Commodity Watch: The 4th technological revolution is even more material

<div class="grid grid--33-66-col"><div class="col"><img loading="lazy" data-fr-image-pasted="true" src="/getContentAsset/e4db1c4c-2687-44cd-adbd-db1eb849e5d2/cb87803a-320c-480f-ab75-7b9029eaaf79/Ahmad-Al-Sati-new.jpg?language=en" alt="Ahmad Al Sati" title="Ahmad Al Sati" class="fr-fic fr-dii" style="width: 180px"></div><span style="font-size: 12px"><div class="col"><strong>AHMAD AL-SATI<br></strong>PORTFOLIO MANAGER<br><br><p>Ahmad is the President and Portfolio Manager for Gemcorp Capital Advisors LLC, based in New York.&nbsp;<br><br>Ahmad has spent most of his career in the global credit markets. Prior to Gemcorp, Ahmad was President of Pandion Mine Finance and RiverMet Resource Capital, LP - a fund focused on investing in precious metals, where he was responsible for managing the investments and the day-to-day operations of the registered investment adviser.&nbsp;</p></div></span></div><hr><p>Harry Truman said, “the only thing new in the world is the history you do not know.” And so past patterns may help us understand the present and better prepare for change.</p><p>The US has had 3 industrial and technological revolutions (we are in a fourth). Each revolution had its own technical advances, economic development and social impact. Yet, all three exhibited the same S-shaped curve in their demand for energy and metals. The demand for energy and metals typically begins slowly, accelerates as the new technology is adopted, peaks and then decelerates.</p><p>In the first revolution driven by the adoption of the steam engine, the demand for coal went from 100k tons in 1800 to over 17million tons in 1860. In the second revolution driven by electric generation and internal combustion engines, coal output exploded to 600million tons by 1920 even as oil output went from 500k barrels to ~450million barrels. As the US began building computers, electric circuits and rockets (third revolution), it built 600 nuclear reactors between 1952 and 1972 even as demand for oil (~5x) and natural gas (~7x) increased through 1980.&nbsp;</p><p>Increased industrialization meant more metals. The US became the largest producer of pig iron in 1880s and then increased its production by 4x by 1920. Manganese demand more than doubled between 1900 and 1920 and copper more than tripled during the same period. The third revolution changed the metal mix of the US economy. Demand for Steel and Manganese stabilized and then began to decline in the 1970s. Aluminum, copper and nickel demand continued to increase through the 1990s even as demand for cobalt, molybdenum and tungsten continues unabated today.</p><p>As we embark on a fourth revolution driven by data, robotics and artificial intelligence (AI), prior industrial iterations might be illustrative. Increased demand for energy is a constant feature. Today, AI data centers demand very large amounts of continuous stable energy. Data centers are already placing pressures on electricity production everywhere even as they pay up for traditional energy sources. This demand might ultimately price other consumers out of traditional electricity sources (coal, gas and oil generation).&nbsp;</p><p>One option is more nuclear (assuming it can be built on time and can overcome NIMBY laws). The other is renewables. Both options require the supply of a new set of metals and minerals such as uranium, graphite and lithium. In addition, the new technology itself requires a supply of materials and metals including more copper, silicon and rare earths. Gallium (a rare earth mineral), for example, is used by AI data centers to meet higher voltage demands and increase the energy efficiency of chips while high purity Alumina is required to insulate chips and manage their heat.</p><p>We continue to live in a material world. That means energy, that means metals and that means minerals. A new mix is in the works, and it must be supplied efficiently and reliably.</p>