Metals Driving Innovation: Copper and Platinum

In this episode of the Cents Security Podcast, host Mary MacNamara speaks with Nitesh Shah, Head of Commodity Research at WisdomTree UK, about the critical roles copper and platinum play in electrification, clean energy, and portfolio diversification. From EVs and hydrogen fuel cells to inflation hedging and futures markets, this deep dive explores how these metals shape our tech and investment landscapes.

Summary – Cents of Security Podcasts Ep. 114

Mary MacNamara

Hello everybody and welcome back to Cents Security Podcast. I’m Mary MacNamara and today I welcome Nitesh Shah who is Head of Commodity Research at Wisdom Tree in the UK. Welcome, Nitesh, how are you?

Nitesh Shah

I am great, thanks and thank you for having me on your podcast. It’s great to be here.

Mary MacNamara

Ah, we appreciate it, because today we’re going to dive into copper and platinum. The metals. And so, let’s start. So, the first question I have is why is copper called the ‘metal of electrification’ and how does it actually show up in things we use every day like phones, EVs, or even AI data centers?

Nitesh Shah: Yeah, so Copper has wonderful conductive properties to it, and so it is great for using in. Electrical appliances but it’s not just in the appliances themselves, the downstream consumer activity. It’s also needed in the transmission and distribution cabling across the grid infrastructure.

So, getting electricity from one place to another it’s super valuable and it’s also valuable in the. The instruments that create the electricity in the first place, whether we’re talking about solar panels or wind turbines or the wiring that are in batteries it’s all, it’s needed across the spectrum.

And even in, we’re talking those examples I gave or in kind of the renewable clean tech space, but even copper is needed in. Traditional sources of electricity production, whether it all is going about, natural gas turbines for producing electricity or coal powered electricity production.

So, it, copper is ubiquitous around the electric ecosystem. And there are the newer technologies, newer clean tech technologies are using increasing amounts of copper. If you compare, say, an electric vehicle. To a traditional internal combustion engine vehicle. You are talking about roughly four times as much copper in the EV compared to the ice vehicle.

Mary MacNamara

So, if global demand for copper is expected to soar, as we’ve been reading and hearing about, does that mean we could face shortages? And how might that affect the cost of the tech we rely on?

Nitesh Shah: Yeah. So, I think a couple of things is good. To be clear on a couple of things. There is enough copper in us cross to keep us going for many centuries. So, there’s no. Concern about depleting the world’s resource. But the question is, are we producing enough of it every year to meet the demands that are likely to increase for copper?

And I think that’s where we, that’s where we’re less certain. The ramp up in growth of demand is very high, whereas the mining activity in copper is plateauing and sometimes it looks like it’s slowing down. If you look at capital expenditure in mining activity copper included it has really slowed plateaued and is looking like it’s tipping over a lot of the.

Mining intensive countries like Chile, Peru their governments haven’t been as supportive of these industries in recent years as they have been in the past. And therefore, that makes it very difficult for miners to expand their activity. At the same time refining activity. So once the ore is taken out from these mines, these, the rural ore, it has to get refined.

And refining activity tends to be quite concentrated around the world particularly in China. And that’s true for copper, but also a lot of other metals and China may have at the moment, excess refining capacity. Elsewhere it’s quite slim. So that’s causes a bit of a problem, and especially in this world where we’ve got trade wars going on tariff wars reliance on China is there, but it’s not always guaranteed.

You know how easy the copper coming from China mix it into the global supply chain. But also, when industries in say Europe and US, where refining activity, when that is slowed down. It takes a lot of effort to ramp it back up again. If at some point there, they these regions want to gain independence of China.

So, we do think there’s a lot of complication and actually getting enough copper being produced in the future. And so, we could be living in a period of multiple years of deficits down the line.

Mary MacNamara

So how do you find information about this? How do you access materials so you can get an idea of what’s going on?

Nitesh Shah

Yeah, so the base metals, I’ll say out of all the commodities, a little bit trickier. You’ve got lots of resource when you look at oil markets or gold markets. But the base metal markets tend to have not as much freely available real research, I guess. But the, there are institutions like the International Copper Study Group which is a kind of an unbacked to institution that pro provides data on copper similar to the International Nickel Study Group and also unbacked institution. So, they, there’s some baseline information out there. And one, we as WisdomTree we also produce a lot of research on commodities.

All of our research is freely available to the public. So, you can go to our website download some of our research. I also have a podcast. I also write, for newspapers and, have a lot of sorts of publicly available materials. You can look into the, under the, the underlying supply demand dynamics and see what’s driving these metals through some of our resource.

Mary MacNamara

And folks, we will include all the show notes. To the WisdomTree UK content. And so, you don’t have to worry about where to find it. We’ll put it in the show notes. Okay. For investors just getting started, why should they care about copper prices or supply even?

Does it really impact stock markets and ETFs they might own.

Nitesh Shah

Yeah. So, I would say that if you are an investor just getting, starting in the, in, in the investing world, right? And you could think of a traditional portfolio as. Equities plus bonds, right? That, there’s that traditional 60 40 model. I think most people know that model is dead.

That you need a lot more diversification. And the best way to diversify a portfolio is to add instruments or assets that are least correlated with what’s, the, that start that starting point of equities and bonds and commodities in general. Have. A low correlation to both equities and bonds.

Although commodities are a cyclical asset class. They have a different cycle than equities. So, equities tend to be quite early cycle. So, when the economy is first starting to warm up, equities zoom ahead but then commodities come somewhere afterwards. And conversely, when you go into signs of a recession, equity, cool.

Very quickly. But commodities tend to cool a lot later and using this kind of asynchronous aspects of these of these markets, it makes sense to add commodities to a portfolio. So, even industrial metals, which are very cyclical. They have a different cycle. So, it’s it, if you think about portfolios from that standpoint, it’s worth putting commodities into a portfolio.

And we could talk about gold, which is a very different commodity. It has a lot more defensive characteristics. It probably competes a bit more on the bond side, but. Focusing on the more cyclical aspects is worth diversifying through commodities. Then we’ve got to think through what kind of commodities, how do you put commodities into a portfolio Now. There’s one route where you can think of there’s all these equities that are very commodity aligned because they’re either in mining activity or involved in refining activity. Maybe you could add those to a portfolio. But the problem with that route is that they tend to have a very strong equity market beta.

So, they tend to be highly correlated to the equity part of your portfolio already. And so, when you see a downturn in equity markets, they’ll probably get hurt as well. Commodities in a slightly purer form would be a lot more advantageous. When it comes to precious metals, they’re quite easy to have physically.

You can either own the bullion yourself and vault, ensure yourself, or you can have. Exchange credit funds on those on those bullions, which are much more of a liquid easier to trade instrument, but it’s still backed by the physical. That’s easy in precious metals, but in. Space metals like copper, it’s a little bit more difficult.

And the reason why is it’s quite expensive to store lots of copper, right? It’s value relative to the storage cost. The value is relatively low relative to the storage cost. Whereas in things like gold or platinum, for example, the value of the metal is very high relative to the storage cost.

So, for base metals one route is to go through futures markets. So, investing in futures markets or the exchange traded products that are built on futures market prices. The thing you may have to consider when going through either futures markets directly or into exchange free products in futures markets.

Is that a future? Has an expiry, right? You go into a contract for a delivery at a certain point. To get continuous exposure to that future, you need to roll your future. And then, so there are some considerations you have to have around rolling futures and exchange free products built on the, these futures, they’re probably the easiest way to go about doing things because the Rolling’s done for you.

It tracks an index. Prices of these futures that are rolling. So, it’s super easy to access the material. And moreover, for the average investor, average retail investor, the futures market is not really accessible, right? You need a credit line with an exchange, and it becomes quite complicated.

So, exchange credit products based on these features are. A very easy way, and it gives it the purest play access or exposure to the underlying fundamentals of the commodity without having all that commodity equity market beta. Now exchange value products super easy to transact. And if you look at the performance of these of these instruments it, they’re very good at providing things like inflation hedges because when the economy’s heating up, you tend to find things like copper and platinum are being used more heavily in industrial applications and therefore are a rising in price.

It may be a fairly long answer to your question, but portfolio diversification really does justify moving away from equities and bonds. And the, probably the best way to add commodities into that mix is through a rolling futures type of strategy, which ETA exchange Ready Products offer.

Mary MacNamara

Okay, so you brought up a couple terms here that I think we need a little bit of clarification on. One is beta. And the other is the inflation hedge. So, if you can just go over those two terms a little bit before we segue into platinum.

Nitesh Shah

Absolutely. What I mean by is how. Simply in a simplified way, how correlated is the asset versus an equity benchmark, right? When I’m talking about equity beta. So, if you’re thinking about copper, how correlated is copper to the equity markets? Now, if you are thinking about copper miners. A group of copper mining companies, they’re going to have a lot more correlation with the broader equity market than a copper future will have with the equity market. So, if your goal in, in, in diversifying your portfolio is to add new characteristics, new behavioral relationships because that, is the best way of diversifying a portfolio.

Having things that are least correlated with each other. Having something that behaves exactly like the equity market doesn’t really serve your needs. Moving further away from that gives you the most bang for buck when you’re trying to diversify. So that’s beta. And then inflation hedging is a term used to see how every individual faces inflation pressure, right?

The prices of goods and services tend to go up right when the price of goods and services go up. It usually means that other things being equal, you as an individual are getting somewhat poorer because you still have to buy those goods and in and services, unless your salary and your income is going up by exactly the same amount as inflation, you are getting hurt, right?

You are you have an economic hit to you. Now, if you can invest in sets of assets that are rising at the same level as inflation is rising or more. Then you are investing in instruments that are protecting you against that inflation and therefore is it providing you a hedge against that inflation.

Mary MacNamara

Wow. Okay. That makes much more sense. I’ll think about that when I’m out at the grocery store buying eggs and et cetera. Okay. Good. All right, so now we’re going to jump into platinum. We know we often hear platinum for rings or watches, but it also has a role in tech and clean energy.

Can you talk about that a little bit today?

Nitesh Shah

Absolutely. And I guess most people don’t know this, but the biggest use of platinum is not for jewelry. It’s actually in cars, right? There’s more, in terms of all the platinum demand sources of platinum demand, the auto industry buys more platinum than the jewelry market.

And the reason behind that is it’s it has catalytic properties. And what it, what that means is it can change. The properties of gases and it can tan nasty gases into more safer gases, broadly speaking. So, in everyone’s

Mary MacNamara

Why they mentioned the catalytic converter? I can remember that term, right?

Nitesh Shah

Right. Yeah. So, most cars have a catalytic converter, and that, that’s where that term comes from. Inside that catalytic converter is either platinum or palladium. Both of those metals, they’re called platinum group metals, they will share similar properties. Platinum and palladium tend to be mined from the same source, so they come as a group platinum, palladium iridium rhodium.

All of these are kind of platinum group metals. They tend to be mined from the same source, and they have similar properties. And. When those things put in, into your cars, it turns the highly polluting greenhouse gases into slightly safer gases. And they’ve been in cars since the 1970s.

But every time you have tighter controls on emissions in vehicles, you’ve tended to see that loading the amount of platinum going into those cars, increase. And over the years, platinum has overtaken all of the sources. The auto industry has to overtaken all of the sources of demand for these materials.

So, it’s super useful in, in traditional cars in, gasoline or petroleum cars. And. in diesel cars because you’ve tended to see the loadings of platinum in diesel cars higher than there are in gasoline cars. Although, a few years ago when palladium prices, which were u used in gasoline cars, when that skyrocketed, automate manufacturers worked on ways of putting more platinum in. So nowadays, platinum has overtaken played in price, but also in, in sort of the band units. It’s, it’s, it is gaining traction there as well. Now both of those materials, started to face some doubts.

More recently because of the electric car revolution, right? More and more electric cars are going on onto the roads and projections were for electric vehicles to really explode. Both of those metal prices, platinum, palladium, have taken a hit in recent years. But they are recovering and recovering quite strongly at the moment.

Partly on the back of expectations that the platinum and palladium in US and in Europe to a large extent will probably, the traditional cars will probably be on the roads for longer. Traditional cost sales would be happening for longer. And the shift to EV may slow down in some of those regions.

So, the prices recovered a little bit from, for that reason, but also because, the supply of both of these materials is highly concentrated. So, 80% of platinum comes from South Africa and for palladium, about 40% from South Africa, another 40% from Russia. So, two countries. High concentration and both those countries aren’t really expanding their minds by huge amount.

So, supply is tight. So, they’re both in a, what we call a supply deficit that, the demand for those materials is higher than the actual supply at the moment.

Mary MacNamara

Oh, okay. We hear a lot in the news about hydrogen and how it could be the next big thing for clean power. Why is platinum essential and could that also make it more valuable over time?

Nitesh Shah

Yeah. So absolutely another big use case for Platinum in the future. So even if platinum units in traditional internal combustion engine vehicles slow down after some time, if a hydrogen powered vehicle. Take up that could be another source of demand for platinum. Now, PLA Platinum is used in both the production of hydrogen and in the hydrogen fuel cells that will, that, that, are used to combust the hydrogen point of use in a hydrogen powered car, right? The production phase of hydrogen. It’s used in these instruments called electrolyzers, hydrogen electrolyzers. And there’s a growing use case for hydrogen out there because the renewable source of energy, whether you think about solar or wind the high dependent on weather and you hard to match the production of the.

Energy produced from those things with the demand at the time you need it, right? If you make energy from solar or wind, it has to be through electricity. Electricity has to be used almost immediately unless it’s stored. It could be stored through a battery, or it could be stored in hydrogen. So, what you could do is actually make the electricity from these renewable sources and use that electricity. Produce hydrogen and hydrogen storable and transportable. And it’s an electrolyzer that’s needed to make that hydrogen and platinum is used in that, in the electrolyzes when it comes to the consumption of that hydrogen. A hydrogen fuel cell in a car uses something called a PEM membrane.

And that membrane will include platinum and therefore there’s another use case for platinum in these in those vehicles as well.

Mary MacNamara

Fascinating. So, back to copper. If copper is the wiring of the future and platinum is the clean energy catalyst, how do they complement each other in the big picture?

Nitesh Shah

Yeah, so I, they are used in a wide variety of clean technologies. As we were discussing

Mary MacNamara

So why don’t we see that more with cars? Is it just so expensive?Is that it? Or the technology’s not quite there, or I’m just not buying those type of cars. Or, is it used by Formula One and we don’t know about it?

Nitesh Shah

No, so the hydrogen production is actually quite expensive at the moment. It tends not to have that much of an economical economic edge at the moment. But its scale is so small, and even when electric vehicles were in the early in their infancy there was huge, hugely expensive, right? But electric vehicles have maybe a decade plus advantage over hydrogen fuel cell vehicles.

So electric vehicles have gone through the, the cost reduction that much longer ago. And. They are now, this the kind of status quo of the clean tech vehicle. So, it’s hard to see hydrogen can supersede electric vehicles when they’ve already become so ubiquitous, right?

So that’s one of the reasons why hydrogen fuel cells have been quite slow, the uptake. Yes, it’s easy to produce. No-clean hydrogen, right? Blue or gray hydrogen as they call it or, even the dirtiest form of hydrogen. So, you could burn coal and produce hydrogen from that, but it doesn’t really serve a great environmental objective if you do that.

So yes, you can make lots of cheap hydrogen through dirty sources. But there is no need for that, right? You could just burn coal oil if you want. And that’s even cleaner than, making it through coal sources to get it through to renewable sources is quite expensive at the moment.

And you have battery technology, which can store. Electricity at the moment. So even off the grid, if you want to, if you’ve got too much electricity on the grid, you can put it through batteries and store it for later points as well. So, you’ve got a little bit more infrastructure and flexibility at the moment in in the in the battery storage ecosystem than you do in the hydrogen ecosystem.

But hydrogen may have its advantages somewhere down the line because, there is already an infrastructure and a network of gas stations, petrol stations around a country, right? And that could easily be used for hydrogen distribution going forward. Also, when you think of

Mary MacNamara

What is it? It’s a liquid. Then, I’m sorry to be so lame about this but if you’re saying that a gas station could provide hydrogen, so it would come out as a liquid, like a gas.

Nitesh Shah

Yeah, so it needs to be cooled into a liquid. And then it could be poured out just as you do where, when you fill up at a regular gas. It’s a lot more similar to your traditional car engine, than it is to the, what we call a, electric vehicle batteries, where you got, electrolyzers, moving from, I can’t remember the technical from the

Mary MacNamara

So, let’s wrap up a little bit. I’m going to just ask you one last question. So, looking ahead with all these metals what trends or signals should we watch out for on, a daily basis? This has been fascinating. I think hopefully everybody’s enjoying the nerding out of copper and platinum and palladium.

We can’t forget that. But what do you think?

Nitesh Shah

So, one of the things I like to look at when looking at both copper and platinum is what are their long-term fundamentals in terms of are they in a supply deficit or a supply surplus? That is a nice baseline to say whether the supply of these things is tight. Whether it’s relatively loose, and we can say for platinum for sure, it’s in a deficit copper, depending on which source you look at.

It is maybe year to date in a surplus, but the last few months of data indicate is tipping into in, into a deficit. So that’s you, a nice baseline. Then there are market signals, right? If you’re looking at the prices of either, it’s nice, it is nice to look at momentum driven signals like so is the price of any of these metals rising, and then are they rising a lot more than they say 50 day moving average, a hundred day moving average, right?

That can continue a bit of a signal as to, how good the momentum is in any of those commodities. Then for those of you a little bit more tuned to what’s going on in the futures markets it’s nice to look at the shape of a futures curve. There’s a lot of information given just in the shape of a futures curve.

And let me explain some of this. So typical commodities they have what we call as upward sloping futures curve. So, if you were to draw a chart where you put the maturity of a future along the, the horizontal axis and the vertical axis, you write the price, typically you’d have an upward, a slightly concave shape to the commodity price to future.

And the reason behind that is if. You are looking for a commodity to be delivered in several months’ time, you have to pay storage of it, right? Or there’s an implicit storage. So, you get into a contract today for delivery in few months’ time. That price in few months’ time should incorporate some sort of storage cost and some sort of insurance, right?

But sometimes. Commodity futures tip into a downward slurping position, which is we call backwardation upward slurping. We call tangle downward. Call backwardation. Now, why do those instances of backwardation occur? The reason we, one of the reasons we can explain is that a lot of people are trying to get hold of that material and are therefore willing to pay more.

For that commodity to get it immediately, then lock into a contract and get it further down the line. So, to us, that is a nice signal of tightness in the market and potentially one that could drive prices higher, but also as a futures market investor. And I won’t go to all the, in the, into all the technicalities here, but when you are rolling futures.

From one contract to the next. And even the indices that are built on that, like the, that are followed by the exchange ready commodity. When you are in a place of backwardation, you actually get a bit of a performance enhancement because of that. Because what happens is that as you are rolling from one contract to the next.

You’re actually going to, from a more expensive contract to a slightly cheaper contract, allowing you to have more exposure to that commodity as well. So, you are actually getting a little bit of a performance enhancement when you’ve got going in into market evacuation. The, in short looking at fundamentals of supply demand, looking at market signals of momentum and other technicals, but also looking at curve shape.

If you are looking into the futures markets, although any of those commodities,

Mary MacNamara

I love it. It’s great because we do have a course, I think it’s called Intro to Futures, where we do cover backward…

Nitesh Shah

backwardation

Mary MacNamara

And contango and I can remember producing those going, what is this? But that explanation really helped. Really appreciate that. Learned a lot. So, we really appreciate your time Nitesh, thank you so much. And we’ll include show notes once again out to Wisdom Tree. I’ll try to find that course where we mention, those two terms.

So, thank you. We really appreciate it. And for everybody else, thank you for listening. And I encourage you to look at the IBKR campus and feel free to leave us. A rating, a review when you can. Thank you so much.

Nitesh Shah

Thank you.

WisdomTree UK Insights