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Why industrial metals are likely to rise on demand from electric cars

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While some of the industrial metal prices have been sliding recently, still suffering from the after effects of Covid in terms of demand, the longer-term picture is far from negative.

The indomitable rise of electric car sales will play a crucial role in in boosting demand for metals such as copper, nickel and aluminium. Environmental requirements for new cars are already outweighing last year’s Covid-induced slowdown.

Why the electric car industry matters for industrial metals

In 2020, when transport ground to a halt and sales of traditional cars declined, electric car sales still managed to increase by over 40%. This summer President Biden committed to a half of all new US cars being electric by 2030, a move backed by the US car industry, which is already well geared towards such production. The car industry will need significant quantities of copper and nickel to satisfy its production targets while incentives such as subsidies and public funding for charging infrastructure will help boost electric car sales over the coming decade.

Although the UK and the EU have more ambitious targets than the US – in the UK all new cars will have to be electric by 2030 and in the EU by 2035, the biggest EV market, however, is China. If the EU sells in the order of 15 million new cars per year, the US around 17 million, China exceeds that with annual sales of 25 million, and rising. The country plans to make sure 20% of all new cars are electric in the next four years, an edict the domestic EV car industry has taken on board and is matching with its production plans.

Metals will be needed for infrastructure

Industrial metals will be required not only to build the actual cars but also to ensure that those cars can be easily charged. The network of charging stations will have to expand dramatically, from the little plug-in points built into the side of houses to a much wider range of charging stations at each petrol station.

“The demand for cathode active material for batteries will be a game changer for nickel over the coming decade,” says Nitesh Shah, Director of Research at ETF provider WisdomTree. “Nickel demand has historically been dominated by steel manufacturing. Lithium-ion batteries require high quality nickel in cathode active material. While batteries accounted for less than 10% of nickel demand in 2020 [International Energy Agency, 2021], they are likely to account for more than 30% of nickel demand by 2040 if we remain on the current environmental policy course. If policy is fully aligned with the Paris Agreement (to limit temperature increases to 1.5°C) battery demand be more than 60% of nickel demand. The Paris Agreement is a legally binding international treaty.”

Shah says that a typical electric vehicle has close to four times the copper wiring content of an internal combustion engine vehicle (according to the International Copper Association). “An upgrade in the electric distribution and transmission infrastructure will add further demand for copper as vehicle fleets are electrified,” he says. “Copper stands to be another key beneficiary of electrification.”

According to research by S&P Global, the growth of the electric vehicle market will increase copper demand by 1.84 million tonnes within the next five years while the effect of the EV market on nickel demand is expected to be even more dramatic. Between now and 2025 the need for primary nickel may rise over four-fold to around 450,000 tonnes with demand mostly generated by passenger plug-in cars which use nickel-intensive batteries.

The world’s biggest PEV market

“We forecast global PEV sales to increase to 13.1 million units in 2025, with China regaining the top position as the world’s biggest PEV market with 5.2 million sales, compared with 5.0 million for the EU,” says S&P Global. Sales of electric cars in the US are expected to benefit from stronger policy support under the current administration and rise to 1.3 million in 2025 from an estimated 720,000 units in 2021.

Copper is trading at around $9,630 per tonne, having dropped from over $10,000/t during the summer when labour issues at mines in Peru caused a short-term spike. Aluminium, a metal that requires copious amounts of uninterrupted electricity, has risen recently to $2,700/t because of electricity costs. Nickel is trading at $19,700/t.

Here’s a selection of ETFs related to Industrial Metals

Product Name ISIN Exchange Ticker Listing Currency
WisdomTree Copper
Hargreaves Lansdown | Interactive Investor | AJ Bell Youinvest | Charles Stanley Direct | EQi
GB00B15KXQ89 COPA USD
WisdomTree Copper 2x Daily Leveraged
Hargreaves Lansdown | Interactive Investor | AJ Bell Youinvest | EQi
JE00B2NFTF36 LCOP USD
WisdomTree Copper 3x Daily Leveraged
Hargreaves Lansdown | Interactive Investor | AJ Bell Youinvest | EQi
IE00B8JVMZ80 3HCL USD
WisdomTree Nickel
Hargreaves Lansdown | Interactive Investor | AJ Bell Youinvest | Charles Stanley Direct | EQi
GB00B15KY211 NICK USD
WisdomTree Nickel 2x Daily Leveraged
Hargreaves Lansdown | Interactive Investor | AJ Bell Youinvest | EQi
JE00BDD9QB77 LNIK USD
WisdomTree Nickel 3x Daily Leveraged
Hargreaves Lansdown | Interactive Investor | AJ Bell Youinvest | EQi
JE00BYQY5X15 3NIL USD
WisdomTree Aluminium
Hargreaves Lansdown | Interactive Investor | AJ Bell Youinvest | Charles Stanley Direct | EQi
GB00B15KXN58 ALUM USD
WisdomTree Battery Solutions
Hargreaves Lansdown | Interactive Investor | AJ Bell Youinvest | Charles Stanley Direct | EQi
IE00BKLF1R75 CHRG GBP

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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