How to invest in energy transition materials
Macro Outlook 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.
Discover the 5 Battery Materials Stocks we’ve Invested in for 2023
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.
Our Commentary on Energy Transition Materials
Why do different commodities suddenly become “hot”?
Weekender
Jan 22, 2024
|Next Investors
|14 min
Electrification will not only be good for the environment, but importantly it will reduce the West's risk from reliance on fossil fuel imports from geopolitical “frenemies”.
The Macro Themes Driving the Small Cap Market Right Now
Weekender
Oct 24, 2023
|Next Investors
|14 min
In this weekender we look at the macro themes driving the small cap market right now. Biotechs, oil & gas, uranium and graphite are all vying for investor attention in a bear market.
5 Battery Materials Stocks for 2023
Weekender
Apr 22, 2023
|Next Investors
|10 min
In this article we shine a light on five NON-LITHIUM companies we are holding in the battery materials space.
Why do different commodities suddenly become “hot”?
Next Investors
|Jan 22, 2024
The Macro Themes Driving the Small Cap Market Right Now
Next Investors
|Oct 24, 2023
5 Battery Materials Stocks for 2023
Next Investors
|Apr 22, 2023