Electric vehicles to drive metals market

This may spell the end of the road for biofuels in the medium to long term

The advent of electric vehicles (EVs) on the roads is expected to have two significant consequences for the global commodities market. One, EVs are set to boost demand for a variety of metals; two, they could mean the end of the road for biofuels in the medium to long term.

Admittedly, at the moment, the share of EVs in the world automobile market is minuscule. But make no mistake; given the environmental concerns over burning fossil fuels and the as yet unresolved ‘food versus fuel’ debate (desirability of converting food crops into biofuel), governments are keen to support EVs. The Indian government is no exception.

Without doubt, EVs are becoming an important source of metals demand because sales of such vehicles have accelerated in recent years. It is estimated that global sales in 2017 may have tested the one million mark. It still represents less than 1.5 per cent of global car sales. But industry experts foresee rapid growth in the years ahead. But other electric vehicles such as two-wheelers, three-wheelers and buses are also on the road, taking the total number of EVs close to the two million mark.

Interestingly, the International Energy Agency (IEA) has estimated that the number of electric cars in circulation (excluding two-wheelers and three-wheelers and buses) will have to reach 20 million by 2020 and about 115 million by 2030 for governments to comply with the Paris Declaration on Climate Change ratified by 173 countries internationally.

Industry experts assert that the electrification of transport vehicles has major implications for metals through power generation, transmission, distribution and storage. Batteries are the largest source of metals demand from the EV sector.

One metal that has immensely benefited from the EV revolution is cobalt. Batteries account for close to 50 per cent of cobalt demand and EV batteries are cobalt-intensive, according to industry experts. EV demand for cobalt has already sent the metal prices soaring. Going by IEA projections, cobalt market fundamentals will tighten soon and prices will rise further.

Copper demand

Another metal most likely to benefit from the rapidly expanding EV sales is copper. Demand for the metal is expected to expand steadily from the current level of about 100,000 tonnes to well over a million tonnes in a decade.

What’s more, power generation, transmission and distribution infrastructure for EVs will be an additional source of demand for copper. With rising electric car sales, the charging infrastructure will also be forced to keep pace and expand.

Over a period of time, nickel will also be increasingly in demand by the EV industry although at present stainless steel demand essentially drives the world nickel market.

Negative for agri sector

With the ongoing EV revolution expected to gather pace, boosting demand for specific metals, the development is expected to be negative for the agricultural sector, especially for crops that are used for production of biofuels.

The so-called ‘green fuels’ have been in vogue for the last 15 years or so. While ethanol is made from corn, wheat and sugarcane and blended with gasoline, biodiesel is derived from vegetable oils like palm oil and soya oil through a process called trans-esterification and blended with mineral diesel.

More than a decade ago, the US and European countries started to convert food crops into biofuel with the intention of supporting low farm commodity prices and ensure higher returns for growers, in addition to responding to the overheated crude oil market. Often, government mandates, rather than genuine consumer demand, drove consumption of biofuels in many countries.

With EVs, biofuels will lose one significant demand segment. It would of course be a gradual process, but at the moment the process seems inexorable. This would put enormous pressure on the prices of corn, wheat, sugar and vegetable oils like palm oil, soya oil and rapeseed oil.

Already palm oil — widely used for biodiesel — is under pressure from green activists and palm-based biodiesel is facing challenges, including anti-dumping duty and countervailing duty. There is a campaign for ‘palm oil-free’ certification in the food market. The outlook for demand for palm oil from the biodiesel industry appears bleak. So, EVs are going to change the dynamics of the metals market and the agricultural market. For select agricultural commodities it would prove negative as a large source of demand is set to wane.

The writer is a global agribusiness and commodities market specialist

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