How the energy transition is affecting the metals markets

This analysis is by Bloomberg Metals Specialist Todd Sibilla. It appeared first on the Bloomberg Terminal.

Background

Worldwide efforts to mitigate global warming‌ depend on industrial metals, ‌whether electrifying the auto fleet or transforming the power grid. That category now includes battery metals and rare-earth elements, along with metals long traded on venues such as the London Metal Exchange.

Take copper, a market experiencing ‌tight competition for the world’s leading producer. Cooper is used in electric vehicle motors and to connect batteries, and EV engines can contain four times more copper than internal combustion engines. BloombergNEF estimates that annual demand for copper related to transport will be 10 times higher in 2040 than in 2023. Given that transportation now accounts for about 13% of total copper demand, increasing production of EVs will change the way the metal is priced and mined.

The issue

Demand for other base metals such as aluminum and nickel is also increasing because of their use in batteries. As an example, the positive electrode of a battery in the common NMC 622 cathode chemistry contains 60% nickel, with 20% manganese and 20% cobalt. A growing number of experts have warned of expected metal shortages that could suppress the adoption of electric cars, wind turbines and solar panels.

The commercial impact of the transition goes beyond the base metals that market professionals traditionally track. Major commodity exchanges are offering or setting up lithium and cobalt futures trading. The supply chain itself is also changing. The Ohio-based startup Nth Cycle has started pulling metals, including nickel and cobalt, out of dead batteries to address tight supplies. Commercial users are looking to secure a supply of materials for production and to follow government mandates specifying where metals can be sourced.

This trend also shows up in mergers and acquisitions. M&A in general is down 33% from a year ago through July 14, but M&A in metals and mining is up 274%, with diversified minerals such as lithium up 690%.

In February, General Motors Co. closed a $320 million tranche of an investment in Lithium Americas Corp. with an eye toward developing a U.S. supply of the metal for use in car batteries. Given legislation aimed at decarbonizing ‌ — ‌ California, for example, plans to ban sales of internal combustion vehicles starting in 2035 ‌ — ‌ the M&A trend in mining is likely to continue.

Tracking

To track M&A among metals and mining companies, go to { MA <GO>}. To drill down to the category that includes producers of lithium and rare earths, click on Basic Materials, then on Mining and on Diversified Minerals.

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