreement on at least three major, interrelated issues: the money, the emissions target and the mechanics of the coal phaseout, including changes to Indonesian laws and policies that hold back wider green progress.
And
But there may not yet be enough in either bucket. There is just $289 million in grants, with half earmarked for technical assistance—funding for experts, consultants and advisors to model and support the energy transition. Almost all of the rest is loans, at interest rates to be determined later.
My view – Talk is cheap. This is not the first time we have seen photo ops for politicians, and headline- grabbing promises of large capital infusions, only for reality to intercede a couple of years later. There is no getting around the fact that coal is cheap, available, and easy. Every other alternative is either more expensive, intermittent, or imported.
Developing countries have no time for handwringing. They have large young populations demanding improved living standards now. Moreover, European, and North American consumers are in no mood to write cheques, when their own living standards are declining and public services are under pressure.
Lithium Giant Albemarle Nears $4.3 Billion Liontown Takeover – This article from Bloomberg may be of interest. Here is a section:
A deal would cement the stunning rise of the Australian lithium sector, where the share prices of newly founded and previously little-known companies have soared more than 10-fold amid surging demand for the metal. The race for lithium has mining heavyweights, battery manufacturers and automakers from Rio Tinto PLC (LSE:RIO) to Tesla Inc (NASDAQ:TSLA). chasing deals with firms with even early stage or pre-production projects.
Liontown, based in Perth, owns one of the most promising early-stage lithium projects in Australia, the world’s top exporter of the metal. It has supply agreements with major automakers including Tesla and Ford Motor Co.
US-based Albemarle, which already owns stakes in lithium mines in Australia and has a processing plant there, offered to acquire all of Liontown’s equity at A$3 a share. That follows a bid of A$2.50 in March.
My view – Mercedes Benz threw down the gauntlet today by announcing it is willing to compete on range with Tesla. It’s 450-mile quick charging model is expected to be on sale by early 2025. That story represents the promise of the lithium sector. Most automakers expect to release large numbers of new EV models over the next several years. That’s a demand driver for lithium.
The challenge for the lithium sector is there has been a significant mismatch between supply and demand over the last decade. The first wave of new vehicles surprised miners. The surge of new supply outstripped demand for EVs. Then the surge of demand during the pandemic surprised miners. Now, China’s slow recovery has resulted in demand undershooting expectations. The result has been incredible volatility in lithium prices.
Eoin's personal portfolio: hedge short introduced in bond position September 1st