Look around. There’s a new commodity super cycle brewing… and this one is going to be huge.
The demand for electric vehicles (EVs) and the wider electrification trend has risen in recent years - putting significant pressure on the commodities that are used in these technologies.
In fact, as recently reported in the Financial Post, the transition to a global electrified clean energy economy is already resulting in a “monumental draw on metals and minerals from the earth's crust”.
You see, electric vehicle powertrains are much more materially diverse than the internal-combustion engine vehicles that they replace. As a result, the rapidly growing demand for electric vehicles is putting a sudden and unprecedented strain on several raw materials industries.
This means that commodity prices for copper, nickel (we covered our best nickel stocks to buy previously), cobalt, platinum and rare earth elements have begun surging higher.
And with EV demand continuing to pull on constrained resources, we could see a sustained rally in these raw materials for many years to come.
In this article, we break down each of these commodities and their uses in electrification technologies, and we reveal the best stock to buy in each of their respective industries.
Ready to see which stocks will thrive during the next commodity super cycle? Let’s begin:
Copper is a metal that’s used to increase the efficiency of numerous electrical technologies. It’s used in solar and wind energy systems, and also in motors and transformers as well.
According to a report by the Copper Development Alliance, the demand for copper due to electric vehicles is expected to increase by 1,700 kilotons by 2027.
Thanks to the metal's durability, high conductivity, and efficiency, copper is used throughout electric vehicles, charging stations, and supporting infrastructure.
While conventional cars have about 18-49 pounds of copper, the metal’s use in energy efficient vehicles is much higher.
Hybrid electric vehicles (HEV) contain approximately 85 pounds, plug-in hybrid electric vehicles (PHEV) use 132 pounds, battery electric vehicles (BEVs) contain 183 pounds, a hybrid electric bus contains 196 pounds, and a battery electric bus contains 814 pounds, most of which is used in the battery.
In 2016, the total estimated amount of copper used in all electric vehicles manufactured by BYD, the world’s largest electric vehicle maker, was nearly 26 million pounds.
Copper is also required for charge ports. BYD’s total sale of chargers in 2016 used more than 295,419 pounds of copper.
Incorporated in 1952 and based in Phoenix, Arizona. Southern Copper Corporation is a subsidiary of Americas Mining Corporation and is principally engaged in the exploration, development, and production of copper and other minerals.
The company has operations in Peru, Mexico, Argentina, Ecuador, and Chile.
For the year ended December 31, 2020, the company reported revenues of $7.98 billion and net income of $1.57 billion.
“Our cells should be called Nickel-Graphite, because primarily the cathode is nickel and the anode side is graphite with silicon oxide... [there’s] a little bit of lithium in there, but it’s like the salt on the salad” - Elon Musk, CEO Tesla
Nickel has been used in batteries for over a century.
Nickel plays a crucial role in lithium-ion battery chemistries used to power electric vehicles, medical devices, and cordless power tools as well as store renewable energy.
Nickel-containing cathodes make batteries lighter, smaller and provide higher energy density, resulting in a more efficient EV. Because of this sudden increase in demand for nickel in electric vehicle batteries, its importance is about to ramp up significantly.
According to a report from research form Roskill, nickel demand from the EV sector is expected to grow globally to 2.6Mt Ni to 2040, up from only 92kt Ni in 2020.
For a pure play nickel stock, it’s tough to find a company that’s more exciting than Talon Metals Corp.
The mineral exploration company is partnered with mining giant Rio Tinto on a project located in Tamarack MN, that contains high-grade nickel, copper, and cobalt, and is the only high-grade development stage nickel project in the U.S.
Talon’s current strategy is to expand the present resource at their flagship Tamarack project with more exploratory drilling targeting 2.3 km along strike, complete a feasibility study, and explore the remaining 16.5 km of the Tamarack Intrusive Complex (TIC) which had historical grades of >9% nickel.
EVs need cobalt.
Because of its greater thermal stability, cobalt is used extensively in lithium-ion batteries and makes up roughly 4% to 30% of the conductive material used to make battery cathodes.
According to a recent report by Benchmark Mineral Intelligence, the London-based market intelligence firm forecasts that the battery industry will require a further 100,000 tonnes of cobalt by 2025.
The firm’s numbers show that 57% of the world’s cobalt demand will come from the battery sector by the end of 2020, a proportion that is expected to increase to 72% in the next five years.
A 20% rise in the price of cobalt since the beginning of this year shows how the rush to build more electric vehicles is stressing global supply chains.
One area of concern is that the majority of the world’s cobalt is mined in the Democratic Republic of the Congo in central Africa - which is an area that’s had issues with political and social instability.
From mine to market, the supply chain has several choke points that make it vulnerable to disruption, which could send prices even higher.
Headquartered in Baar, Switzerland and founded in 1974, mining giant Glencore is one of the world’s leading producers of cobalt.
The company produces cobalt mainly as a by-product of copper mining in the Democratic Republic of Congo (DRC), but also as a by-product of nickel mining in Australia and Canada.
Glencore is also one of the largest recyclers and processors of cobalt-bearing materials, such as used batteries – helping secure the supply of the metal at a time of increasing demand.
The company produced 27.4 kt of cobalt from their assets in 2020.
Rare earth elements (REEs) are best known for their applications in clean energy technologies such as wind turbines, electric motors, catalysts, and solar panels due to strong permanent magnetic properties.
Neodymium is a vital component of EV motor magnets.
It is used in permanent magnet motors, often termed as neodymium iron boron magnets.
Other REEs that are used are dysprosium, praseodymium, and terbium, which are generally added to neodymium to allow it to remain magnetic at high temperatures.
The global supply of REEs is controlled by China - which is the largest producer of these materials. Because of this monopoly, the U.S. is actively working to its reliance on Chinese REE supplies.
This is why the U.S. Department of Defense (DOD) recently announced contracts and agreements with several rare earth element producers which will strengthen the domestic rare earths supply chain in the U.S.
MP Materials Corp. was founded in 2017 and is headquartered in Las Vegas, Nevada. The company owns and operates integrated rare earth mining and processing facilities including the largest rare earth element mining operation outside of China.
MP Materials was recently awarded a Defense Production Act (DPA) Title III technology investment agreement to establish domestic processing capabilities for light rare earth elements (LREE).
According to a recent press release from the DOD:
“LREEs are critical to numerous defense and commercial applications, including petroleum refining, glass additives, and magnets used in electric vehicle drivetrain motors and precision-guided munitions. Upon successful completion of this project, MP Materials will refine its current mixed rare earth concentrate production, which represents approximately 12 percent of global rare earth oxide content, into separated rare earth products at its site in Mountain Pass, California.
Under the technology investment agreement with MP Materials, the Department of Defense will contribute $9.6M to MP Materials’ effort to add value-add processing and separation capabilities to the Mountain Pass operations. MP Materials has recently announced a definitive agreement to transition to a publicly held company through a merger with Fortress Value Acquisition Corp, a special purpose acquisition company sponsored by an affiliate of Fortress Investment Group LLC.”