CAN ELEC­TRIC CARS DRIVE THE NEXT COM­MOD­ITY BOOM?

Finweek English Edition - - Front Page - By David McKay

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.)

Plat­inum’s loss?

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.

Stor­ing en­ergy

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

pollution prob­lems.

Trevor Ray­mond Di­rec­tor of re­search at the World Plat­inum In­vest­ment Coun­cil

Ivan Glasen­berg CEO of Glen­core

For­tune Mo­japelo CEO of Bushveld Min­er­als

Mx­olisi Mgojo

CEO of Exxaro Re­sources

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