Low gasoline prices are not just a worry for oil-producing companies and countries, they’re starting to have an unexpected impact on some metals such as copper and the material billed as the new gas, lithium.
Widely used in the batteries and wiring of electric cars lithium and copper are expected to eventually enjoy strong demand as consumers switch from conventional engines to electric power.
It might yet happen but while gas is cheap there is insufficient incentive to make the move and that’s slowing the growth in demand for copper and lithium.
China’s Car Market A Case Study
A demonstration of the cheap gas factor came in a study of the Chinese car market by Macquarie Bank, an Australian-based investment bank.
Copper was the focus of the analysis but what Macquarie found is equally applicable to lithium, a light metal with excellent electricity storage characteristics.
Electric vehicles have been widely seen as a new market for copper which has been suffering a hit in demand growth as the pace of construction activity in China has slowed.
Electric Vehicles Important, But Not Just Now
Macquarie found that electric vehicles would become an important market for copper but not enough to offset a slowdown in traditional markets.
"There are also some uncertainties on electric vehicle development in China due to lower petrol prices and poor profitability among power-charging facility operators,” the bank said.
The Chinese Government has been actively encouraging the electric vehicle industry as part of a widespread environmental clean-up, which is why electric vehicles have been seen as a potential new market to offset the copper slowdown.
But, incentives to switch to electric vehicles are being offset by the high initial cost, the shortage of charging stations and the appeal of sticking with gasoline power at a time of low prices.
Electric Vehicles Use Four-Times As Much Copper
Because an electric car uses four-times the amount of copper as a conventional car the vehicle industry has been promoted as an important new market for copper and a kick-start for the embryonic lithium industry.
However, having a pollution reduction target does not seem to be enough to drive strong demand for electric vehicles to the point where they become a significant new market for copper.
Macquarie said more government support was needed to drive the electric vehicle industry: "but even then we think the impact on copper demand will be minimal”.
(forbes.com)
