Although we’re at the start of an energy revolution and governments are beginning to realise the enormous sums of money required to support this transition, the supply of the critical industrial metals needed is low.
An estimated $52trn in global GDP is moving towards an energy transition all at the same time. The US, Europe and Asia are currently 80% powered by fossil fuel. So, there is much work to do and much opportunity.
Minter explains: “To get a scale of the metals required, consider the estimated $15trn infrastructure gap globally, which will need aluminium, zinc, all kinds of metals. There are 4.7 tons of copper in the average wind farm and 5.5 tons of copper per MW of solar technology. There can be no renewable energy without copper, zinc, nickel and other important metals. Consider how much metal is in an electric vehicle and the infrastructure it requires. Of the 1.45bn cars on the planet only 0.7% are EVs.”
What is puzzling to Minter is the current low supply and low inventory of metals globally when they are going to be so relevant to green energy.
He says: “The London Metals Exchange has a 25-year low in inventories of aluminium, copper, zinc, lead and nickel. This is not what you want to see ahead of the world’s energy transition. The irony is that environmental and social issues are slowing down mine development. It can take a decade to develop a copper mine. That’s why we’re seeing a lot of M&A activity in the mining sector, as it’s easier to buy another company, than build another mine.”
As a result, he does expect to see industrial metal prices pick up when the build-out of green energy begins in earnest. Hopefully, supply side can be ramped up too, and in a way that aligns with ESG requirements.
“Of course there is a bearish case,” he says, “if we get a severe global recession, it will overwhelm commodities and prices will go lower. Also, if we get much better policies globally which recognise that energy is key, commodities are key, and incentivise the supply of transition metals – that would eventually lower metals price and also the price of oil and gas.”
But with neither a major global recession, nor much indication that governments are going to make major green energy metals supply reform, Minter outlines the scenario he foresees: “The energy transition will continue to progress and lead to huge demand for industrial metals from countries competing for their share. Investors in the sector will likely have a positive outcome as prices and demand rise significantly in the years ahead. The world has already invested so much capital in the energy transition that it appears to be past the point of being reversable.”
