Metals in the energy transition

Commodity price volatility: energy, metals and ags?

Commodity prices are distributed lognormally, so the average price will tend to be higher than the median price.

Commodity price volatility tends to be lognormally distributed, based on the data from twelve commodities, over the past 50-years. Means are 20% higher than medians. Skew factors average +1.5x. Standard errors average 50%, while more volatile prices have more upside skew.

This data-file contains data plotting the statistical distributions of volatility for twelve major commodities, ranging across energy commodities such as oil, gas and coal; industrial metals such as iron ore, copper and aluminium; precious metals such as gold and silver; and agricultural commodities such as sugar, soybeans and palm oil.

Commodity price volatility tends to be lognormally distributed, based on starting with the charts shown below, then smoothing all of these statistical distributions together, for the title chart shown above. This statistical distribution is intuitive, as prices are effectively uncapped to the upside during commodity shocks, but they are effectively capped to the downside, as commodities cannot sustainedly trade below zero.

A fascinating finding is that when commodities are more volatile overall (e.g., as indexed by standard error) then this is 75% correlated with skew in the commodity, or in other words, the mean tends to run further above the median. In other words, this is another indicator that commodities illustrate more upside volatility than downside volatility.

The positive skew (mean to median ratio) and standard error of commodity prices. These measures turn out to be 75% positively correlated, so rising volatility drives the average price further from the median.

If base case forecasts are thought of as the median price levels of commodities (e.g., $65/bbl for oil over the past 50-years, $8/mcf for global gas, etc), then the data imply that mean average prices will tend to run 1.1 – 1.5x above median expectations.

The final two tabs of the data-file model the lognormal volatility of commodities, illustrating how the value of commodity marketing and trading is likely to rise during the energy transition, as volatility grows on an absolute basis, but also inter-regional volatility is growing due to the ascent of renewables such as wind, solar and hydro.

Fantastic underlying data that helped to build this data-file came from the World Bank pink sheets, which we recommend to anyone looking for free monthly or annual commodity price data.

For more recent and more detailed pricing across a wider range of commodities, please see our commodity price database, for time series that go further back in time to the 1800s, please see our database of very long-term commodity prices, while we also have analysis into the performance of commodities during conflicts and performance of commodities during recessions.

Electrochemistry: redox potential?

A flow chart depicting the calculation of a batteries current, voltage, and efficiency providing an overview of electrochemistry.

Batteries, electrolysers and cleaner metals/materials value chains all hinge on electrochemistry. Hence this 19-page note explains the energy economics from first principles. The physics are constructive for lithium and next-gen electrowinning, but perhaps challenge green hydrogen aspirations?

Copper: the economics?

The economic cost of copper production is built up from first principles in this model, from mine, to concentrator, to smelter to 99.99% pure copper cathodes. Our base case is $7.5/kg copper cathode, with 4 tons/ton CO2 intensity, after starting from an 0.57% ore grade. Numbers vary sharply and can be stress-tested in the data-file.

70-80% of all primary copper is produced by the smelting route and mainly starting with sulphide ores. First, ore is mined, moved, crushed and concentrated to around 20-40% purity. The ‘CopperOreMine’ tab of the model captures the costs, energy use and CO2.

Further downstream, the ores may be roasted to change their crystal structure before smelting, smelted in an environment of enriched oxygen to reject sulfur as sellable sulphuric acid, yielding matte with c50-70% purity.

Even further downstream, matte is upgraded to blister with c99% purity, which is melted and cast into anodes for electrochemical refining, yielding copper cathodes with 99.99% purity. Copper cathode is one of the most traded metals on Earth, underpinning the LME copper contract, as pure copper is purchased and processed into semis, wires and cables.

The economic cost of copper production is built up from first principles in this model, from mine, to concentrator, to smelter to 99.99% pure copper cathodes. Our base case is $7.5/kg copper cathode, with 4 tons/ton CO2 intensity. Capex intensity of copper is plotted below in $/Tpa.

But the costs of copper production depend heavily on ore grade and mining/refining technology. We estimate that a 0.1% reduction in future copper ore grading increases marginal cost by around 10% and CO2 intensity by around 10%, which matters as copper demand is set to treble in the energy transition.

Moreover, each $100/ton of CO2 prices would increase marginal cost by another 5%. It is not unimaginable that copper prices could reach $15,000/ton in an aggressive energy transition scenario, if you stress-test the model.

There is no silver bullet to decarbonize primary copper production, because of the large number of processing steps described above and in the data-file. Hence the best option to decarbonize copper production are to increase the reliance on secondary production (i.e., recycling, e.g., Aurubis).

The best option to decarbonize primary copper, based on stress testing our models, is to use clean electricity for processes such as crushing and flotation, which can save over 1 ton/ton of CO2. Using these processes flexibly can potentially even help to integrate renewables. Finally, we think that electrochemical production, e.g., via solvent extraction then electrowinning (the favored route for oxide ores that cannot be floated), can reduce total CO2 intensity by a further 1 tons/ton when using clean electricity.

Global steel supply-demand model?

Global steel supply-demand runs at 2GTpa in 2023, having doubled since 2003. Our best estimate is that steel demand rises another 80%, to 3.6GTpa by 2050, including due to the energy transition. Global steel production by country is now dominated by China, whose output exceeds 1GTpa, which is 8x the #2 producer, India, at 125MTpa.

Global steel demand is running at 2GTpa in 2023, having doubled since 2003. Our best estimate is that steel demand will rise by another 80%, to 3.6GTpa by 2050, including due to the energy transition.

Specifically, passenger vehicles currently use 200MTpa of steel, which doubles to over 400MTpa, as energy transition requires a rapid build-out of electric vehicles alongside increasing turnover of the vehicle fleet. These numbers are based on breaking down the mass of vehicles and our forecasts for passenger vehicle volumes.

Other energy uses of steel currently consume around 250MTpa of steel, which we think will double to 500MTpa, across wind turbines, expanding power grids, and CCS infrastructure. These numbers are dominated by the expansion of the global power grid. And by building out renewables, primarily wind.

Another major trend in our analysis is shifting towards lighter-weight materials, especially to reduce the weight of passenger vehicles, displacing steel with aluminium, glass fiber, carbon fiber, mass timber, advanced polymers. Indeed, steel demand could exceed 4GTpa by 2050, if we were not assuming 2x growth in global plastics to 1GTpa.

Some humility is warranted when analyzing global steel markets in aggregate, overlooking the differences between 500 different products/grades, made via three different pathways (blast furnace, DRI, EAF), and for which there are c80 different decarbonization options currently swirling. We use a regression to GDP to estimate ‘other demand’ in our model, which can be flexed in the model.

On the other hand, global steel supply reads like something out of a George Orwell novel. Back in 1950, when Nineteen Eighty-Four was first published, there really were three world super-powers — the US, the Soviet Union and Europe — producing over 90% of the world’s steel. Really the chart below shows the history of the world post World War II.

Since 1950, the US has declined from 40% of the world’s steel to 4%. Europe has declined from 35% to 7%. Meanwhile China now produces over 1GTpa of steel, more than half of the global total, an order of magnitude more than the world’s #2 producer (India, 125MTpa) and #3 producer (Japan, 90MTpa).

Geopolitics matters in the energy transition, and we cannot help feeling that the world is careening towards a strange dichotomy between carbon-abolitionist nations and carbon-emitting industrial titans, somehow strangely reminiscent of the United States in the 1840s and 1850s.

Global tin demand: upside in energy transition?

Global tin demand stands at 400kTpa in 2023 and rises by 2.5x to 1MTpa in 2050 as part of the energy transition. 50% of today’s tin market is for solder, which sees growing application in the rise of the internet, rise of EVs and rise of solar. Global tin supply and demand can be stress-tested in the model.

Global tin demand exceeds 400kTpa in 2023, in a market worth $10bn per year. 50% of the market is for solder, i.e., conductive material with a melting point around 180-200ºC, used to affix electrical connections onto circuit boards in semiconductors.

Global tin demand rises 2.5x as part of the energy transition, reaching 1MTpa by 2050. Mechanically, our model is linked to our model for solar additions, our model for global vehicle sales, our model for the rise of the internet and our model for global electricity demand.

Demand forecasts can be stress-tested in the data-file, varying with GDP (chart below), future growth of solar, EVs and digital devices, phasing out of lead acid batteries for other battery alternatives and intensity of use factors: e.g., how much tin is used in a solar cell (in g/kW) or in an electric vehicle (in kg/vehicle).

Our historical tin demand data is sourced from the International Tin Association and technical papers, while our historical supply demand is sourced from the USGS.

Primary global tin production is sourced almost entirely from emerging world countries, of which 30% is China, 25% is Indonesia, 15% is Myanmar and c10% is Peru (chart below). Hence primary production is dominated by emerging market firms.

Two listed European companies with exposure to tin are also noted in the data-file. One is a metals recycling company, Aurubis, and the other has the world’s leading technology for tin-smelting.

HJT solar: Indium summer?

HJT solar modules are accelerating, as they are highly efficient, and easier to manufacture. But HJT could also be a kingmaker for Indium metal, which is used in transparent and conductive thin films (ITO). Our forecasts see primary Indium use rising 4x by 2050. Indium is 100x rarer than Rare Earth metals. It could be a bottleneck. This 16-page note expores the costs and benefits of using ITO in HJTs, and who benefits as solar cells evolve?

Power grids: down to the wire?

Power grid circuit kilometers need to rise 3-5x in the energy transition. This trend directly tightens global aluminium markets by over c20%, and global copper markets by c15%. Slow recent progress may lead to bottlenecks, then a boom? This 12-page note quantifies the rising demand for circuit kilometers, grid infrastructure, underlying metals and who benefits?

Magnets and energy: fundamental attraction?

Electric currents create magnetic fields. Moving magnets induce electric currents. These principles underpin 95% of global power generation, 50% of wind turbines, motors that comprise 45% of electricity use, heat pumps, and electric vehicles. But what actually are magnets? How are they measured? Why do so many use Rare Earth metals? This 15-page overview of magnets explains key magnet concepts for the energy transition.

Blue steel: construction boom?

The DRI+EAF pathway already underpins 6% of global steel output, with 50% lower CO2 than blast furnaces. But could IRA incentives encourage another boom here? Blue hydrogen can reduce CO2 intensity to 75% below blast furnaces, and unlock 20% IRRs at $550-600/ton steel? This 13-page report explores the opportunity, and who benefits.

Electrasteel: renewable steel breakthrough?

Electra is developing an electrochemical refining process, to convert iron ore into high purity iron, and ultimately into steel, using only renewable electricity. It has raised c$100M, gained high-profile backers, and is working towards a test plant. This 9-page note is an Electrasteel technology review, based on an exceptionally detailed patent, finding clear innovations, but also some remaining risks and cost question marks.

Global steel production has risen by 10x since 1950, to 2GTpa by 2022, and demand is still rising at 2.5% per year since 2012. 70% of steel is made in blast furnaces and basic oxygen furnaces, in a pathway that emits over 2 tons of CO2 per ton of finished steel (model here). Hence the steel industry comprises 8% of global CO2 emissions.

Blue steel can be made by increasing the portion of blue hydrogen blending in directly reduced iron and electric arc furnaces, in a process that is already technically mature, comprises 6% of global steel production, and can yield 50-75% decarbonization of steel with minimal additional costs, and with a possible IRA-triggered boom on the way (note here).

Green steel can also be made via a similar pathway to DRI+EAFs and blending in green hydrogen as the reducing agent. In the past, we worried that this pathway would be overly expensive, and cause some inflationary circular reference errors in new energies value chains (note here).

Electra’s iron ore reduction process is an alternative method for steel production using only renewable electricity. It uses a proton exchange membrane electrolyser to generate protons from water, uses the protons to acidically dissolve Fe3+ ions from iron ores, electrochemically reduces Fe3+ to Fe2+, then purifies the Fe2+ ions, filters them to a separate electrowinning cell, and plates out pure Fe metal. This is patent protected.

This 9-page report is our Electrasteel technology review, based on a particularly detailed patent that we have assessed on our usual framework (pages 1-2). It covers in detail how we think Electrasteel’s technology works (pages 3-5), where we think the patents point to a breakthrough (page 6), possible energy intensity (page 7), renewable steel costs (page 8) and remaining technical challenges that need to be de-risked (page 9).

Cookies?