Bye-Bye Byproducts, Hello Shortages Of Technology Metals
By Jack Lifton
06 Oct 2008 at 03:00 PM GMT-04:00
resourceinvestor.com
Investors should keep it in mind that subsidies, even those thinly disguised by euphemisms such as bailout or loan follow a kind of Gresham’s law.
DETROIT (ResourceInvestor.com) -- I just read an insightful brief analysis of the now unfolding financial “bailout” saga the theme of which was that “Elites Don’t Care What We Think.” It ended with the statement: “That we have a nearly incorrigible and immature Washington political culture has never been more clear.” I would today like to add that it has also never been more clear that we today have not only a legislative, but also a executive, financial, and industrial class that is simply, and amazingly, ignorant of the fundamental interconnections among the commercial transactions and events that form our national and global economies. Because of this ignorance our ‘leaders; are unable to see and therefore ameliorate the foreseeable negative consequences of their actions. As crises and disasters unfold these stupid oversights are, after the fact, referred to as “unintended consequences.” I predict that as a direct consequence of its hasty, and so poorly thought out as to be laughable, actions last week the Congress of the United States has now begun the process of destroying the environmental movement piece by piece in order to save their (the Congressmens’) jobs. This is because while operating on the economy in a self induced fear driven panic with a meat axe, instead of a scalpel, they may have well managed to end, or at least begin the end of, at least two, nascent alternative-energy industries near and dear to the hearts of the environmental activists:
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Development and manufacture of thin-film photovoltaic solar cells; and
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Batteries utilizing lithium technologies for passenger vehicle propulsion.
By no means are these two programs the only ones affected; but an explanation of the impact of a sudden decline in economic activity on these two technologies is easy to do, and I hope easy to understand. You may want to factor in what I am about to tell you into your long term plans for investing in either of these two technologies.
It’s clear that the current rapid and dramatic decline in the price of primary metals, such as copper, is due to the fact that the commodity market believes that a significant decline is now underway in global economic activity. Pundits predict any- and every-thing from a lengthy recession in just the U.S. to an actual 1930s-style depression on a global basis. I don’t know which end of this range actual economic activity will approach, but the price decline in copper tells us that the demand for the red metal has already fallen. Consequently the producers will reduce their output so that the supply and demand can be brought into balance so that further price reductions, due to oversupply, can be halted. This analysis is a result of the application of the elementary law of economics, known as the law of supply and demand, to the present situation.
An application of an even simpler rule, that of cause and effect, will now tell us that the reduction in the production of copper will have a dramatic effect on the thin-film solar photovoltaic cell manufacturing industry. Why is this? The cause of this effect of the reduction in copper output is easy to understand: There are currently three material technologies used to mass produce thin-film photovoltaic solar cells:
1.
Amorphous silicon;
2.
Cadmium telluride; and
3.
Copper indium gallium diselenide.
Silicon is the elementary material upon which one—not the most efficient at converting sunlight to electricity—of the currently produced thin-film solar photovoltaic cells is based, is the most common element in the earth’s crust. It’s concentrated at and near the earth’s surface in such a way as to make access to its ores, i.e. quartzite rock and silica sand, easy; there is no danger of any shortage of silicon.
The form of silicon, very-high to ultra-high purity, necessary for not only thin-film but also the most common wafer (thick section) type photovoltaic cells is very energy intensive and time consuming to produce. So the ready-availability-of-silicon factor is countered by the daily increasing costs of electric power, most of which is produced by burning coal. As you know the “lawmakers” in Washington do not wish any further expansion, or construction, of coal fired power plants unless a simple method can be devised to capture the CO2 combustion product of burning coal, preventing it from entering the atmosphere. This is not economically possible with any technology known or even contemplated today, but of course the Washington brain trust does not care to hear that. So they continue to legislate our most economical source for producing electrical energy into oblivion—relying on the global warming political agenda as justification for crippling America’s future economy. Of course at the same time they will not fund or implement nuclear power plants which, although not as economical as coal, nonetheless have zero emissions of CO2. This must be the logic of princes, because it certainly does not seem logical to ordinary men.
If you pay attention to the pronouncements of those who say that solar electricity production is getting cheaper by the day you will note that they recently have begun to hedge their bets as to when (or if) the holy grail of ‘solar’, the production of electricity by solar cells at a cost of $1.00/watt will arrive. One of the reasons for the slowdown in progress towards the Holy Grail is the ever-increasing cost of electricity needed to produce the grades of silicon required for ‘solar.’ Nuclear electricity production could conceivably ultimately reduce costs and solve this problem, but if you have nuclear electricity production why would you need solar? Note to skeptics: Germany subsidizes the costs of using solar generated electricity in order to make solar competitive. It’s clear that there would be no solar industry without such subsidies, because solar power does not make economic sense. It’s not competitive with fossil fuels or nuclear.
The U.S. government wouldn’t need to subsidize nuclear power; it would only need to provide a repository for waste storage and management, the operation of which would be paid for by private industry. Without belaboring it further, the point I am trying to make is that the Congress doesn’t want you to know. Or perhaps doesn’t know itself, that there is no economic sense at all in having a power industry dependent only on solar or wind or geothermal or any combination of them. They are all, at best, only supplemental, not alternative, to fossil fuel and nuclear generated power, and the production of solar cells built from silicon in any form is entirely dependent on electricity generated by fossil and nuclear fuels.
Thin-film photovoltaic solar cells made either from cadmium telluride or copper-indium-gallium-diselenide are both more efficient than silicon based cells. Both are also directly and negatively impacted by a slowdown in economic activity. There are no primary mines for cadmium, tellurium, selenium, indium, or gallium. All of these technology metals are produced only as byproducts of the production of primary metals as shown in the table below:
Primary Metal Primary Tonnage Byproduct Byproduct Tonnage
Reported Produced Actually Recovered
1. Aluminum 39 million Gallium 120
2. Zinc 10.5 million Cadmium 20,000
Indium 510
Germanium 100
3. Copper 15.5 million Selenium 1,550
Tellurium Unknown (less than 1,000)
The most important information to take away from the above table is the ratio of the production of the byproduct metal to that of the primary metal. The highest ratio is that of cadmium to zinc at 0.25%, one quarter of one percent. The lowest is the ratio of gallium to aluminum at 30 parts per million (ppm).
A great deal of nonsense is spewed about by so-called experts who tell us that a metal such as gallium is ‘earth fundamental’ by which they mean that there is so much of it in the earth’s crust that all we have to do is mine the crust and we will have all and more than we will ever need for anything. But the reality for gallium, and for every other metal in the above table is better put by the U.S. Geological Survey (USGS), which states that:
“Gallium occurs in very small concentrations in ores of other metals. Most gallium is produced as a byproduct of treating bauxite, and the remainder is produced from zinc-processing residues. Only part of the gallium present in bauxite and zinc ores is recoverable, and the factors controlling the recovery are proprietary. Therefore, an estimate of current reserves that is comparable to the definition of reserves of other minerals cannot be made. The world bauxite reserve base is so large that much of it will not be mined for many decades; hence, most of the gallium in the bauxite reserve base cannot be considered to be available in the short term.”
The same thing about availability can be said of each and every metal produced only as a byproduct of the mining of a primary metal.
The U.S. Congress, financial, and Industrial establishments must now be put on notice that when world economic activity declines so will the production of primary metals. Consequently so will the production proportionately of byproduct metals. Thus if an attempt is made to introduce new uses for byproduct metals, while their supply is reduced, the attempt will increase the price of the byproduct metal as it increases demand, since it will be impossible to increase the supply through the marginal demands of new technologies, which do not simultaneously increase the demand for the primary metals.
For example the USGS states that it takes 50 tons of indium to produce enough CuInGaSe2 to produce 1 gigawatt of electric power; the USGS also states that 84% of the current production of indium goes for displays such as LCD screens. Therefore even if zinc and therefore indium production does not decline in the coming recession and all other uses of indium except for LCD displays are eliminated there would only be 80 tons of indium available to the thin-film photovoltaic solar cell industry, so that only 1.6 gigawatts of power could be added annually, in total, globally, by this technology-This is not significant when compared with the current installed capacity of just the U.S. power generation industry which is 1,000 gigawatts.
The dependency of the other thin film technology on tellurium is just as problematic. For its supply of tellurium it depends not just on high copper production, but also on one technology for doing so. That technology is now being replaced by a more efficient one (more efficient, that is, for producing copper), which reduces or eliminates the recovery of tellurium from the copper! As the copper industry reacts to the economic downturn the supply of tellurium will be reduced and its price will rise.
Thin-film non-silicon solar photovoltaic-cell technology is critically dependent on natural resources, which are byproducts, and are limited in production to tiny percentages of the primary metals from the ores of which they are produced. An economic downturn will severely impact the continued production of these devices and the expansion of their use. The other thin film technology for solar use, amorphous silicon, is dependent for its production, ironically, on cheap electric power. An economic slowdown accompanied by increasing environmental constraints will continue to make the goal of $1 per watt solar cells elusive as the price of electric power generation rises while its production is decreasing as the laws of supply and demand and cause and effect require.
Lithium. As for lithium for large scale batteries for vehicle propulsion I need only to point out the obvious. It is estimated by General Motors that a typical lithium technology battery based vehicle propulsion system will require 1 kg of lithium. World production of lithium in 2007 was 25,000 metric tons, and the largest single producer was the Chilean company, SQM, a subsidiary of POS, Canada’s Potash of Saskatchewan. SQM produced 10,000 tonnes. The U.S. consumes a total of around 5,000 tonnes of lithium a year, 20% of the world’s total. Almost none of this is used to manufacture batteries! In fact, it is estimated by the USGS that although existing battery use may be the fastest growing use of lithium the total used worldwide today for this purpose, batteries, is less than 13%, or 6,500 tons.
There is no surplus or deficit of lithium today. In fact, its price has dropped in the last year, albeit by only less than 5% a kg. Since the lithium supply is in balance it is logical that the predicted use for batteries for passenger vehicle propulsion will need to come from new production. Lithium however, is produced by a laborious energy-intensive process utilizing the sun’s energy to slowly evaporate the water from lithium-rich subsurface brines brought to the surface and allowed to evaporate until they are concentrated enough to be separated for further processing. It typically takes 18 months for completion of this natural process. Speeding up this process by building and heating containment vessels would be so enormously expensive due to the volumes of material to be treated. So it would be uneconomical unless the price were to increase dramatically and permanently. In addition Chile, like the U.s., requires a long regulatory approval process before a new ‘mine’ can be built or operated. SQM is now in the fourth year of a five year process and so it will be able to begin producing an additional 5,000 tonnes of lithium annually by 2010.
Assume that all of this new lithium from SQM can be used for vehicle propulsion batteries. This means that one must additionally assume that such a battery will have been developed and ready for mass production in 2010, then there would be enough lithium just from this source for 5 million vehicles. Each uses a 1 kg lithium charge in its battery system. Note that the global demand for motor vehicles in 2010 was predicted earlier this year to be 100 million units.
Unfortunately if the world’s economy goes into a downturn then the enormous cost of the first lithium batteries-today estimated at $1,000 a kilowatt of output where a Chevrolet Volt will need a 16 KW battery-will certainly inhibit their mass production or the further expansion of lithium production until it is clear that the new demand generated is permanent. Investors and automotive greens take note: Lithium prices and demand have been recently flat while the prices for the rare earth metals and the nickel and cobalt used for the production of nickel metal-hydride (NiMH) batteries for the Toyota Prius and the new Honda Fit hybrids have been climbing steadily. I think that the market for technology metals is telling us that In a period of economic downturn it will be proven technologies that are mass produced not unproven ones.
Naturally the U.S. Congress is subsidizing the further development of technologies limited in ultimate scope by natural resource limitations and simple economics. No one will buy a Chevrolet Volt with a 40 mile range on its unproven lithium battery if the only incentive is a $7,500 tax credit against an expenditure of $40,000 - $45,000 for the car when they will be able to get a Toyota Prius with a range of 500 miles for $25,000 with a battery of proven long duration and reliability extending to nearly a decade-long warranty.
And, if no one mass produces a car using a lithium battery then no additional lithium production will occur since it will not be a bankable project.
The U.S. Congress is subsidizing the wrong industries if the goal is to reduce pollution. Neither thin-film photovoltaic cells nor lithium battery vehicle propulsion technology is economically practical, and the expansion of both is limited by the availability of critical natural resources and the cost of the electricity needed both to either produce them or operate them.
If Congress wants to shorten this recession and limit the impact of the next one it will allow the OEM American automotive and solar industries to sink or swim on their own without any loans or subsidies, and it will immediately open the spent nuclear fuel repository at Yucca Mountain, Nevada. These moves would open up the spigot of private capital to rapidly recreate an American OEM automotive industry and a nuclear power industry based on both uranium and thorium and would allow the thin-film photovoltaic solar cell industry to live or die in a competitive environment in which the power customer would be the winner.
Go to cash and stay there, and by the way, vote all of the current bums out, regardless of party affiliation. |
