Industrial Metals: An Overview
Demand boom triggered by the energy transition could lead to more than a fourfold increase in the value of metals production
Chief Investment Office9 Jun 2022
  • The world's largest economies, China, the US, and the EU, dominate the industrial metals landscape
  • They provide a stable and long-term demand base for this sub-asset class
  • Sector exposure is highly favourable – transport and construction see healthy forecasted growth rate
  • Chronic underinvestment remains, driven by climate change narratives and high hurdle rates
  • Emerging industries- renewables and electric vehicles - contribute significantly to growing demand
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From space shuttles to drink cans. Metals have been used since prehistoric times to cast tools, weapons, and other objects. Their importance to humankind has grown over time, and today, industrial metals are key inputs in a myriad of industries: copper is used in wiring due to its conductivity, aluminium has uses ranging from drink can production to aerospace engineering because of its light weight and corrosion resistance. Steel is equally ubiquitous with applications ranging from cutlery production to automobile construction.

In sync with global growth. Both consumption and production of most industrial metals are dominated by the world’s largest economies (i.e. China, US, and the EU), which provides a stable and long-term demand base for this sub-asset class. Additionally, the sector exposure for industrial metals is highly favourable; both transport and construction are multi trillion-dollar industries with wide-ranging end uses and healthy forecasted growth rates.

Mind the gap. The global outlook for industrial metals is one that can be summarised by growing demand and a limited, finite supply.

  • Greenwashing and underinvestment to limit supply: A main theme in the supply of base metals is that of chronic underinvestment in the past decade. The reasons for this are twofold: i) global focus on climate change mitigation strategies has warped the relationship between increased prices and supply response; and ii) long investment horizons and high hurdle rates make procuring financing for these projects challenging. As a result, industrial metals will find a lower supply baseline and higher price levels moving forward.
    The reduction in supply will be further exacerbated by policy-led decisions such as energy rationing and emissions control in China. This is significant as China is the largest global producer for majority of the industrial metals complex, including aluminium, copper, nickel, and steel. Metals that have an energy intensive production process like aluminium and nickel will be particularly affected by these measures; expect the supply of these metals to be curtailed more sharply than others should there be a tightening of emissions policies or another energy crunch.
  • Accelerating demand driven by climate change: The most significant underlying catalysts for base metal demand are the energy transition and climate change mitigation. The IMF estimates that the demand boom triggered by the energy transition could lead to more than a fourfold increase in the value of metals production - totalling USD13t over the next two decades for the copper, nickel, lithium and cobalt. In particular, cobalt and lithium will experience the greatest consumption growth, increasing by four-fold and seven-fold respectively by 2050.

Emerging industries, particularly renewables and Electric Vehicles (EVs) will contribute significantly to the growing demand and price of base metals moving forward. EV sales count grew more than eightfold since 2016 and investment in EVs has followed suit. In addition to lithium, nickel and copper are also important EV production inputs and will play an important role in the electrification of the global automotive fleet. A key datapoint to highlight here is that Nickel demand for use in EV production is forecasted by Bloomberg to increase close to 10 times in the next decade, from c.52,000mt in 2021 to c.500,000mt in 2029.

 

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