The medals that were given out at the 2020 Olympics in Tokyo were made from recycled consumer electronic products. This helped to highlight the environmental credentials of the host nation and the International Olympic Committee, but it also underlined the importance of metals to the future world economy.
So crucial are these metals that the Bank of America has given them an acronym (the hallmark of any good investment trend): metals important for future technologies (Mifts).
The world will need about three billion tonnes of different metals to reach net zero by 2050, according to the International Monetary Fund (IMF). A typical battery pack needed to run an electric vehicle, for instance, has about 8kg of lithium, 35kg of nickel, 20kg of manganese and 14kg of cobalt.
Then there’s the electric vehicle charging stations, solar panels and wind turbines, all of which use large quantities of copper, iron ore, aluminium, silicon, silver and zinc.
Michael Widmer from the Bank of America predicts that we’ll need $160 billion of capital expenditure to mine these metals every year until at least 2030. In the past five years, annual expenditure has been just over half that.
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No wonder the IMF expects the prices of these metals to soar. Over the past two years the share prices of global companies that mine for metals used to make products in the construction, manufacturing and technology industries have surged about 50 per cent. Shares in global firms mining for precious metals, most often used for jewellery and coins, are up just 4.6 per cent in comparison.
How can investors tap into this trend? An exchange traded fund (ETF) can provide the return of the metal price itself, or you can invest in mining companies.
Mining firms are going through a decade-long phase of developing and exploring the mines needed to bring all of the metals that are needed to the market. This could be an exciting time for investors, said Georges Lequime from the fund manager Amati Global Investors.
Copper is top of the list. It’s the easiest to invest in and also the most important component in every green technology. But it takes so long to get new mines in working order that there won’t be enough copper to meet demand.
Copper prices have already risen 14 per cent this year because anti-government protesters in Peru, the world’s second biggest producer, have blocked the country’s mines.
Shares in the copper miner Freeport-McMoRan, which is based in Phoenix, Arizona, are up about 20 per cent this year. Andrew Duncan from the research firm Killik & Co rates the firm for its high-quality assets and good technical expertise.
He also likes Rio Tinto, which is increasing its exposure to copper, although from a relatively small base. The FTSE 100 miner’s main business is in iron ore, where the outlook is also positive, said Tom Holl, co-manager of the Blackrock Energy and Resources income trust.
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China’s reopening after its prolonged Covid lockdowns should drive demand for iron ore, which is used to make steel. We will need almost 50 million tonnes to make the near-30 million tonnes of steel required for wind turbines in the next three years, said Holl.
Lequime is interested in lithium, which is set for a tenfold increase in demand by 2025. This should keep its price high for at least the next couple of years as companies develop new mines.
About a quarter of Lequime’s TB Amati Strategic Metals fund is invested in companies focused on lithium, most notably the London-listed Atlantic Lithium and Canada’s Sigma Lithium.
For more diversified exposure to the theme consider ETFs, said Jason Hollands from the wealth manager Evelyn Partners.
The Global X Lithium & Battery Tech ETF holds 40 stocks including Albemarle, a chemicals firm with exposure to lithium and bromine, and China’s Tianqi Lithium, alongside Japan’s electronics maker Panasonic and the South Korean battery maker Samsung SDI.
The L&G Battery Value Chain ETF is another option, although materials producers represent only 16 per cent of the fund. Its biggest exposures are to car makers such as BMW, Mercedes-Benz and Renault.
Holl said that the shift towards a low-carbon economy was one of the strongest trends investors could take advantage of.
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Hollands said: “It can be tempting to invest in niche investment strategies designed to give you exposure to an interesting theme, or those which carry a snappy acronym. However, be wary of the hype and don’t throw caution to the wind.”