CAN ELECTRIC CARS DRIVE THE NEXT COMMODITY BOOM?
The transition to electric vehicles (EVs) is expected to have a transformative impact on the commodities sector, reducing the reliance on China as a key driver of demand. The global mining industry will require an estimated capital increase of between $350bn and $750bn to meet the predicted demand increases in copper, cobalt and nickel.
you couldn’t confidently claim Ivan Glasenberg, Glencore CEO, is given over to hyperbole. In fact, his group’s grassroots exposure to the markets through its trading division means it’s probably more tuned into the ebbs and flows of the commodity market than most other mining companies.
Yet his comments regarding advances in electric vehicle (EV) technology and its consumption had him audibly excited. Speaking during Glencore’s interim results presentation earlier this year, Glasenberg said the impact of future EV consumption would have a profound effect on the demand of many of the minerals his company mines.
On Glencore’s assumption that 30% of all vehicle sales in 2030 would be EVs – equal to 26m units based on 2016 global vehicle sales of 87m units – an additional 2 million tonnes (Mt) in copper metal demand would be generated. That compares against a current total demand of 23Mt for the red metal of which about 11Mt is generated from China.
The impact on other minerals is even more pronounced.
Nickel, for instance, would see demand increased 50%, or by 1.2Mt, against current
global demand of 2.1Mt, while the cobalt market would be sent into a tailspin. It is estimated that the car batteries of the future will create some 260 000 tonnes of additional cobalt demand against current global demand of 100 000 tonnes. It’s also worth noting that cobalt doesn’t occur as a discrete resource but always as a by-product of copper, which would make the current owners of long-life copper mines and resources very jolly indeed.
That, at least, is the current spin on the technological market disruption posed by EVs. Quite whether the world is actually progressing uniformly to that scale of technological adoption is quite another matter, and complicated by questions around definition. (See box below.)
In the meantime, it’s worth contemplating the yin to Glasenberg’s yang; in other words, one miner’s gain may turn out to be another’s loss.
This is especially true in respect of the platinum group metal (PGM) market. As of 2016, about 40% of platinum demand was driven from use of the metal in autocatalysts in internal combustion engines (ICE). As for palladium, platinum’s sister metal, the consumption is even greater, with some 79% of total demand from autocatalysts, and 80% for rhodium.
As a result, the rise in EVs – by which is meant electric vehicles that exclusively use batteries in their powertrain or “BEVs” – could negatively affect demand for PGMs. Generally speaking, analysts are taking the view that the negative impact of EVs on PGM demand is not a question of if, but when and by how much. According to analysts at RMB Morgan Stanley, EVs are not likely to cause severe disruption in the PGM market up to 2020. That’s partly because of the cost of owning them. The cost of manufacturing the battery, for example, has fallen 30% in the past five years owing to improved chemistry, the scale of production and cathode evolution. However, the rate of cost decline in car batteries has slowed considerably lately, undermining those optimists who thought they would fall as rapidly as batteries had in mobile phones. As a result, EV sales are still relatively low – equal to about 1% of total car sales in 2016 – while the market is also supported by government subsidies and other incentives.
In the South African context, an EV may be light on the environment but heavy on the purse. (See sidebar on page 40.) Anxiety regarding the range of battery-powered automobiles before they require recharging is another influencing factor in their potential adoption by society. As a result, EVs tend to be a second car, mostly for affluent consumers, who always fall back on the ICE vehicle for long-range trips such as holidays.
Nonetheless, RMB Morgan Stanley believes BEV market share will gradually begin to improve partly because the cost of owning an ICE may also rise in line as emission standards are tightened. As a percentage of total auto sales, BEVs will comprise about 9% by 2025 and 16% by 2030. This is much less than the 30%
estimated by Glasenberg, but again more than the consensus of 5% for BEVs by 2025 as set down by Trevor Raymond, director of research for the World Platinum Investment Council in its June edition of Platinum Perspectives. Yet there’s no ignoring the way it’s moving.
“A large range of forecast error exists around the actual point at which cost parity may be reached; however, the direction in trend is clear,” said RMB Morgan Stanley. “PGMs operate within the most exposed portion of the auto value chain – as a pure play supplier to ICE.”
The factors affecting the adoption of BEVs are complicated.
As mentioned, charging times are a distinct disadvantage. Among the more anticipated of BEV brands is the Tesla, whose battery takes about 10.5 hours to charge from 20% to 90%, a drain on the household equal to the simultaneous use of a stove, dishwasher and heater. While this BEV can be charged to 60% from 20% in only 20 minutes, the consumer limits range and runs the risk of halving the battery life over the long term.
According to a report by
Deloitte, about 55% of South
Africans are willing to wait a maximum of only an hour to charge an all battery powered EV. In comparison, it takes three to four hours to fully charge an EV at a so-called super-charging station, and six to eight hours at home.
There’s also the question of exactly how the national grid can accommodate the strain on baseload power even assuming that the distribution and regulation of battery recharging points either at home or on the street have been managed effectively. And what of the additional pull on peak power demand?
“You can see the face of an owner of a BEV literally drop when you suggest you’ve moved the CO2 emission from the street to the power station,” said Raymond, commenting on the prospect of having to rely more on coal-fired power stations for baseload power. “Oh,” they think: “I hadn’t thought of that.”
State treasuries also have some thinking to do about the disruption posed by BEVs, as the fiscus stands to lose revenue where a petroleum and diesel fuel levy is imposed.
While the impact on the PGM market is disputed, there’s no doubt BEVs and hybrids will give an important kick to Glasenberg’s “electric dreams”. According to Paul Gait and colleagues at Bernstein in London, the impact of EVs of various types is set to be transformative, if only to remove the world’s reliance on China as a source of commodity demand. “It took 120 years to build the modern copper industry,” said Gait. “The electric vehicles revolution could require the supply base of copper to double again, but this time in only 20 years. This will be a prodigious feat and is simply unachievable at today’s commodity prices.”
It’s estimated that in the event the transition to EVs does take place, the global mining industry will need a capital increase of between $350bn to $750bn but – importantly – only in specific commodities such as copper, nickel and cobalt.
In April Exane BNP Paribas said that inventories in cobalt were almost certainly expected to decline in the coming years, since it was critical to battery manufacture, and there’s currently difficulty in substituting it. “We could see the global inventory falling below the buffer level (which is three months of demand) as early as the next five months; failing that, in 2018 at the latest,” it said. As a result, the cobalt price is expected to remain well supported in the coming years.
On Glencore’s assumption that 30% of all vehicle sales in 2030 would be EVs – equal to 26m units based on 2016 global vehicle sales of 87m units – an additional 2 million tonnes in copper metal demand would be generated.
EV sales are still relatively low – equal to about 1% of total car sales in 2016 – while the market is also supported by government subsidies and other incentives.
And while reliance on China for commodity demand may still be released somewhat, there’s no ignoring the fact China, by dint of its sheer size, will become a crucial participant in the EV revolution. According to Exane BNP Paribas, the Chinese government is planning to invest heavily in infrastructure to support EVs and BEVs in particular, if only to minimise its own pollution problems.
For instance, it plans to quadruple the number of recharging poles to 4.8m by 2020 through more installations among households, while its National Development and Reform Commission – the centralised entity that manages China’s macroeconomic policies – plans to build 12 000 public recharging stations. “Our calculations suggest this would translate into additional copper demand of 96 000 tonnes by about 2020 (about 1% of global demand) – and of just over one million tonnes by 2025,” it said.
Batteries for energy storage, known as stationary energy storage systems, are also on the rise and expected to create a particular demand for vanadium, a mineral in which SA is relatively rich, through the development of the vanadium redox flow battery (VFRB). According to Fortune Mojapelo, CEO of Johannesburg-listed Bushveld Minerals, the growth in demand for VFRBs, which can either be on or off-grid, has given the Industrial Development Corporation confidence to support Bushveld’s proposed R130m vanadium electrolyte plant, which will have annual production capacity of 200MWh to 400MWh (megawatt hours).
It has the likes of Mxolisi Mgojo, CEO of Exxaro
Resources, thinking. Exxaro’s chief operating focus is thermal coal, which it largely sells to power stations that burn it for electrical generation. What, though, is the potential market disruption of 1MW to 3MW units that would provide energy in lieu of having to build capital-intensive coal-fired power stations, especially where the demand is in remote areas of Africa requiring significant transmission infrastructure build?
In an attempt to anticipate market disruptive technologies, Exxaro established Cennergi, a joint venture with Tata Power, an Indian company. This, however, was to enable the firm to participate in the drive towards renewable energy.
Cennergi had already installed 234MW of renewable energy capacity, but Mgojo asks whether there is a requirement to build on this scale in the future. “We are asking, ‘How do you build a small generator set, bring in other smart systems and platforms, and get that to work with the right partners?’ Once you get that, you ask how you roll it out to the rest of Africa, because there’s a need for that energy,” he said. “I don’t know how many coal-fired power stations you’re going to be able to build in the middle of Africa where there’s no infrastructure to get the coal there.”
Currently, many consumers on the continent are burning diesel, which is expensive.
The Chinese government
is planning to invest heavily in infrastructure to support EVs and BEVs in particular, if only to minimise its own
Trevor Raymond Director of research at the World Platinum Investment Council
Ivan Glasenberg CEO of Glencore
Fortune Mojapelo CEO of Bushveld Minerals
CEO of Exxaro Resources