What’s more, as countries around the world have pledged to transition away from fossil fuels, industrial metals may allow investors to benefit from the heightened demand for renewable energy.
What are industrial metals?
Industrial metals such as copper, aluminum, zinc and nickel are at the foundation of the global energy transition.
Table 1: Understanding industrial metals
*See Important Information section for source information
Industrial metals have a low correlation to other asset classes, such as equities and fixed income, so they could be a nice complement to an investment portfolio, helping to manage risk and mitigate volatility. Plus, they tend to thrive in inflationary periods.
Industrial metals and the energy transition
The global energy transition away from fossil fuels toward renewables may well be one of the largest projects in human history. And almost every renewable energy system — including electric vehicles, wind turbines, solar panels, grid-level batteries and carbon-capture systems — uses large amounts of industrial metals. So industrial metals may represent a compelling investment opportunity, as they could benefit from this increased demand.
Consider electric vehicles (EVs), for example. Demand for EVs has swelled in recent years. In fact, sales of EVs (fully electric and plug-in hybrids) doubled in 2021, with record-breaking sales of 6.6 million.1 The number of EVs on the road by the end of that year was about 16.5 million — three times the amount on the road just three years earlier, in 2018.2
Since then, demand has remained strong. And whether it’s Wuling Hongguang Mini (the best-selling EV in China), Volkswagen’s ID.4 or Ford’s F150 Lightning, all of these EVs use up to five times more copper than traditional internal combustion engine vehicles. They also require more aluminum to offset the weight of the battery and improve efficiency, while the batteries themselves need nickel.
And EVs are just one piece of the puzzle. The potential only gets greater when you consider that the European Union, US and China have all made massive commitments to renewable energy. These nations combined represent about $52 trillion of global GDP — and this doesn’t even account for the 191 other countries that have committed to the Paris agreement. And the fact that energy is economically critical to all of these countries speaks to the fact that they’re highly motivated to make this transition.
With the scope of these commitments and the scale of these projects, it’s likely that demand for industrial metals will increase for many years to come, spelling compelling opportunity for investors.
1 International Energy Agency, “Global electric car sales have continued their strong growth in 2022 after breaking records last year,” May 23, 2022.
*More information regarding Table 1:
- Index weights: Bloomberg, June 30, 2022
- Electrical bus, copper: Visualcapitalist.com
- Photovoltaics, aluminum: Reuters, “Which metals will gain most from a green energy revolution?” 2020.
- Wind turbines, zinc: World Bank, 2020.
- Hydroelectric installations, nickel: Nickelinstitute.org
Investments in industrial metals contain ESG risks and may not have positive ESG characteristics.
Trading in commodities entails a substantial risk of loss and is not suitable for all investors.
Diversification does not eliminate the risk of experiencing investment losses.
Projections are offered as opinion and are not reflective of potential performance. Projections are not guaranteed and actual events or results may differ materially.