Commodities Corner: The spotlight shines on ‘green’ metals such as lithium and cobalt as EV popularity climbs
As major countries move toward reaching a goal of zero carbon emissions and make a bigger shift toward cleaner-energy alternatives, metals such as lithium, cobalt, copper, and nickel are expected to see demand climb.
“Many metals stand to benefit from the energy transition as clean energy technologies require more metals than fossil-fuel energy sources,” says Brandon Rakszawski, director, ETF product development, at VanEck. “We have already seen metals like lithium and cobalt take center stage in the market, but it is estimated that metals such as copper, nickel and rare earths will see a larger portion of their demand come from clean energy in the years to come.”
The metals used in cleaner-energy applications have become known as “green” metals. Copper
is used extensively across wind, solar, hydro, nuclear, and geothermal energy, as well as electric-vehicle and battery technologies.
Metals such as manganese and molybdenum are also important inputs to wind, hydro, and geothermal energy generation, says Rakszawski. Lithium and cobalt are expected to be driven “more and more by the clean energy transition.”
Lithium prices have already more than doubled this year. The October reading for the lithium price index is up 225% year to date, according to data from Benchmark Mineral Intelligence.
Lithium has been used in industrial applications such as grease and ceramics, with those applications representing two-thirds of demand back in 2015, when batteries accounted for just one-third of lithium demand, says Cameron Perks, senior analyst at Benchmark Mineral Intelligence. This year, batteries account for two-thirds of lithium demand, up from just one-third in 2015, he says. “Overwhelmingly,” the main driver for lithium demand is electric vehicles, also known as EVs.
The U.S. infrastructure package recently passed by Congress includes $7.5 billion to build out the U.S.’s network of electric-vehicle chargers, which is expected to help speed up the adoption of EVs.
The “trend of increasing EV penetration is key for [lithium] demand going forward,” says Perks. At the same time, there is “little chance of a balanced supply market” in the next few years, he says.
A typical electric car requires six times the mineral inputs of a conventional car, according to an International Energy Agency report from May 2021. “Clean energy technologies are becoming the fastest-growing segment of demand” for minerals, the report said.
In a scenario that meets the Paris Agreement goals on climate change, the total share of minerals demand from the energy sector would rise significantly over the next two decades to over 40% for copper and rare-earth elements, 60% to 70% for nickel and cobalt, and almost 90% for lithium, according to the IEA.
Lithium supply has been “severely underinvested in the past few years, while demand is expected to grow exponentially throughout the decade as several countries set ambitious targets for EV sales,” says Scott Yarham, associate regional pricing director for metals in Europe, the Middle East, and Africa, or EMEA, at S&P Global Platts.
Lithium demand was at about 300,000 metric tons last year and is expected to reach one million metric tons in 2025 and two million metric tons in 2030, according to S&P Global Platts.
Yarham points out that increasing demand has led to a jump in lithium prices—and an increase in battery-pack prices. If that continues, EVs will “struggle to reach price parity with internal-combustion-engine vehicles,” which may slow down EV adoption.
Still, many analysts agree that demand for green metals will continue to climb.
For investors, green metals such as copper, nickel, and zinc are traded in the futures markets, which presents a “unique set of risks and costs,” says VanEck’s Rakszawski. Investment in other green metals aren’t accessible through futures contracts, and physical investment isn’t practical in most scenarios, he says.
““There is a structural growth opportunity in green metals, as governments implement aggressive policy goals and consumer preferences shift to low carbon technologies.””
— Brandon Rakszawski, VanEck
Instead, “investing in companies that are involved in the production, refining, processing, and recycling of green metals provides investors exposure to returns that are strongly influenced by the price of these metals,” says Rakszawski. The VanEck Green Metals ETF
launched on Nov. 11, offers investors exposure to a basket of these companies, he says.
“There is a structural growth opportunity in green metals, as governments implement aggressive policy goals and consumer preferences shift to low-carbon technologies,” says Rakszawski.