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  • Natural Resources

    Crucial Metals for a Lower Carbon World: Part 1

    Charl Malan ,Senior Analyst
    September 19, 2017
     

    Overview: VanEck's natural resources investment strategies span the breadth of commodities sectors, and base/industrial metals play an important role.

    This is Part 1 in our series by Senior Analyst Charl Malan that looks at the importance of industrial metals as the world adopts new clean energy technologies that reduce carbon emissions.

    Clean Energy Technologies Require Metals: Copper, Nickel, Graphite, Cobalt

    We are in the early stages of transitioning to a lower carbon world. Economies are adopting clean energy technologies, and industrial metals are playing a crucial role. Of these, we see copper, nickel, graphite, and cobalt as critically important, especially when focusing on new renewable energy and electric vehicle technologies. As demand for each grows, current supply issues will be further exacerbated. (See Deleveraging Tightens Metals Supply and Supports Prices: Part 1 and Part 2.) Mining companies that are well positioned to meet the demand for these important metals look set to thrive. In Part 1 of our series, we focus on copper.

    Copper is Key

    Copper, given its impact and market size, will be one of the most important metals in the world's decarbonization process. The size of the world's copper market, at $91B, ranks it second among industrial metals, behind iron ($115B), and just ahead of aluminum ($90B). By comparison, nickel represents a $21B market, graphite $15B, and cobalt $6B.

    New low carbon technologies will use resources that are economically scarce, and among these copper stands out. We believe that copper demand will continue to grow and that supply will remain constrained, creating a dynamic that is likely to support prices. Since early 2016, copper prices have been on an upswing, after enduring a major bear market from 2011 to 2015.

    How Big is the World's Copper Market?

    World's Copper Market Chart

    Source: Visualcapitalist.com, VanEck. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue.

    How Copper Can Help Tame Carbon Emissions

    Energy production accounts for 71% of the world's total greenhouse gases, of which the vast majority are carbon dioxide emissions.1 These emissions result from electricity generation, transportation, and other forms of energy production and use. It is no surprise that many of the new lower carbon technologies now being developed are focused on developing renewable energy sources (solar and wind) and electric vehicle transport. Copper will be key.

    Copper is the world's oldest mined ore and has two unique physical properties that make it highly suitable for low carbon technologies, specifically electric vehicle transportation and new renewable energy power generation technologies: very high thermal and electrical conductivity (second only to silver in this regard).

    Energy Production Accounts for Most Global Greenhouse Gases
    1990-2010

    Energy Production Accounts for Most Global Greenhouse Gases Chart

    Source: United States Environmental Protection Agency.2 Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue.

    Copper: A Prime Beneficiary of New Low Carbon Technologies

    Renewable Energy

    Copper is essential for efficient power generation using both wind and solar energy, which use the highest amount of copper among renewable energy systems. Renewable energy power generation, conservatively, uses approximately five times as much copper as conventional generation. But some in the industry believe it may be even more. In October 2016, Jean-Sebastien Jacques, CEO of Rio Tinto, was quoted as saying, "Renewable energy resources require four to 12-times as much copper as traditional fossil fuel-based power generation."3

    Electric Vehicles

    When considering the potential growth in electric vehicles, copper stands to be a prime beneficiary of any surge in production. Each of the various types of electric vehicles (EV) uses considerably more copper than is already to be found in vehicles using internal combustion engines (ICEs), as shown in the table below. Copper is to be found not only in EV rechargeable batteries, but also in the rotors and windings in the electric motors, bus bars, wiring and, of course, the charging infrastructure, not to mention the inevitable and massive electrical grid expansion, that will be required to support EVs. (See The Evolution of Electric Vehicle Batteries, Part 1 and Part 2.)

    Copper Use by Vehicle Type

    Vehicle Type Copper (Kgs)
    Internal Combustion Engine (ICE) ≈17
    Hybrid Electric Vehicle (HEV) ≈40
    Plug-In Electric Vehicle (PHEV) ≈50
    Battery Electric Vehicle (BEV) ≈145

    Source: CDA, Bernstein Analysis, VanEck.

    Copper is a highly efficient generator and transmitter of energy, and can achieve these qualities in ways that help to minimize environmental impacts. Whether for use in electric vehicles or sustainable power generation the demand for copper in a lower carbon world is set to increase significantly. Increased demand, constrained supplies, along with a significant decline in growth capital among metals miners (investment in new mines), is likely to help support future copper prices in the months ahead.

    In Part 2, we address:

    • Potential growth of the copper market, given increased demand.
    • Specific uses for copper that support renewable power generation and electric vehicles.

    In Part 3, we discuss:

    • The role of other crucial metals: nickel, graphite, and cobalt.
    • The potential opportunities for metals mining companies and investors.