The Fuse

Copper, Lithium Markets to Receive Major Support from Autonomous Vehicles

by Matt Piotrowski | April 11, 2017

Expectations have grown that autonomous vehicles (AVs) will eventually shake up global oil markets, altering fuel consumption patterns through increased electrification, ride-sharing, and efficiency. But what will be the impact on other commodities? The copper and lithium markets are set to see major disruptions in years ahead. Although vehicle ownership may decline over time, the number of AVs manufactured for fleets, ride-sharing, personal use, and car-sharing will soar. The average car needs around 30-50 pounds of copper, but if the majority of AVs will be electric, the thirst for copper will grow even more: An electric car uses roughly four times as much copper wiring than one with an internal combustion engine. Mining behemoth BHP Billiton estimates that while 140 million EVs would cut 2 million barrels per day (mbd) of oil, it would also boost copper demand by 8.5 million tons. This increase would be worth about a third of total global copper demand—some $38 billion out of a $100 billion annual market. By comparison, that same number of EVs would displace about 2 mbd, $37 billion worth of oil annually out of a $1.8 trillion market.

The average car needs around 30-50 pounds of copper, but if the majority of AVs will be electric, the thirst for copper will grow even more: An electric car uses roughly four times as much copper wiring than one with an internal combustion engine.

With many parallels to oil markets, the copper outlook is fraught with risk. Like many energy commodities, copper cooled off over the past few years as a result of slower demand and rising supply, but it is tightening now and is expected to boom over the next 5-6 years. The coming AV-EV revolution will only add strain to the market. Wood Mackenzie says that this year it expects copper, which bottomed out early last year below $2 per pound, to continue to rebound as a supply-demand deficit emerges. Prices are now at $2.60 per pound. By early next decade, though, stock levels will have “eroded sharply” and prices ought to spike by 2023. In addition to increasing demand from Asia, the market also has to contend with unexpected supply disruptions where production is concentrated—not unlike oil. Recently, there have been interruptions in three major producers: Indonesia, Peru, and Chile. Furthermore, with most of the easily available supply already tapped, copper produced in the future will be more expensive and harder to access.

copper

Copper isn’t the only market set for disruption. Lithium is already booming from the growth in EVs, with significant upside given the expected electrification of the AV fleet. Many analysts and industry sources believe the lithium market, needed to power batteries for EVs as well as personal devices, is now only in its infancy, and demand growth has just begun. Lithium, which isn’t traded on a public exchange, is now priced above $9,000 per ton, up from $1,400/ton in 2005. Cobalt, which can also be used in batteries, may also see a demand surge since it is easier to buy and store than lithium and has a greater diversity of supply. Cobalt prices have soared from $33,000/ton to $55,000/ton since the beginning of the year.

Many analysts and industry sources believe the lithium market, needed to power batteries for EVs as well as personal devices, is now only in its infancy, and demand growth has just begun.

Sharp price rises in copper and lithium ought to spur supply-side investments to temper the market. But many of the same uncertainties that persist in the oil market will remain true for these other commodities, and it’s still increasingly difficult to understand when exactly an inflection point will occur and how the industry will adapt.

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