The outbreak of the coronavirus is placing new demand on the internet as industries increasingly rely on staff working remotely. Little is known about the metals that make the internet work, but that may be about to change.
High-speed rail projects seem a little less urgent and high-speed next-generation networks make a little more sense, at least for now. Amid the fear, suffering and financial upheaval of the coronavirus pandemic sweeping the globe something is changing so quietly it’s almost unnoticeable – the internet. So what is the internet made of? Science, governments, politics and natural resources.
“Broadband providers are laser focused on making sure the innovative networks they built and manage are ready to accommodate a prolonged reliance on telework,” US Telecom chief executive Jonathan Spalter said in an open letter to Congress. US providers have all signed up to the Keep Americans Connected Pledge under which they will open free wi-fi hot spots to anyone who needs them and not disconnect residential or small business users that renege on bills, for 60 days. The largest US fibre provider, Verizon, has just increased its 2020 capital expenditure guidance by $500mn to $18.5bn to accelerate its transition to 5G and “help support the economy”.
By all accounts the internet has held up well around the world in recent weeks as household usage surges. China's internet slowed during the coronavirus outbreak there, and spikes in demand and glitches have been reported in the US and Europe. Milan, Amsterdam and Seattle are among the cities that have reported massive growth in data usage. In the UK, internet providers are braced for a rise in traffic, following yesterday’s school closure announcements. But current capacity is clearly not enough to cope with all the incremental increases coming as industry, manufacturing, residential and transportation systems connect up more. Enter extremely complex 5G networks that will, when finally built, be able to handle a hundred times more data.
The electronic metals that make the internet work weigh in at less than 20,000 t/yr of global demand combined. The smallest is germanium, which helps to guide light signals down fibre optic cables – with a little support from rare earth erbium. It is a 130 t/yr global market and only around a third is used in fibre optic applications. Germanium’s ability to sense heat waves and convert them into an image makes it critical in military applications. And the temperature screening devices being used to detect fever contain a fractional amount of the metal.
The chip in your phone and computer that connects them to the internet contains gallium, a metal with total demand of 550 t/yr — most of which goes into LEDs. Indium, with current global demand of 900 t/yr is made into an oxide with tin to create touch-sensitive screens, the biggest application. But it is also needed by the lasers that make it possible for data centres to transmit and store data. The reserves of these metals can last us into the next century. But the supply chains are heavily exposed to political risks, along with the electronics industry.
Indium and gallium spot prices are at very low historical levels as a result of prolonged over-production in China, the main producer, and the collapse of a metal exchange in Yunnan province in 2015, which left huge stocks that were finally bought in the last few months. Argus today assessed export prices for 99.99pc grade indium metal at $137-142/kg fob China — hovering just above a 16-year low — and prices for gallium at $142-152/kg fob China.
The small opaque physical market that trades these metals is a parallel universe compared with volatile futures markets. But 5G will need a lot of more of all of them. And the sensors that the internet of things will rely on – that’s a whole other demand story. A trader once told me he was long and wrong on an internet metal. I’m not so sure. But since being sure is on hold for the foreseeable future, it is getting harder and harder to know the answers.