Mon. Jan 24th, 2022

Does the energy transition need a “Circular 5”? In the late 1940s, the U.S. Atomic Energy Commission was concerned that it could not obtain enough uranium in the private market to meet the requirements of its nuclear weapons production programs.

The initial stockpile of Congolese uranium for the wartime Manhattan Project was recovered in late 1942 from a warehouse in Staten Island, NY, to which it was shipped in 1940 by an anti-Nazi Belgian businessman.

That uranium was enough to spark the first few wartime reactors, as well as a handful of nuclear weapons. But apparently there was not enough uranium ore to constantly feed the huge enterprise built up to supply America with its superpower as in the hole.

So beginning in April 1948, the AEC began issuing a series of public “circulars” offering a minimum guaranteed price for uranium and a 10-year contract of sale, along with bonus payments for significant uranium discoveries in the US. The most amicable memory was “Circular 5”, which set premium prices for higher grade ore, and which was in force from February 1949 to March 1962.

By that time, Circular 5 had also produced some centi-millionaires with a fortune of more than $ 100 million. One of them built the Hirshhorn Museum and Sculpture Garden on Washington’s National Mall. Another proudly told me that he donated $ 500,000 in cash to the Nixon campaign, which was pretty much illegal since he was a foreign national. So the Circular 5 returned giveaways to society, albeit with mixed results.

I was thinking of Circular 5 while watching the Consumer Electronics Show this week (remotely). The star objects were electric motors, naturally charged with renewable energy.

You can not get to the energy transition without copper and other essential metals. Cobalt, dug up by all those child miners for our EVs and phones, can be replaced, but at a cost in performance and useful life. Lithium and rare earths, which you hear at every cocktail or Zoom call, are actually quite common.

But copper, with its high conductivity, efficient heat transfer and ductility, is critical for motors, transformers, wiring and, in a hot world, air conditioner pipes. And as North America, Europe and Australia accelerate the transition, their own domestic production is in long-term decline.

According to CRU, a commodity consulting company, the copper demand for renewable energy in 2022 will be about 801 000 tons out of the total world consumption of about 25 million tons. Over the next four years, the company says, EVs and renewable energy will account for 72 percent of total growth in demand for refined copper.

Meanwhile, the Chinese state and its allied metal companies have played the role of the US AEC. After several sluggish years in the past decade, the established metal companies have maintained cash flow and withdrawn from new projects. The Chinese moved in to take their place, especially in Africa.

So now the developed world and its green transitions are all hat (new EV models) and no cattle (ready-to-hand buyer). You may have noticed that the COP 26 “promises” included many commitments regarding EVs, solar panel installation, charging stations and wind turbines, but nothing at all about the manufacture of new metals to build them.

And if the IMF pointed out last month, “under a net zero scenario. . . current copper, lithium and platinum supplies are also insufficient to meet future needs, with a gap of 30 percent to 40 percent against demand ”.

The metal industry’s response has been very impressive in terms of greenwashing graphics in annual reports; less so in new project development. There has not been an announcement of a major new greenfield copper mine for more than two years.

The markets noticed this and copper prices rose by about 25 percent last year. At almost $ 10,000 per metric ton, LME buyers have been “in reverse” or a shortage of physical inventory for several months. The current “visible” warehouse stock is sufficient for just six days’ consumption.

The smart supply encouraged copper bulls. A Goldman Sachs note in mid-December said: “We continue to predict that copper prices will rise to $ 15,000 by 2024 and even higher by 2025.”

If North Americans and Europeans are serious about any energy transition, they may want to consider a “Circular 5” for transition metals. Or they can buy their cars from the Chinese, perhaps with Tesla license plates.

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