As the world embraces Circular Economy and Sustainability becomes common practice Picking Alpha has addressed to Dan Gramza to start the research of the impact one of the key components of today’s progress – electric cars. How electric car industry will affect the commodities market.
Q.: What components of the electric car are making an impact on the commodities market?
D.G.: There are five electric car components to monitor lithium, nickel, cobalt, graphite, and copper.
Lithium which is a vital component to the lithium-ion batteries powering electric cars. Lithium-ion batteries produce more electricity per unit than conventional batteries.
According to the U.S. Geological Survey, China consumes over 40% of the world’s lithium supply but only has 20% of the total lithium deposits. Chile possesses 50% of the world’s lithium and South America as a whole controls two-thirds of global reserves. Australia where lithium is mined and refined is the largest lithium supplier, with 40% of total output and 10% of global reserves.
Nickel is used in stainless steel production and is being used increasingly in batteries. For example, Tesla uses a nickel-cobalt chemistry in its vehicles.
Cobalt a by-product of copper and nickel mining is used in car, mobile phone and laptop batteries. The Democratic Republic of the Congo accounted for greater than 50% of 2016 world production, according to Natural Resources Canada. China is the second largest cobalt producer.
Graphite supply is expected to satisfy the growth of Li-ion batteries used in electric cars. A large EV battery requires about 25kg (55 lb) of graphite for the Li-ion anode.
Copper is a major component of electric vehicles. A Tesla has around 200lbs of copper, 75kgs of lithium, even more graphite and also cobalt.
The projected growth of electric cars is 7-10% globally over the next 5 to 7 years, this represents a large increase in demand for these commodities as electric car production increases.
Q.: Can we say that the demand for “Electric car commodities” has stabilized? What is the depth of the market?
D.G.: I would say “Electric car commodities” supplies have responded to increased demand. All indications are that the depth of current market supply is adequate for current production levels. However, the key will be how the suppliers respond when demand increases with increased electric car production. To avoid geopolitical interruption of supply or a country hoarding supplies for its own domestic use, it is expected that technologies and production capabilities will be created to assist in the development of sources within a country whenever possible to meet the battery production demand.
Q.: A number of cities in Europe have announced that they will not let fossil fuelled cars inside of them. Have you seen a spike in major “electric car” metals and minerals trades after such announcements? How have markets behaved after such announcements?
D.G.: No. At the moment this type of an announcement is made, it is what is intended to happen not reality in terms of demand at that moment for these commodities. Typically, when an announcement is made there is a knee-jerk reaction with an increase in price but the reality is there is a time lag between the announcement and the actual production of the vehicles that will increase demand for the commodities.
Q.: Do we see competing demand for these ingredients in other industries and will this have a dramatic increase in price volatility?
D.G.: Yes, all of these commodities have applications in other industries. The expectation is as the demand and production increases for these commodities, future contracts will be created to provide a hedging tool for the industry to lessen the impact of price volatility. Currently copper is the only one of these commodities that has an associated futures contract.
Dan Gramza is President of Gramza Capital Management Inc. and DMG Advisors, LLC. He provides daily market updates from around the globe on subjects ranging from the Nasdaq and currencies to crude oil and grains at dangramza.com.