Energy Transition Materials

Energy transition is a decades-long trend that we expect will show continued strength through the coming year.

Energy transition refers to the global shift from technologies that use fossil fuels (coal, oil, and natural gas) to technologies that use renewable energy sources (wind and solar, and lithium-ion batteries).

The energy transition is part about the environment and part about reducing geo-political risk by reducing dependence on fossil fuels imported from unfriendly countries.

So suddenly the world is going to need a LOT more of the commodities used to transport and store energy - lithium, graphite, cobalt, copper, manganese, nickel and rare earths.

And after a decade of under-investment in new mines combined with how long it actually takes to build a new mine (7+ years) we don’t think new supply will be coming online any time soon.

Last year we saw $131 billion of investment committed in new lithium-ion battery gigafactories, with 102 gigafactories added to the ten year pipeline. As a result, by the end of the decade global production of lithium ion batteries is set to increase five-fold.

That means a lot more energy transition materials need to be mined — further supporting our thesis that this is a decade-long macro investment theme.

As an Australian, it’s easy to forget that much of the world is still to catch on to investing in the raw materials needed for the energy transition. Most investors interested in the space are likely investing directly in companies that make and sell lithium-ion batteries and products such as electric cars.

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What the analysts say

Fastmarkets - The critical materials used in manufacturing batteries for electric vehicles (EV) and energy storage systems (ESS) – including lithium, cobalt, nickel, graphite and manganese – play a vital role in our move towards a zero-carbon future.

Benchmark Minerals - “For the world to meet demand for electric vehicle and energy storage batteries in the next decade, it will need to have built almost 400 new mines by 2035.”

S&P Global says as global efforts to decarbonise drive the rollout of technologies that are increasing demand for raw materials, for many commodities, the growing consumption is poised to outstrip the industry’s ability to ramp up supply, resulting in commodity deficits as early as 2024.

The bear case for Energy Transitions Materials

Demand destruction: commodity prices stay too high making building electric vehicles too expensive and the “switch to electric vehicles” is significantly slowed down and traditional petrol engines come back into favour.

Severe recession: if a worse than expected global recession eventuates, demand for everything will slow, including the pace of the global electrification effort.

Faster than expected new supply: sky high commodity prices have triggered a scramble to bring new projects and mines online. If this happens faster than expected and the market is flooded with supply earlier than expected, prices will likely come down and early stage projects may suffer.