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Commodities Corner: Electric vehicle market growth is a blessing for some metals — and not a big worry for oil

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Growth in the electric-vehicle market has been a blessing for metals like copper and lithium. It has also raised concerns about the long-term outlook for oil demand that some analysts say aren’t justified.

“The electric-vehicle industry has already had a noticeable impact on commodity markets, most notably supporting strong growth in the price of metals such as copper, platinum, and palladium, which are important to auto manufacturing,” says Cailin Birch, global economist at The Economist Intelligence Unit.

The global electric-car market saw growth of 41% last year, according to an International Energy Agency report. The strong momentum for electric cars has continued into 2021, and the market is “on track for a decade of strong expansion.”

“Newly announced plans from China…and the U.S. to boost their domestic manufacturing capacity in this critical sector will lend further support” in coming years to prices for metals used in EV manufacturing, Birch says.

Fuel cells used to power some EVs reportedly employ small, but expensive, amounts of platinum and palladium. Battery EVs, meanwhile, contain 183 pounds of copper, according to the Copper Development Association.

This year, futures prices for copper
HGN21,
+1.58%

HG00,
+1.58%

have climbed 29%, platinum
PLN21,
+2.09%

PL00,
+2.09%

is up 14%, and palladium
PAM21,
-0.85%

PA00,
-0.85%

has added 21%.

Read: Palladium touches an all-time high above $3,000 an ounce

Also see: The world risks ‘running out of copper’ — and here’s how high prices may rise as the economy reopens, BofA warns

The Biden administration has proposed a $174 billion investment in the EV market. It is also pushing for an EV tax credit renewal. If that happens, it “could drive higher-than-expected demand,” says Pedro Palandrani, analyst at exchange-traded fund provider Global X. For key materials like lithium, which is used in batteries, “that’s one more tailwind.”

Average lithium prices have climbed by 41.6% so far this year through April 2021, according to Benchmark Mineral Intelligence. That follows a drop over the past three years that saw average prices fall from $18,729 per metric ton to $7,725 as of October 2020.

Lithium demand is expected to increase more than 300% over the next five years, to one million metric tons by 2025, “driven largely by the growth in EVs,” Palandrani says. By 2030, demand may reach two million metric tons, with EVs accounting for over 95% of that.

But as some metals look to benefit from EV growth, talk of a potential hit to demand for oil
CL.1,
-1.31%

BRN00,
-1.20%

has climbed.

report from IHS Markit shows that last year, light plug-in and fuel-cell vehicles, as well as electric city buses and two-wheelers, collectively displaced about 370,000 barrels per day of global oil consumption. By 2025, that may grow to 1.5 million barrels per day, equal to about 1.4% of the projected level of total world oil demand.

For now, analysts aren’t very concerned. As car manufacturers roll out a large number of new EVs by 2025 and beyond, “invariably, some of those can make market penetration and continue to eat into traditional market share for liquid fuels,” but that’s largely a “developed economy, or rich country issue at this point,” says Dean Foreman, chief economist at the American Petroleum Institute.


EVs can “eat into traditional market share for liquid fuels,” but that’s largely a “developed economy, or rich country issue at this point.”


— Dean Foreman, American Petroleum Institute

Through the first quarter of this year, U.S. petroleum demand was back within 1% to 3% of where it was during pre-Covid times roughly a year ago, he says. A lot more oil has been going into petrochemicals, which are derived from oil or natural gas and can be used to make disposable syringes and personal protective equipment like those in high need during the pandemic.

Even by the most aggressive estimates of EV growth in the transportation sector, “it is clear that the primary sources of transportation energy will continue to be natural gas and oil,” Foreman says, adding that worries about a drop in oil and gasoline demand are premature.

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