The Green Metals Focus Could Be Here to Stay

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The development of green energy and decarbonization has plenty of momentum to begin 2021. The new U.S. administration’s climate change plan promises $2 trillion investment in clean energy to create carbon-free electricity by 2035.

The European Commission, meanwhile, backed a Green Deal in December 2019 with the goal to meet net zero carbon emissions by 2050. 

Renewables, Reflation, Rebound

But many analysts believe this is just the first leg of increased demand, driven by renewables, reflation and a global economic rebound.

A report by Jefferies Equity Research from November 2020 suggests copper demand could reach 41 million metric tons; 80% higher than current production.

Renewable power is copper intensive. Offshore wind requires 15 metric tons of copper per megawatt (MW) of installed capacity. Onshore wind and solar uses around five metric tons of copper per MW and conventional power just one metric ton. But in percentage terms, electric vehicles (EVs) will create the greatest increase in copper demand. 

EV Demand

Global EV stock is expected to increase from about 5 million today to around 140 million vehicles by 2030, according to the IEA. Each EV requires on average of 83kg of copper (four times more than internal combustion engines). EV charging points use 10kg of copper each.

A rapid supply response could prove difficult. S&P Global Markets Intelligence has identified only one major copper discovery since 2015. That is in spite of exploration spend on copper of $25.8 billion in the ten years from 2009-2019, well above the spend of $15.4 billion between 1990 and 2008.

That 2009-2019 period yielded 102.4 million metric tons of copper, compared to 992.5 mmt in the preceding 19 years. The amount spent on copper exploration is no longer yielding the returns it once did. When copper is found it is often in some of the world’s most inhospitable places, such as the Atacama (Escondida mine) and Gobi (Oyu Tolgoi) deserts. Against this backdrop Jefferies believes that, “the copper market is entering an extended period of deficits.”

The Hydrogen Factor

The rising cost of copper is likely to accelerate the search for alternative sources of green energy to power the grid and transportation. The main contender is hydrogen and countries throughout the world are looking to gain a foothold in what could be one the world’s fastest growing energy markets. Bank of America estimates that hydrogen production will generate $2.5 trillion in direct revenues by 2050 and $11 trillion in infrastructure.

There are two types of hydrogen: green and blue. Blue hydrogen is produced using fossil fuels, typically natural gas. Green hydrogen uses renewables. The latter has no impact on C02 emissions, the former requires carbon capture to ameliorate its impact. In both cases platinum plays an integral role in hydrogen production.

A Proton Exchange Membrane coated in platinum generates electricity through the electrochemical reaction between oxygen and hydrogen. Heat and water are the only byproducts. Platinum makes up between 17% and 25% of PEM stack costs. Bank of America estimates PEM electrolyzers could reach 2.2 million ounces by 2030; about 50% of current global platinum production.

The auto industry is already the biggest user of platinum, which has used around 40% of platinum supply for the past five years. Currently this is largely due to its use in catalytic converters in internal combustion engines. Platinum usage in conventional cars may rise given that the only alternative is palladium, which at $2,390/oz is more than double the platinum price.

 

More than 70% of the world’s platinum is mined in a small area north of Johannesburg, South Africa. It is thirty times rarer than gold and supply has declined from a peak of 5.3 moz in 2006 to 4.2moz. This supply and demand imbalance could lead to rising prices. 


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