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17 August 2016

Copper, Renewables and New Cars



A couple of months ago, I bought a new car. Heeding the current environmental thinking, I decided that it was time to call a halt to the diesel-powered 4X4, so I looked hard at the alternatives, including - of course - electric power. The BMW i8 is a technological masterpiece, but sadly unable to accommodate my dog in the back; the Tesla Model S answers the questions when it comes to dogs, but for some reason - although it’s mightily impressive - it wasn’t quite what I wanted. So actually, I bought one with a raucous petrol-powered V8 (with a button to make it even louder, if desired). I suspect, though, that this will prove to be the last one I buy that isn’t either hybrid or purely electric; that’s the way the market is going.

Metal Usage

Anyway, it started me thinking a bit about the implications of that shift for the metal business. The amount of aluminium used in car manufacture has been growing for quite a few years now, as first cylinder blocks and then - more and more - body panels were switched from cast iron and steel respectively to the lighter metal in search of weight-saving and fuel economy. 

Lithium

Now, the metal of the moment seems to be lithium, that ultra-light alkali metal whose properties are currently prized by battery makers. My knowledge of lithium is a work in progress, but prices - as far as they can be determined in a still fairly esoteric market - have been moving ahead. The race is on to develop deposits and bring them on stream; that, of course, may see prices drop back as the supply/demand balance stabilises. Equally, battery technology is still a matter of intense research, so it is possible that in the future the current darlings of the field - lithium and cobalt - may yet be superseded, although lithium does seem to be favoured in most of the experimentation that is so far in public knowledge.

Copper

But there is another metal whose consumption will potentially rise significantly with the increasing emphasis on electric vehicles - copper. 

The average weight of copper in a full electric vehicle (hybrids are a tad less) is in the order of four times that in a conventional (petrol or diesel engined) vehicle. When you consider that on its launch of the mass-market Model 3 car, Tesla took something like $10 billion of pre-orders, that gives an inkling of potential sales and how the technology is beginning to impact. Of course, when discussing Tesla’s announcements, one has to bear in mind that although Elon Musk has hit targets consistently, it’s always taken longer than the initially suggested timeframe, so we should be cautious. 

Nevertheless, the potential effect is clear, and that is only looking at the cars. Think also of the increase in copper demand which will be generated by the charging infrastructure necessary to get the cars on the road and keep them there. Likewise, there will be an increase in consumption in generating the electricity - put Hinkley Point out of your mind for the moment, and think of the growth in renewables whose process is also dependent upon significant copper usage. Then think of Hinkley Point again, and ask yourself if it is actually going to happen (with its eye-wateringly expensive electricity production deal) or whether its funding will in the end be put into renewables.

Gleam of Light?

So is the (seemingly irresistible) progress of the EV going to save the copper price from where its been languishing? Sadly, I suspect not in the short term. Nevertheless, keep a weather eye on copper, because the medium to long term perspective looks positive, to me at any rate; right now, the disappointment (from earlier projections) of the Chinese consumption still weighs heavily on a weak market, but further forward, the demand driven by the growth in EVs will be a major factor in the copper market; it may not be yet, but perhaps we can glimpse the beginning of the next upswing emerging faintly on the horizon.


  

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