Busy autumn ahead for energy transition metals

Energy transition metals are beginning to turn the corner and are coming out of the inflation-induced slump which they have inhabited since the start of the year. Trading volumes on European markets are still below their usual levels with many traders away on holiday.

However, interest in energy transition metals (base metals, silver, platinum, cobalt and lithium) is beginning to pick up ahead of a busy autumn. Copper, aluminium, steel and nickel are the metals needed to shift energy production and transport from fossil fuel-based to sustainable sources. Making wind turbines and solar panels will also require zinc, tin, silver and silicon.

Turning point for energy transition metals

Despite the dip in prices in the first half of the year, the investment case for energy transition metals remains solid: regulation in the EU, North America, China and other Asian countries is becoming tighter on emissions, green energy and electric vehicles, and the deadlines for changes are drawing nearer.

The weakening of prices (excluding silver and platinum) was caused by two factors. One was inflationary pressure and higher interest rates which caused a sell-off across equities and generally more cautiousness. But NASDAQ, the home of all things tech, kept going strong even as other broader indices barely ploughed on, indicating that new technology and energy transition stocks will be the least affected by high inflation.

Some level of uncertainty over the stability of the US economy remains in place, and traders are rightly cautious. But compare the situation with 12 to 18 months ago when equity markets looked set for a near certain decline, now the outlook for further rate rises in the US is waning and the markets look poised for a slow, potentially unspectacular recovery. In this context over the coming quarters, energy transition metals could outperform some of the wider equity indexes.

The second cause for the dip was China ending its subsidies for electric car sales at the start of this year. While this influenced which companies achieved the highest sales in the country (playing into Tesla’s hands) it had a more modest impact on the actual car sales numbers than expected.

According to data released in June, China’s passenger EV sales rose 29% year-on-year with battery EV sales increasing 70% during the same period and plug-in hybrid EVs 88%. The International Energy Agency expects that 35% more electric cars will be sold globally this year – of that the highest number in China.

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Base metals prices on the rise

Looking at the individual metals, silver has been the strongest gainer, rising 6.08% on the week and up nearly 28% since the start of the year. Platinum closed the week 3.05% higher and is up 8.6% year to date. Industrial metals also clocked respectable weekly increases: zinc 4.26%, tin 4.22%, nickel nearly 3%, copper up 2.26% and aluminium 1.75%.

Lithium is trading 4.4% lower on the week, in contrast not only to most other metals but also in contrast to some spectacular gains it had over the last few years. This market could remain oversupplied into next year unless there are some substantial production cuts.

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