China's 'airpocalypse' good news for commodities
The mining industry may be in the doldrums but Robert Friedland, the executive chairman and founder of Ivanhoe Mines, remains undaunted and sees commodity prices bouncing back in two or three years, as he told the Mines & Money conference in Hong Kong earlier this week.
We make no apologies for giving you yet more of him, as he tells the best stories in the sector. Of hard and soft rocks, mineral grades and so on, he gives you all that, but tells you why it is important, and where this stuff is being used.
Naturally he has an interest in telling these stories since Ivanhoe is developing some of the world's most significant finds in copper, zinc and gold in Africa. His big themes this week include copper. So why zinc? The metal is now recognised, along with potash, as one of the most intense organic fertilisers.
Some 60 per cent of soils in China and India have been depleted of zinc. Agricultural productivity increases significantly when added to the land as fertiliser. So China has mandated that fertiliser should include zinc which has enormous implications for demand. And by the way, when you have a cold you should suck zinc tablets, and it is also good for boosting children's immune systems.
Copper, Friedland tells us, is one of the world's best bug fighters. A huge problem for hospitals throughout the world is the existence of multiple drug resistant bacteria. One in 20 American hospital patients end up with infections they caught in hospital.
However, the US army and the World Health Organisation have conducted studies, which show that if you cover surfaces with copper this will kill about 99 per cent of all bacteria as a result of the metal's electrical conductivity.
Bugs, on the other hand, love stainless steel. So over time surfaces and rails that are made of stainless steel will be replaced by copper-coated surfaces. And watch out for those stainless steel door knobs used in public toilets and hotels and restaurants.
Talk about urbanisation has subsided in recent years but it has not stopped. Indeed, it will lead to a doubling of the number of giga-cities in the world, that is, those in excess of 20 million residents, as the world's population grows from its current seven billion to nine billion by 2030.
"A US baby by the time it reaches 21 consumes three million [tonnes] of raw materials, including 750 pounds of zinc, 1,400 lbs of copper, 1.7 million lbs of stone, sand and gravel, and 781 pounds of coal."
Expectations around the world are growing and everyone wants the American Dream. This, says Friedland, will drive the demand for metals. One of the biggest drivers for metals will be what he refers to as China's "airpocalypse" - the appalling quality of China's air. "China has a command economy, and its leaders will command this is cleared up. It is absolutely fundamental to the legitimacy of the Chinese Communist Party."
So what does this mean for commodities? "If you want to clean a [petrol] engine in a car you need palladium. If you want to clean a diesel engine in a bus, truck, or ship, you need platinum. If you want to have a hydrogen-fuel-cell-powered car which has no pollution at all, you need even more platinum."
Electric cars such as those from Tesla are not the answer according to Friedland. "It's a coal burning car since it is powered by electricity and 80 per cent of electricity in China is derived from coal."
Hyundai has a fuel cell car in production while Toyota, Ford and DaimlerChrysler are committed to the technology, which is a huge user of the platinum group of metals.
According to Friedland, a vehicle with a conventional catalytic converter typically uses about 0.15 ounces of platinum. But a vehicle with a hydrogen fuel cell uses about two ounces of palladium, and so is almost 20 times as platinum intensive. "This is a phenomenon you can take to the bank," he says.
Friedland also observes that using the internet as not the "green" activity that many people seem to think it is.
A single Google search uses 100 mega joules of electricity according to Friedland. The huge server farms being built by the likes of Google are hugely electricity intensive.
The upshot of all this is that with copper grades declining inexorably and fewer mines being built as costs rise, metal prices will rise as the end of the decade looms.
