President Biden’s signature $579 billion infrastructure initiative is now one step closer to being rolled out. It’s staggering size and ambition will have a profound impact on commodity markets and supply chains, in particular metals like copper, nickel, and silver, which stand to benefit substantially from this investment.
The key elements of the physical infrastructure plan are:
· Modernizing 20,000 miles of highways, roads, and main streets, fix the 10 most economically significant bridges and repair the worst 10,000 small bridges
· Replacing or repairing 24,000 buses, 5,000 rail cars, 200 stations and thousands of miles of track, signals, and power systems
· Developing and rolling-out electric vehicles and corresponding charging network, including building 500,000 EV chargers by 2040, replacing 50,000 diesel transit vehicles and electrifying at least 20% of yellow school bus fleet
· Replacing of all lead pipes and service lines
· Investment in the electric grid network
· Rolling-out affordable reliable high-speed broadband across the country
Hamad Ebrahim, Head of Research at NTree International, explains the significance of the infrastructure investment on key metals based on new analysis:
“Copper is one of the clear beneficiaries of Biden’s US infrastructure bill, with the annual increase in demand for infrastructure driven refined copper over the next five years enjoying growth of 2.0% per year. Assuming an annual US refined copper consumption of approximately 1.8 million tonnes per year then the increased infrastructure spending will translate into additional refined copper demand of approximately 500k tonnes over the next 5 years.
“Nickel and copper also stand to be key beneficiaries from electrification spending and replacement of internal combustion-powered federal fleets with electric battery-powered fleets. EVs contain up to 10x more copper than internal combustion engine vehicles and each electric bus contains approximately 370kgs of copper. The US yellow school bus fleet size is approximately 480,000 and if 20% of the fleet is replaced by electric buses, an additional 35k tonnes of copper will be needed. The US also has a federal agency vehicle fleet of approximately 650k and transitioning all of those to electric vehicles will significantly increase demand for both copper and nickel.
METAL MINING WILL CONTINUE TO BE AN INSURABLE RISK
“Nickel is one of the key components of electric batteries and whilst there are a lot of uncertainties on types of battery technologies and their nickel loadings, we can make some simplified assumptions to estimate the expected additional demand for nickel. Assuming the US federal government contracts to buy American EV buses6 then Nickel demand from replacing the whole federal fleet should be in the order of 55kt.”
The need to mine for metals to continue with the green project will mean insurers in the USA and EU have the chance to cover the assocaiated risks, without much interference from climate change activists. Although you could argue that there is exactly the same carbon usage from the process of mining metal as there is from coal, or drilling on land for oil, the political reality is that mining for rare minerals, plus recycling existing metals like copper, is far more acceptable to green activists. This is a big opportunity for insurers and brokers, especially those who have been forced to let Chinese insurers take over their coal books.
“Silver is also likely to be a strong beneficiary of the bill given high-speed internet, 5G and IoT connectivity will all increase demand for silver. The US infrastructure bill is expected to increase productivity and while estimates may vary, a 2014 University of Maryland study found that every $1 of infrastructure investment adds as much as $3 to GDP growth.”
Taking advantage of growing demand for metals – investing in physical metals
The Global Palladium Fund (GPF), established by MMC Norilsk Nickel, the world’s largest producer of palladium and high-grade nickel and a major producer of platinum and copper, has launched six physically-backed metal ETCs this year – copper, nickel, silver, gold, platinum and palladium, with listings on LSE, Deutsche Börse, Borsa Italiana and SIX.
Targeting family offices, wealth managers, institutional and other similar professional investors, the ETCs track the spot price of the metals and have some of the lowest charges on the market, with total expense ratios (TER) ranging from 0.145% to 0.20%.
The metals backing the ETCs are sourced from producers and metal suppliers which have confirmed their compliance with the Sustainable Development Goals of the UN 2030 Agenda and other global initiatives in sustainable development and responsible mining. GPF is the only major ETC issuer to make such a pledge.
To strengthen ETC investor security, GPF uses IBM’s Hyperledger Blockchain in the custody chain of the metal. This is in addition to the traditional processes used by the custodian, enhancing the transparency and accountability of the issuer. By recording bar and cathode information on the blockchain, it provides clear ownership and an immutable custody chain for investors using the ETCs.
For further information, visit NTree’s commodity-focused website for professional investors www.metal.digital