The Economist February 13th 2021 Finance & economics 71lower than a year before, according to
Goldman Sachs, a bank. Exports from Iran
seem unlikely to pick up quickly. In an in-
terview with cbsNews aired on February
7th, Mr Biden said he had no immediate
plans to lift sanctions on the country.
For battery metals, demand has helped
boost prices. Much of the interest is com-
ing from China: in December sales of plug-
in electric vehicles there surpassed
224,000, a record high and 9.4% of total ve-
hicle sales. That has supported demand for
cobalt, lithium and rare-earth minerals
such as neodymium and praseodymium.
But constraints on supply have played an
important role, too.
Covid-19 disrupted ports in South Afri-
ca, from where much of the world’s cobalt
is shipped, and in China, the world’s big-
gest miner and exporter of rare-earth met-
als. Nickel mines in Indonesia were also
pandemic-struck. In New Caledonia, a
small group of Pacific islands that is the
world’s fourth-biggest producer of nickel,
protests in December demanding public
control of national resources blockaded
several mines that are part-owned by for-
eign firms.
As the 2020s continue, you might ex-
pect the prices of oil and battery metals to
diverge, as demand for crude ebbs and that
for electric cars and other green technolo-
gies jumps. However, there may well be a
period when supply constraints mean that
the values of oil and battery metals contin-
ue to rise in concert.
Start with oil. In the past, higher prices
prompted more spending on projects,
which increased production and lowered
prices. There are already signs that this
mechanism is breaking down. In recent
years dismal returns and fear of regulation
have made investors wary of capital expen-
ditures. Their disdain for spending has in-
tensified, thanks to covid-19’s rapid de-
pression of demand and the election of Mr
Biden. Since taking office in January, he
has announced a temporary moratorium
on new drilling leases on federal lands, as
well as plans for stricter regulation of me-
thane emissions and greater scrutiny of
pipelines. None of this has a huge, imme-
diate effect on oil supply, but serves to
make investors even more sceptical of any
big increase in companies’ capital pro-
grammes. In January BlackRock, the
world’s largest asset manager, urged com-
panies to disclose how their strategies
align with a carbon-neutral economy by- Little wonder that in recent weeks
ExxonMobil and other oil supermajors,
shaken by large annual losses, have reiter-
ated pledges of capital discipline.
Meanwhile a wave of green enthusiasm
is sweeping the markets. Tesla, an electric-
vehicle maker, is more valuable than the
eight next-biggest carmakers combined.
JPMorgan Chase, a bank, reckons the share
of electric vehicles (excluding hybrids) in
global new vehicle sales will rise from 3%
in 2020 to 15% in 2030. Electric cars ac-
count for about a quarter of demand for co-
balt, a similar share for neodymium and
praseodymium, and nearly half of the de-
mand for lithium, according to cruGroup,
a consultancy. Other green technologies
are supporting prices, too. Copper is essen-
tial not only for electric cars, but also for
solar panels, wind turbines and 5ginfras-
tructure. The recent rally may therefore be
a sign of a strange pattern to come: higher
prices for both oil and the metals that may
help replace it.
All charged upSources: CRU Group;Bloomberg *Rare-earthmetals80
60
40
20
0
2020 2021Brent crude oil price, $ per barrelCopperNeodymiumoxide*LithiumCobalt25020015010050
2020 2021Price of metals used in electric vehicles
January 3rd 2020=100NickelPraseodymium
oxide*Pickinguppace
Inflation is likely to jump in the coming months, as last year’s oil-price drop falls out of
the annual comparison. Prices spiked in the euro area in January, owing in part to the
expiration of a temporary value-added-tax cut in Germany. Will the pickup be sus-
tained? Investors are bullish in America, where a huge stimulus package is in the
works. In the euro area and Japan, though, inflation is expected to stay subdued.Gaining purchaseSources:RefinitivDatastream;Bloomberg *Estimate3210-1-2
2019 20 21Consumer prices, % change on a year earlierEuroareaJapanUnited States
*3210-1
2020 2021Inflation expectations, five-year swap rate, %EuroareaJapanUnitedStatesBank bossesFresh blood
E
uropean banks’fourth-quarter earn-
ings, releases of which are clustered
around early February, have been surpris-
ingly perky. Those with trading arms, such
as ubsor bnpParibas, rode on buoyant
markets. State support helped contain bad
loans; few banks needed to top up provi-
sions. Markets should keep them busy and,
as the economy recovers, loan volumes
should rise. Many banks plan to resume di-
vidends this year.
Yet the chronic illness that has dogged
the industry for years remains. Interest
rates are rock-bottom, compressing lend-
ing margins. Lenders must set aside lots of
capital to placate watchdogs, which de-
presses returns. Costs are sky-high; hard-
hit by the financial and euro-area crises,
lenders have under-invested in digitisa-
tion. And Europe has too many banks,
which constrains scale and profits. ubs
forecasts the European sector’s return on
tangible equity (rote) will hit 8% by
2022—above last year’s 5.6%, but still be-
low its cost of capital of 10%. Its price-to-
book ratio hovers around 0.5, below its
lowest point in 2009.
Much of that has been outside bosses’
control. The current cohort, drafted in to
restore lenders to health in the 2010s, has
also managed to lift core capital ratios. But
reviving profits and valuations—a must ifEurope’s banks need new chiefs. Where
to find them?