Weekly Wrap 10th November 2023

What happened and what caught my eye

Nuscale is Default Dead

There is plenty of news on this. I first started talked with Simon Holmes a Court years ago after meeting this company. Back then I thought there really wasn’t that much that was new here, that it would not scale down fast enough in cost and had all the usual challenges of being small, not hot enough and requiring a pressurization vessel. We were long the SPAC on the basis that a bunch of nuclear bros would pile in which worked, and then short on the fundamental prospects. Both sides worked but I am now out of this - no position. This is sad day for nuclear fans but ultimately, I think this business lacked ambition - I am much more bullish on the disruptive potential of unpressurized nuclear that uses hot salt or the like - Moltex, Copenhagen Atomics and others seem a lot more prospective, in my opinion as well as process improvements to larger designs.

Food Without Agriculture

Can we produce food with energy? Yes! This is no great surprise to those who enjoy physics and chemistry but throw enough energy at a problem and you can probably rearrange atoms to your preference, cost viability aside. What is surprising is that the production of fats here does look viable and more importantly, competitive on cost and carbon with highly carbon intensive sources of fats like palm oil. Consumer acceptance is to be determined - no doubt the various lobbies would decry this as deeply "unnatural" - as if an Oreo was not.

The folks working on this stuff have a vaguely Dr Strangelove tilt to their work but someone has to work out how to survive a nuclear holocaust and I guess it is them.

The appeal to this stuff is that anything that can displace fats at lower carbon than palm oil can displace deforestation. There are far easier wins like reducing ethanol and biodiesel use but more options means lower costs and greater resiliency.

US Thermal Coal Looking Dire Again

US coal stocks are high and burns are dropping fast. This can only mean one thing: it is the time of commodities cycle where Peabody goes bankrupt. Kidding, that isn't likely due to its vastly lower leverage but things are looking grim in US coal with cheaper gas and renewables coming in and stocks as high in terms of days of use as during mid COVID. Natural gas production also remains very robust - it is hard to see how we do not see significant deflation in utilities costs over the next six months even if fixed and rate-based components drift up.

Lithium Meltdown Will Slow if Not End

Data from SMM and others indicate that downstream destocking of lithium is moving quickly though there remains a substantial stock at spodumene converters. Chart below from Albermarle results.

One particularly constructive development is that a large source of incremental tonnage in China, lepidolite is now losing money. The wild card on supply remains salt lake supply from CITIC Kunlun and others which is still going strong and likely to increase. A longer journal article on the geochemistry is here.

An American CBAM?

This act is starting to gather support and a general picture of bipartisan consensus on something similar to a Carbon Border Adjustment Mechanism is forming in the United States. There are always issues of design and scope but this does seem to be a step in the right direction to avoid carbon leakage. Aaron Crosby notes some of the many issues here. There also seem to be carve outs for friends of the US or those in trade agreements. A good thing as it will ratchet pressure to reduce emissions elsewhere. I regret to say in the absence of the platonic ideal of global carbon taxes and trading this is the only way out. The design is a lot more complicated than a CBAM but at the corporate level in companies that export to the US the message is clear: cut your emissions.

One major hangup here will be the carbon accounting which countries that have a long history of poor disclosure on financial accounting are likely to fight. For those of us who remember how ineffectual the PCAOB was with Chinese ADRs this stuff could be watered down far too easily or stymied by poor disclosure and monitoring in China, for example.