Energy transition: the top ten commodities?

This data-file summarizes our latest thesis on ten leading commodities with upside in the energy transition. We estimate that the average commodity will see demand rise by 3x and price/cost appreciate or re-inflate by 100%.

The data-file contains a 6-10 line summary of our view on each commodity, and ballpark numbers on the market size, future marginal cost, CO2 intensity and pricing.

Covered commodities include aluminium, carbon fiber, cobalt, copper, lithium, LNG, oil, photovoltaic silicon, sulphuric acid, uranium.

Bio-coke: energy economics?

Bio-coke energy economics

Bio-coke is source of carbon and energy for steel-making, and other smelting operations where metal oxides need to be reduced to pure metals.

Bio-coke differs from conventional coal-coke or petcoke in that it is derived from biomass, ideally waste biomass, which would otherwise have decomposed. This lowers emissions.

Specifically, input materials are treated at high temperatures and pressure (sometimes around 1,000ºC) to drive off non-carbon materials as gases and ashes.

Bio-coke energy economics. Costs of bio-coke production will most likely run at $450/ton, in order to earn a 10% IRR on a greenfield facility, per the calculations in this model. This is c50% more than the typical price of $300/ton for coal-coke, in normal times. But the higher cost may be economically justified…

Total CO2 intensity of producing bio-coke is calculated at 1 – 1.5 tons/ton, as quantified from technical papers and our own estimates in this data-file. Hence it would save around 2 – 3 tons/ton of CO2 compared with coal-coke. CO2 abatement costs are therefore implied to run at $70/ton, which is competitive on our roadmap to net zero.

However, bio-cokes are not directly comparable with coal cokes. For example, bio-cokes might have an energy density above 5,000 kWh/ton and “fixed carbon” of 25-85%, a broad range depending on processing parameters. By contrast, traditional coke is closer to 7,000-8,000 kWh/ton, and always above 80% carbon. In addition, bio-cokes can be 50-75% softer and more reactive in some furnace designs than traditional coke. This requires plant modifications, additives and binders, which are still being de-risked.

There are also challenges for scaling. Near-term bio-coke production facilities are likely operating with scales of tens of kTpa. One of the larger operations today, situated in Brazil, makes 600kTpa of ‘zero carbon’ steel, which itself requires 50,000 hectares of planted eucalyptus. However, the total global steel industry produces 2GTpa of output, and replacing all of its coal and coke with biomass could require 2GTpa of biomass inputs, equivalent to the world’s total global timber harvest.

Overall, we conclude that there are good opportunities for bio-coke to contribute to decarbonization of metals and materials, as one out of many concurrent opportunities. Although we might still prefer adjacent opportunities in biochar. You can stress test broad-ranging input variables for bio-coke energy economics in this model.

Mining: crushing, grinding and comminution costs?

Mining crushing grinding costs

Mining: crushing-grinding costs. Extracting useful resources from mined ores requires comminution. This is the integrated sequence of crushing and grinding operations, which breaks down mined rubble (3-10 cm diameter), effectively into talcum powder (30-100µm), which can in turn enter the metal refining process with sufficient surface area to extract the valuable materials.

The purpose of this data-file is to tabulate typical cost estimates for crushing-grinding processes, which consume 1-2% of all the energy in the world and 20-50% of the energy in some mining processes. Our numbers are shown per ton of ore, so clearly lower ore grades translate into higher costs per unit of extracted material (guide here).

Energy economics. A good rule of thumb is that an integrated mining crushing-grinding plant will have capex costs of $20/Tpa of capacity and consume 20kWh of energy per ton, while total full-cycle costs will run close to $10/ton of ore that is processed. (Numbers can be stress-tested in the ‘model’ tab).

Our capex estimates are informed by evaluating a dozen actual project disclosures and technical papers, spanning across the gold, silver, iron, copper and limestone quarrying industries (see the ‘capex’ tab).

Our energy intensity estimates are informed by mine disclosures and technical papers, but we have also derived our own bottom-up numbers using the Bond Equation. The suggested work index for this model depends on rock hardness, and varies from 9kWh/ton in soft rocks (barites, bauxites, fluorspars, phosphates) through to 13kWh/ton at harder rocks (copper ores, hematites, limestones) and higher again at volcanics (see ‘Bond’ tab).

Please download the data-file to stress-test mining crushing-grinding costs, across capex, opex, maintenance, labor, electricity prices, CO2 prices, uptime & utilization and ore grades.

Our 5 conclusions on the crushing-grinding industry are highlighted in the article sent to our distribution list here.

Solar contacts: silver bullet?

Solar contacts silver and copper

The front contacts in today’s solar cells are made of screen-printed silver. Thus solar cells absorbed 11% of 2021’s silver market, and growing. Silver can be substituted with copper. But manufacturing is more complex and c5x more costly. So we expect a silver spike, then a switch. This 16-page note explains our outlook, and who benefits?

Silver demand: upside and substitution?

Solar contacts silver and copper

This data-file is a very simple demand outlook for silver amidst the energy transition, including the potential for substitution. (A more complex model could be built, but would likely run the risk of compounding uncertainty upon uncertainty, as the market is relatively opaque, prone to data revisions and the future is uncertain).

Today’s silver market is 30kTpa, of which two-thirds is used in industry, and one-third is used in jewellery, silver and stores of financial/investment value. 12kTpa is used in electrical equipment and electronics, of which 3.5kTpa is in the solar industry.

Hence our base case forecast without any substitution would see silver demand rising 2.5x to 85kTpa in 2050, including a 10x aspirational increase in annual additions of solar modules and a 20%/decade increase in electrification.

In practice, however, we think silver will rise to a point where it becomes economical to displace the silver contacts in solar cells with copper contacts, which have 99% lower metals costs, but 3-7x higher manufacturing costs, compared to the easy screen-printing methods used in today’s silver front contacts.

The result may be a sharp spike to >$50/Oz silver prices by mid-late in the 2020s, followed by a switch in solar manufacturing, helping to moderate or even reverse price rises.

Aurubis: copper recycling breakthrough?

Aurubis technology review

Aurubis Technology Review. Aurubis recycles scrap metals and concentrates into high-purity products, mostly copper products. The company is listed in Germany, has 7,200 employees and revenues of €16bn in 2021,  as it processes 1MTpa of recycled materials, plus 2.25MTpa of concentrates from 30 mining partners.

Its flagship Hamburg facility employs 2,000 people and is said to be “one of the most modern and environmentally friendly copper smelters in the world”.

Environmental credentials include two-thirds lower energy (at 2 MWH/ton) and lower carbon than (at 1.7 tons/ton) primary copper production. Improving sustainability is also a key focus for the company, per our overview.

Another target is growth. Metals recycling is growing 4% pa in Europe (from 7.3MTpa in 2019, and only 40-45% of metal waste is collected) and 5% pa in North America (5.6MTpa in 2019, only c30% is collected).

The conclusion in our Aurubis technology review is that the company does have a partial moat around its business, as it has patented several process improvements, to remove pollutants (30%), enhance product purity (25%), energy efficiency (20%) and optimize specific products/alloys (40%) in its copper processing operations.

Some of the most interesting innovations, and further observations on the patent library, are covered in our usual technology review.

Further research. Our outlook on growth in global copper demand as a result of the energy transition is linked here.

Recycling: a global overview of energy savings?

Global recycling energy savings

A global overview of recycling is laid out in numbers in this data-file, covering steel, paper, glass, plastics such as PET and HDPE and other metals, such as copper and aluminium. In each case, we cover the market size (in MTpa), the recycling rate (in %), primary energy use (MWH/ton), CO2 intensity (tons/ton) and the possible savings from recycling.

We estimate that 1GTpa of waste material is recycled globally, as 35% of these products’ total markets are sourced from scrap. As a good rule of thumb, recycling saves 5MWH of primary energy and 2 tons of CO2 per ton of material, or around 70% of the footprint of primary production, although the precise numbers vary category-by-category.

In the energy transition, we estimate global CO2 savings from recycling are already around 2GTpa. Rising energy and CO2 prices would incentivize more recycling, and save another 2GTpa of future CO2, we estimate.

Steel is the largest category, as around 30% of the 2GTpa market is sourced from scrap, or c600MTpa, avoiding c80% of the energy and c90% of the CO2 associated with primary production, and saving 1GTpa of global CO2 (models here and here). This is also the area where economic opportunity seems largest: at 6c/kWh average energy prices and a $50/ton CO2 price, these ‘savings’ can avoid half of the typical costs of primary steel production. Leading steel-recycling companies, in electric arc furnaces include Nucor, CMC and Celsa Group.

Paper is the second largest category, as more than half of the world’s 400MTpa paper market is sourced from recycled pulp. Energy, CO2 and energy/CO2 cost savings are around 30-40%, compared with virgin paper (model here). One of Europe’s largest listed paper recyclers is DS Smith, managing 6MTpa of material each year.

Aluminium offers the third largest energy and CO2 savings from recycling, out of the materials in our data-file. Despite a smaller market by mass, at c70MTpa, the energy and CO2 associated with secondary production is around 90-95% lower than primary production (model here), which also helps avoid c40% of production costs (at 6c/kWh energy, $50/ton CO2). The world’s largest aluminium recycler is Novelis, which is owned by Hindalco.

Copper recycling has mixed numbers. In absolute terms, around one-third of the world’s 28MTpa copper demand comes from secondary sources. And, secondary production saves c75% of the energy and CO2 of primary copper production, avoiding 4-5MWH/ton of energy and around 3 tons/ton of CO2 (model here). However, the value of these savings is relatively low in normal times, compared to $7-10/kg copper prices. But higher energy and CO2 prices in the 2020s may increase the relative value of secondary production. One of the world’s largest copper recyclers is Aurubis (TSE note here), while Boliden recycles copper and other metals, such as nickel (TSE note here).

The glass industry comprises over 1,200 companies, across 2,160 sites, outputting over 200MTpa of products. c20% is from recycled material. However, this is likely to be the category with the energy and CO2 savings from recycling, both in absolute and relative terms, at about 25-35% (morel here).

Global plastics only see a c10% recycling rate, which in turn is dominated by PET and HDPE. Energy and CO2 savings in these categories are estimated at 50-60% (models here and here). An array of next generation plastic recycling companies, which can handle a wider variety of feedstocks, has excited us in our research (screen here, note here).

The data-file linked below contains our numbers and workings, to derive the energy, CO2 and cost savings in each category, as a useful reference.

Further research. Our recent commentary on global recycling and energy savings is linked here.

Silver producers: leading companies?

Silver producers leading companies

Half of the world’s 28kTpa global silver market is controlled by 17 public companies, with silver output ranging from 0.1 – 2.0 kTpa. This data-file is a screen of silver producers, in order to identify leading companies, especially as there may be demand upside from growing solar demand.

There are no pure-plays. The average company in the screen is c25% exposed to silver. 40% of the output is from gold-silver producers (c45% average silver exposure), 20% from gold producers (20% exposure), 25% is from copper producers (11%) and the remainder is from other and more diversified metals companies.

Our roadmap to net zero shows upside for demand in many of these metals, but they also differ in their defensiveness, gearing to the business cycle and defensiveness. In a concentrated market with sharp upside potential, there is always a debate whether you want to own the bottom of the cost curve (around $10/Oz; most resilient, highest margin) or the top of the cost curve (around $25/Oz; re-rating as they move from ‘out of the money’ to ‘in the money’).

CO2 intensity is surprisingly high, most likely around 150-200 kg/kg, with upper estimates as high as 500 kg/kg of CO2 per unit of silver; which stems from the very high processing intensity of very low ore grades (4-400 grams/ton).

To read more about silver producers leading companies, please see our article here.

Electrical conductivity: energy transition materials?

Electrical conductivity energy transition materials

The electrical conductivity of energy transition materials is tabulated in this data-file, intended as a useful reference.

Electricity conductivity is simply the inverse of electrical resistivity, measured in Ohm-meters, and varying from 10^-30 in super-conducting materials through to 10^20 at the most highly insulating plastics as might feature in HVDC power cables.

Most of ‘the action’ in energy transition will take place in the range of 10^-8 to 10^-3 Ohm-meters.

Silver is the most conductive metal used in the energy transition, which combined with its high stability, to make it the most commonly used front contact material in solar cells, which in turn consume around 10% of global silver production today.

Copper is used in machinery and appliances. As a rule of thumb, wind, solar and EVs are around 4x more copper intensive than the conventional generators and ICE vehicles they replace. Hence we see copper demand trebling in the energy transition.

Aluminium is c50% more resistive than copper, but it is also 70% lighter and stronger, which explains why it is used in overhead transmission lines or in rigid conductors behind the back contact of solar panels.

Battery metals are 5-10x more resistive, and graphite is 200x more resistive, than the excellent conductors discussed above, because they are primarily selected for their ability to intercalate lithium ions and promote battery energy density.

Electrical grade steel is another 3x more resistive again versus battery metals. Electrical grade steel is used in electric motors, transformers and generators, in order to create electro-magnetic fields.

Finally, PV silicon is a semi-conductor, around 10,000 more resistive than conductive metals, because in order to conduct electricity, it requires electrons to be promoted from their valence bands to their conductance bands. Conductivity depends on doping levels (silicon metal hardly conducts at all) and it is higher for N-type silicon the P-type silicon.

We will continue building out this data-file, into electrical conductivity of energy transition materials, so please email if there are any materials that we can helpfully add, or model more fully.

To read more about The electrical conductivity of energy transition materials, please see our article here.

Direct lithium extraction: ten grains of salt?

Direct Lithium Extraction

Direct Lithium Extraction from brines could help lithium scale 30x in the Energy Transition; with costs and CO2 intensities 30-70% below mined lithium; while avoiding the 1-2 year time-lags of evaporative salars. This 15-page note reviews the top ten challenges that decision-makers need to de-risk, in order to get excited within the fast-evolving DLE landscape.

Copyright: Thunder Said Energy, 2022.