Speculative demand is, by its very nature, unstable. There’s no way to say with certainty whether international copper prices will continue to head higher this year, especially since demand linked to industrial use in China remains sluggish.

That said, looking further ahead, there are compelling arguments for investing in these future minerals based on utility and scarcity. 

We’ve done a lot of research on these mined commodities. As a result, we’re expecting demand to rise significantly in the years to come (see Chart 1).

Source: International Energy Agency, IEA Net Zero Scenario, June 2024

Future minerals 101

Future minerals are mined commodities – including copper, lithium, aluminium, platinum and nickel amongst others – that are essential to the future development of economies.

They’re critical to the energy transition as we move away from fossil fuels towards a greener economy, largely via the electrification of power generation and transportation.

For example, copper is a metal which is widely used due to its qualities as a good conductor. It's essential in most electronic and electrical applications. Future demand will be driven by its role in electricity grids and in electric vehicles (EVs).

Lithium, a silvery-white alkali metal, is important because of the lithium-ion rechargeable batteries that power EVs and the batteries used for energy storage in electricity grids. It’s estimated that by 2040, we’ll need some 20 times more lithium than what we needed in 2020.

Commodities ‘super cycle’?

A ‘super cycle’ is a period in which structural change causes demand for something to rise significantly and for a long time. This leads to a big and sustained price increase.

Demand for future minerals is driven by necessity and by government policy. The need to move away from fossil fuels is clear to many people, and this move is well supported by new regulations.

Over the past three years, there have been more than 100 new government policies, as well as a wave of official strategies, linked to ‘critical’ minerals. This is a clear indication of their growing importance. It’s likely that demand will remain robust throughout multiple economic cycles over the next 20 years or so.

At the same time, supply will be constrained – mining companies haven’t invested in developing new resources over the past decade. That’s why there hasn't been very much additional production capacity created. Where you do have capacity, you see production volumes and quality decline.

These dynamics increase the probability of the emergence of a new super cycle.

Buy the company, not the commodity

We think investors should invest in the companies behind future minerals. History shows us this is a better way to take advantage of higher commodity prices.

Investment opportunities are diverse and located at all points of the value chain – the range of activities needed to create a product or service.

In addition to the mining companies themselves, look higher up the value chain to those firms supplying the equipment needed to extract minerals out of the ground.

Lower down the value chain, seek out the companies behind the products – such as EVs – that are manufactured using one or more of these future minerals.

Additional areas of interest may include any firm that’s assisting decarbonisation in transport, buildings and industry; battery-makers; and those companies involved to permanent magnet motor manufacturing.

Getting in ‘early’

Everything is aligning for the start of a commodities super cycle that could end up being a multi-decade opportunity. Getting involved early can make a big difference in returns.

Chinese adoption of EVs has been very fast. EV sales this year are on track to account for almost half of car sales in China. In 2020, that number was only 2%.    

EV penetration in developed markets is less deep. It will, however, accelerate once bans on internal combustion engines kick in, and as EVs become less expensive (especially when the cost of batteries falls).

Meanwhile, the UK’s National Grid has published its capital investment plans for the next decade and it’s clear that investment to support the green transition is a key priority.

Globally, electricity grids need to expand transmission and distribution lines by some 150 million km – equivalent to the distance between the Earth and the Sun [1].

There’s all this demand and, as we’ve already mentioned, supply will struggle to keep up for some time. This will support prices.

Final thoughts

The transition to carbon net-zero must occur at record pace. This will require an extensive rollout of low-carbon technologies and green infrastructure – all of which are built on future minerals.

Looking beyond EVs and electricity grids, a broader transition across transport, buildings, industry and agriculture will be needed. All these ambitions, in some shape or form, are future mineral intensive.

Sustainability sits at the heart of the investment rationale. The ability to monitor and manage environmental, social and governance (ESG) risks is therefore critical to successful investment outcomes.

That’s why, when so many of the companies in the investment universe have major operations in the emerging markets, regular corporate engagement is vital.