Metals like copper, lithium, and nickel entered the spotlight recently as high demand from new economic sectors has been transforming their markets. Propelled partly by the green energy revolution, we have seen increased investments and innovation in these metals to meet the growing demand for renewable energy.
Alexandra Symeonidi, CFA, is a corporate credit analyst on William Blair Investment Management’s Emerging Markets Debt team. Covering the oil and gas, metals and mining, industrials, and utilities sectors across emerging markets, Symeonidi's recent work explores the reasons behind the metals’ growth and demand.
Copper, Lithium, and Nickel Uses
Due to high-margin profiles and cash flow potential, mining companies have traditionally provided investment opportunities. To Symeonidi, these companies are in the market spotlight and have seen an inflow of investor interest, mainly due to the anticipated high demand for the metals they produce.
A malleable metal with high electrical conductivity, copper’s primary use is for electrical applications.
“About one-third of copper produced is used in equipment manufacturing,” Symeonidi said. “28% is used in construction, 16% in infrastructure, and 12% in transportation, like cars, trucks, and airplanes. Electric vehicles (EVs) make up about 5% of total copper demand, but that’s expected to grow more than we’ve seen in other sectors.”
Lithium, the lightest of all metals, is widely used in batteries. Approximately 60% of lithium products are used in EV batteries, with the rest going toward traditional batteries used in phones, tablets, and other consumer electronics.
Nickel, on the other hand, is much more concentrated when it comes to its demand uses; 70% of nickel is used in stainless steel, and currently, 16% of all nickel produced goes toward clean energy applications, like EV batteries.
Opportunities and Risks Stemming From the Energy Transition
The green energy revolution, or the energy transition from fossil fuels to renewable energy, has significantly impacted the financial markets in several ways.
From oil companies investing in battery projects to gold companies investing in lithium operations, Symeonidi has seen companies entering the low-carbon markets and new renewable energy companies coming onto the scene. These growth opportunities enable companies to explore methods for transforming their businesses toward a low-carbon future.
Along with growth opportunities presented to companies as a result of the energy transition, investors also find opportunities to capitalize. Green finance initiatives, such as green and transition bonds which enable this transformation to low-carbon futures, are an example of such opportunities.
The energy transition is already underway, and it will be a major business opportunity across sectors and companies.
ALEXANDRA SYMEONIDI
Along with the “winners of the energy transition,” Symeonidi explained some potential losses due to stranded asset risks. Companies in emerging markets that focus on renewable energy may still have some portion of their operations that may soon retire due to the environmental impacts.
“As we transition towards increased utilization of renewable energy,” Symeonidi said, “some assets might become obsolete or economically inefficient, such as coal fired plants.”
Additionally, industries are facing increased regulations as a result of the energy transition. Several countries in emerging markets have introduced carbon taxes and are considering carbon pricing mechanisms to reduce emissions.
The Economic Focus on Metals and Mining
While there are various opportunities for investors to enter the metals market, Symeonidi noted a few concerns, with resource nationalism being a potential risk to mining operations.
Political instability and economic volatility are the main contributors to resource nationalism in emerging markets, which refers to when a country’s government controls natural resources within its territories. After the start of the COVID-19 pandemic, several countries’ governments were pressured to extract more value from the metals, Symeonidi explained. Demand, industry growth, and price increases in these metals contribute to resource nationalism, which means that the topic will be relevant for some time for the metals of the future like copper, lithium, and nickel.
We’ve also seen a broader move towards protectionism in the mining industry and beyond, Symeonidi explained. Policies like import tariffs and restrictions on labor, goods, and capital movement are some examples of how we may see protectionism play out.
“More countries may introduce import taxes to protect their domestic industries,” Symeonidi said. “Regarding their impact on the economy and market, all these measures make trade flows more inefficient and increase the prices of goods, contributing to inflation.”
While we may have to wait to see most of the effects of resource nationalism, Symeonidi explained that investor interest in metals and mining won’t be going away anytime soon.
“The energy transition is already underway,” Symeonidi said, “and it will be a major business opportunity across sectors and companies. By staying informed and adopting a proactive approach to risk management, investors can navigate the transition efficiently and enhance the resilience of their investment portfolios.”
Resources
To learn more about William Blair’s thought leadership on metals and their markets, click below to access our three-part series:
- Metals of the Future: Demand Dynamics in the Driver’s Seat
- Metals of the Future: Can Supply Meet Demand?
- Metals of the Future: Capturing a Share of the Pie
