The energy transition may well be one of the largest projects in human history. And it will rely heavily on industrial metals, such as copper, aluminum, zinc and nickel. This creates a compelling investment opportunity.
Energy is necessary for economic activity and, globally, economies are shifting from fossil fuel-derived energy to renewable energy sources powered by industrial metals. Almost every renewable energy system uses large amounts of industrial metals, including electric vehicles, wind turbines, solar panels, grid level batteries and carbon capture systems.
And this transition is massive. The European Union (EU), U.S. and China have all committed to this energy transition. These nations combined represent about $51 trillion of global GDP — this doesn't even account for the remainder of the 191 countries that have committed to the Paris agreement.1 This incredible transformation will increase industrial metal demand for years to come. And energy is economically crucial to these countries, so they are highly motivated to make the changes.
Below we outline the traditional uses of each of these industrial metals and the role they’ll each play in the energy transition.
Humans have been using copper longer than any other metal, and for good reason. Archaeologists have recovered copper plumbing components from ancient Egyptian pyramids that are still in serviceable condition now, more than 5,000 years later. Today, the biggest copper producers are Chile (28.4% of the world’s supply), Peru (12.1%), China (8.2%), Congo (6.3%) and U.S. (6.2%).2
Copper is still a widely used industrial metal today because it is:
- A useful conductor of electricity
- Corrosion resistant
- Very ductile
- Biostatic, meaning that bacteria won’t grow on it
It can also be combined with other metals to make alloys, such as brass and bronze, which are even harder and stronger than pure copper.
Copper is most popularly used for electrical work and the building and construction industry represents its single-largest market. There are about 400 pounds of copper in the average American home in air-conditioning systems, food-processing surfaces and doorknobs, among other places.
The role of copper in the energy transition
Electrification is a cornerstone of the energy transition. Since copper is so commonly used in electrical work, it follows that demand for copper is very likely to increase in the coming years.
One of the most prominent examples of electrification is within the automobile industry. Electric vehicles (EVs) have become significantly more popular within the last decade and we expect that more and more they will replace fossil fuel-hungry internal combustion engine (ICE) vehicles. The average EV holds about 200 pounds of copper — three-five times as much copper content as an ICE vehicle.3 There are currently 1.3 billion ICE vehicles globally. As EVs replace ICE vehicles, we’ll only become more dependent on copper. And not only do EVs themselves require more copper, but their chargers, both in homes and in public, will require copper, too.
The transition of energy to lower-carbon sources should have a significant impact on future demand for copper.
The energy industry itself will also experience massive change in the coming years. The transition of energy to lower-carbon sources should have a significant impact on future demand for copper. Solar panels and wind turbines, two popular alternatives to fossil fuel-driven energy, require a significant amount of copper. Solar panels contain about 5.5 tons of copper per megawatt produced, for example. And a single three-megawatt wind turbine can use as much as 4.7 tons of copper.4
Risks associated with copper
In short, the demand for copper is only growing more intense. But copper supply has been stagnant for several years, as low prices have curtailed investment. During low-price periods, miners shift production to the “sweet spots” of higher-quality copper in mines, known as “high grading.” This leaves lower-quality reserves for periods when the price is higher. What’s more is that mine production is almost impossible to increase quickly. Sizable new mines are hard to find, no matter how much demand increases. The CEO of Freeport-McRoRan, Inc., the largest publicly traded copper producer, even went so far as to say that if prices were to double tomorrow, the company would be unable to bring on new supply within five years.5
Aluminum, a silvery, lightweight metal, is the most abundant metallic element in Earth’s crust. A Danish chemist first isolated the element in 1825, and in the years that followed, other scientists throughout Europe improved the process and discovered more properties of aluminum. In 1886, scientists in the U.S. and France simultaneously discovered the first practical method of aluminum production. This process, called electrolytic reduction, is still the primary method we use today. Major aluminum producers today are China (55.4%), Russia (5.8%), India (5.8%), Canada (4.5%), UAE (4.1%).6
Aluminum is useful in several industries and applications because it:
- Is lightweight — aluminum weighs less than a third as much as steel
- Has a high strength-to-weight ratio
- Has high heat conductivity and a low specific heat capacity
- Can resist salt-water corrosion effectively
Aluminum’s strength and weight make it a good choice for construction of aircraft, railroad cars and automobiles. Its high heat conductivity and low specific heat capacity, which means it cools quickly, make aluminum popular in cooking utensils and ICE vehicle pistons. Aluminum foil, siding and storm windows are excellent insulators for these same reasons. It can also be used in low-temperature nuclear reactors. Because aluminum can stand up to salt water, it’s often used in boat hulls and other marine devices. NASA will even use aluminum to build its next spacecraft.
Aluminum is the most energy-intensive of the industrial metals. This is because it takes a lot of energy to turn the raw ore into the aluminum that we know and use every day. However, 75% of all aluminum ever produced is still in use because it’s cheap and easy to recycle. Recycling aluminum saves more than 90% of the energy required to make new aluminum. In fact, aluminum cans contain triple the amount of recycled content of glass or plastic.
The role of aluminum in the energy transition
Like copper, aluminum plays a key role in automobile energy efficiency. Since aluminum is a lighter-weight alternative to steel, many automakers have started using this metal more to help increase vehicle fuel economy. We only expect this trend to continue. Furthermore, in 2009, the use of aluminum in vehicles offset more than 90% of greenhouse gas emissions associated with aluminum production in North America. In fact, using aluminum in cars saves 44 million tons of CO2 emissions. Aluminum is even more crucial for EV production as it offsets chassis weight from relatively heavy batteries and improves range. There are several battery technologies in testing, one of which is an aluminum-air battery.7
Coated aluminum roofs reflect up to 95% of sunlight, making it useful for more efficient and less carbon-intensive to cool homes and buildings. In commercial spaces, energy efficiency is a key qualifier for Leadership in Energy and Environmental Design (LEED) certification, a standard for which many environmentally conscious corporations reach.8
Risks associated with aluminum
Aluminum use has already increased in the past few decades, and we expect that demand will remain high.
Aluminum use has already increased in the past few decades, and we expect that demand will remain high. But for only the second time in history, supply will be purposely constrained. The first time was in 1994, after the fall of the Soviet Union, when producers agreed to restrict output (recall that Russia is home to the world’s second-largest supply of aluminum).
Now, China, the world’s largest aluminum supplier, is capping production to meet its goal to be carbon neutral by 2050, since the production process is so energy-intensive. If aluminum producers were required to pay $50 per ton of carbon via carbon credits, it would raise the cost of aluminum by 50%. On top of this, Russia has put in place a 15% export tax from August to December 2021.
Zinc is the 24th most abundant element in Earth’s crust. This bluish-white metallic element is never found in its pure state, but rather in compounds such as zinc oxide and zinc silicate, among others. It’s also in minerals, such as zincite, hemimorphite and smithsonite. Zinc is used as a protective coating for other metals, such as iron and steel, in a process known as galvanizing. Zinc can be combined with copper as an alloy to make brass. It can also be made into an alloy with aluminum and magnesium. Major producers are China (33.1%), Peru (11.0%), Australia (10.5%), U.S. (5.9%) and India (5.8%).9
The role of zinc in the energy transition
Zinc is used in energy storage systems for its qualities of recyclability, safety, low cost and zero emissions. These include uses in several battery chemistries used in electronics, industrial, marine, aeronautic and remote power supply applications.
Zinc-reliant galvanized steel is used in the construction of wind turbines and solar panels, two hallmarks of the clean energy transition. It can also be put to use in fuel cells, cars, fences, guard rails, tubing and light poles.
More than 2 billion people worldwide do not get enough zinc in their diets, with more than 800,000 indirectly dying from zinc deficiency. Zinc deficiency exists in more than 50% of the world’s soils and it is a crucial micronutrient for higher crop yields. Zinc contributes to sustainability as 30% of the metal is from recycled or secondary zinc, and zinc extends the lifecycle of steel to as much as 170 years with hot dipped galvanizing.10
Risks associated with zinc
While zinc is useful in pigments, batteries and chemicals, there are substitutes available to use in place of galvanized steel in some applications. For example, aluminum, steel and plastics can sometimes substitute for galvanized sheets.
Nickel is a hard, malleable, ductile metal with a silvery tinge that can take on a high polish. It’s somewhat ferromagnetic and is a fair conductor of heat and electricity. This metal is primarily used in the production of stainless steel and other corrosion-resistant alloys. It’s also used in coins to replace silver, as well as in rechargeable batteries and electronic circuitry. Constructing turbine blades, helicopter rotors, extrusion dyes and rolled steel strip all involve nickel-plating techniques, such as electroless coating or single-slurry coating. Major producers are Indonesia (32.7%) Philippines (12.4%), Russia (10.7%) and New Caledonia (8.0%).11
The role of nickel in the energy transition
Nickel is a component of stainless steel. Stainless steel has everyday uses in food-preparation environments, healthcare and easy-to-clean appliances. But it’s also useful in power-generation, and pollution control as well as chemical and pharmaceutical production. These industries will all gain traction and experience change during the energy transition.
One U.S. Department of Energy study notes that U.S. electricity demand could increase 38% if all sectors of the economy are electrified by 2050. 12 Nickel is also used in batteries used for grid-level storage. Currently, 23.2 gigawatts of grid-level battery storage exists in the U.S., compared to 1,100 gigawatts of generating capacity. It is clear that many more batteries are needed to support wind and solar generators with knock-on effects for nickel demand.
Risks associated with nickel
Nickel is a key ingredient in batteries. However, there has been ongoing battery technology research that could change battery technology and the required ingredients. Lately this has focused on removing or reducing the amount of cobalt in batteries due to energy security issues and difficult artisanal mining conditions in the Democratic Republic of the Congo. These issues do not exist for nickel, removing the motivation to engineer nickel out of the supply chain.
Industrial metals — the big picture
These metals all play an important role in the impending energy transition. Therefore, we believe that they represent a compelling investment opportunity.
However, as with any types of investments, there are associated risks. The primary threat to our positive outlook is some type of unforeseen event that could halt or delay the global shift toward renewable energy. This includes very high oil prices (e.g., more than $100 per barrel), which would weaken the U.S. electorate’s political will to wait to rollout EVs on a large scale until quantity is sufficient and prices can be more affordable. We see this risk as not very likely in the near term, however, since there’s ample spare oil capacity from global producers.
Another risk is that the infrastructure projects necessary to execute the energy transition don’t get through the U.S. Congress. These types of projects include electricity-generation and implementing electric charging networks. But we think that the probability of political hurdles is low, too. Physical infrastructure projects have bipartisan popularity as long as they’re predicated upon more U.S. jobs and greater domestic demand for materials.13
There is evidence that countries agree that metals demand will be higher and more critical to their economic wellbeing.
While keeping these risks in mind is important, they don’t cloud our sanguine outlook. There is evidence that countries agree that metals demand will be higher and more critical to their economic wellbeing. The U.S. Secretary of Energy released “The National Blueprint for Batteries,”14 which focuses on battery materials’ supply-chain security. The EU formed the “European Raw Materials Alliance,”15 which also focuses on domestic renewable energy materials’ supply-chain security. China has been buying up battery raw material mines for at least a decade and more than 80% of processed cobalt, 100% of spherical graphite and 51% of lithium already come from China.16
Much of the technology and infrastructure that the transition to a more sustainable world requires depends upon industrial metals. As more and more nations get serious about their commitments to lower carbon emissions and cleaner energy, we think that the need for these metals will only grow.1 US Geological Survey, 2021
2 US Geological Survey, 2021
3 Copper Development Association, Inc., “Electric Vehicles Infographic,” 2021
4 Copper Development Association, Inc., “Renewables,” 2021
5 Bloomberg, “Freeport’s Adkerson Sees Copper Scarcity Trumping Cooling Effort,” May 27, 2021
6 US Geological Survey, 2021
7 The Aluminum Association, “Aluminum use,” 2021
9 US Geological Survey, 2021
10 International Zinc Association, “Zinc: A sustainable material essential for modern life,” 2015
11 US Geological Survey, 2021
12 National Renewable Energy Laboratory, “Electrification Futures Study: Scenarios of Electric Technology Adoption and Power Consumption for the United States,” 2018
13 Wall Street Journal, “Offshore Wind Farms, Big in Europe, Could Boom in U.S. Under Biden,” February 6, 2021
14 National blueprint for batteries, 2021
15 European Raw Materials Alliance, 2021
16 Foreign Policy Research Institute, “Beyond Oil: Lithium-ion battery minerals and energy security,” March 3, 2021
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