In an era marked by both rapid technological advancement and inflationary pressures, investors are looking for innovative ways to see growth and protect their portfolios.

Traditional tech investments, while lucrative, can be volatile and vulnerable to economic fluctuations. One often-overlooked alternative is investing in commodities, particularly those integral to the technology and renewable energy sectors.

This blog will delve into why materials like copper are not just foundational to modern infrastructure but also strategic assets in a savvy investor’s toolkit. You’ll uncover how aligning your commodities investments with the renewable energy revolution and advanced technologies can offer stability and substantial returns in an uncertain market.

Benefits of Investing in Commodities in an Inflationary Environment

Traditional investment vehicles often falter during periods of prolonged inflation, prompting investors to seek assets that can hedge against rising prices. Commodities have long been a reliable hedge against inflation due to their intrinsic value and fundamental role in the global economy.¹

Commodities are physical assets, not subject to the same devaluation risks as paper assets. This tangibility provides a safe harbour during economic turbulence.² Unlike fiat currencies, commodities like copper, lithium, and rare earth metals have intrinsic value driven by supply and demand dynamics, particularly in the era of electric vehicle (EV) batteries and other clean energy technologies. In the last twenty years, annual global trade in “energy-related critical minerals“ has risen from $53 billion US to more than $378 billion US.³

Including commodities in a portfolio can reduce overall volatility, providing stability when equities and bonds face pressure from inflation.

The High-Tech Tailwind for Mining Companies

The global shift towards renewable energy and high tech like AI and 5G networks are not just environmental and technological imperatives but also a significant economic opportunity for mining companies and investors alike.

Supportive policies and substantial investments from governments worldwide are accelerating the adoption of renewable energy, creating a robust market for mining companies. For example, national mandates to swap out gas-powered vehicles in favour of EVs mean that demand for metals like lithium, cobalt, and nickel, which are critical for battery production in electric vehicles and green energy storage systems, is growing.

The demand for lithium alone was up 35% last year. By the end of the decade, the global need for lithium is expected to be ~4 million tons per year. That’s between three and four times the current supply. By 2050, the demand could be 12 to 14 million tons annually.⁴

In 2023, investment in energy transition climbed to a record $1.77 trillion. And over the last decade, energy transition investment has grown at a CAGR of 24%, outpacing the global GDP growth rate by several times.⁵ As the green energy transition accelerates worldwide, mining companies producing these metals stand to benefit significantly.

The Critical Role of Copper in Advanced Technology

An additional high-tech tailwind for mining companies is found in a less exotic but no less valuable resource: copper.

Global demand for copper has been steadily growing for over 100 years, but its importance today may be greater than ever.⁶ Copper is sometimes referred to as “the new oil” due to its crucial role in the modern economy, especially in advanced technology sectors, including EVs, 5G networks, and data centres for the cloud and AI.⁷

Electric vehicles require significantly more copper than traditional internal combustion engine (ICE) vehicles. EVs can use as much as two and a half times the amount of copper as ICE vehicles due to their batteries (as already mentioned), as well as their motors and electrical systems. And this doesn’t even take into account the copper needed for the charging infrastructure to make EVs a viable alternative to internal combustion engines.⁸

The rollout of 5G technology—the latest cutting-edge wireless standard that promises enhanced reliability, higher data speeds, and greater network capacity for the Internet of Things—also demands substantial amounts of copper for its infrastructure, including antennas and base stations.⁹

But perhaps the biggest demand for copper in the coming decade will be due to the demand for data centres, which are surging thanks to the proliferation of AI and cloud computing.

AI is data-intensive and requires the vast computing power provided by data centres. These data centres, in turn, require vast amounts of electrical energy, relying on copper power lines to connect to power grids and backup generators.¹⁰

The demand for copper induced by AI and data centres alone could amount to more than a million metric tons by 2030, straining supply by the end of this decade.¹¹ Global annual supply of copper is expected to be ~40 million tons by then, up from ~32 million tons of refined copper today. Meeting this growing demand will mean both multi-billion dollar investments needed to find new supply, as well as likely higher prices for the red metal.¹²

Given this forecast, investing in commodities, particularly those linked to technological advancements and renewable energy, offers a strategic alternative to traditional tech investments. The inflation-hedging properties of metals like copper and their critical role in the green energy revolution and advanced technology position them as valuable assets in an investor’s portfolio. As the world continues to innovate and strive for sustainability and the demand for these essential materials continues to grow, there will be robust opportunities for savvy investors.

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Sources

1. Robillard, H., “8 Sectors That Benefit From Inflation (And 3 That Don’t),” VinoVest, n.d.; https://www.vinovest.co/blog/sectors-that-benefit-from-inflation
2. Enilov, M., Mensi, W. & Stankovd, P., “Does safe haven exist? Tail risks of commodity markets during COVID-19 pandemic,” Journal of Commodity Markets, March 29, 2003; https://www.ncbi.nlm.nih.gov/pmc/articles/PMC9773101/
3. Snoussi-Mimouni, M. & Avérous, S., “High demand for energy-related critical minerals creates supply chain pressures,” World Trade Organization, January 10, 2024; https://www.wto.org/english/blogs_e/data_blog_e/blog_dta_10jan24_e.htm
4. Meadows, A., “Why You Should Invest in the Copper & Lithium Green Energy Revolution,” Crux Investor, April 8, 2024; https://www.cruxinvestor.com/posts/why-you-should-invest-in-the-copper-and-lithium-green-energy-revolution
5. Wong, P. & White, J., “Global Investment Pours into Renewable Energy,” Sprott Energy Transition Materials Monthly, March 12, 2024; https://sprott.com/insights/sprott-energy-transition-materials-monthly-global-investment-pours-into-renewable-energy/
6. Saefong, M.P., “How AI and EVs are boosting demand for copper,” Morningstar, April 27, 2024; https://www.morningstar.com/news/marketwatch/20240427243/how-ai-and-evs-are-boosting-demand-for-copper
7. Batten, K., “The outlook for copper in 2022,” Mining Journal, January 13, 2022; https://www.mining-journal.com/research/news/1424537/the-outlook-for-copper-in-2022
8. Stevens, P., “A coming copper shortage could derail the energy transition, report finds,” CNBC, July 14, 2022; https://www.cnbc.com/2022/07/14/copper-is-key-to-electric-vehicles-wind-and-solar-power-were-short-supply.html
9. “Everything you need to know about 5G,” Qualcomm, n.d.; https://www.qualcomm.com/5g/what-is-5g
10. Saefong, M.P., “How AI and EVs are boosting demand for copper,” Morningstar, April 27, 2024; https://www.morningstar.com/news/marketwatch/20240427243/how-ai-and-evs-are-boosting-demand-for-copper
11. Desai, P., “AI could add 1 million tons to copper demand by 2030, says Trafigura,” Reuters, April 8, 2024; https://www.reuters.com/markets/commodities/ai-could-add-1-million-tons-copper-demand-by-2030-says-trafigura-2024-04-08/
12. Meadows, A., “Why You Should Invest in the Copper & Lithium Green Energy Revolution,” Crux Investor, April 8, 2024; https://www.cruxinvestor.com/posts/why-you-should-invest-in-the-copper-and-lithium-green-energy-revolution

 

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