Metals Shaping the Energy TransitionBrandon Rakszawski, Senior ETF Product ManagerNovember 11, 2021
The transition to a low carbon economy is well underway, but significant action is still required to meet aggressive policy goals and consumer demand. We are likely in the early stages of this transition, but one thing is undeniable: it won’t be possible without green metals.
Green metals are those metals that are used in the applications, products and processes that enable the energy transition from fossil fuels to cleaner energy sources and technologies. Their applications range from electric vehicles and battery storage to wind turbines and solar panels. A sample of green metals and their use in various applications was summarized well by the World Bank in a recent research report.
Metals Used in Low-Carbon Technologies
Hydro Geothermal Energy
Nuclear Cobalt ■ Copper ■ ■ ■ ■ ■ ■ ■ Indium ■ ■ Lithium ■ Manganese ■ ■ ■ ■ Molybdenum ■ ■ ■ ■ ■ Neodymium ■ Nickel ■ ■ ■ ■ ■ ■ Vanadium ■ ■ Zinc ■ ■ ■ ■ ■
Source: World Bank Group; Minerals for Climate Action: The Mineral Intensity of the Clean Energy Transition; 2020.
Demand Drivers for Green Metals in the Energy Transition
Many clean energy sources and associated applications require far more metals inputs than traditional fossil fuel-based equivalents. For example, in addition to steel, a conventional car requires copper and manganese, whereas an electric car requires more copper and more manganese than a conventional car and at least seven additional metals.
Metals Required for Making Electric Cars and Producing Clean Energy
Source: IEA (2021), The Role of Critical Minerals in Clean Energy Transitions, IEA, Paris. Chart for illustrative purposes only.
The additional metals required by these products and processes paired with increasingly aggressive climate policy goals by governments across the globe are set to drive demand for years to come. Some expect to see clean energy comprise the majority of some metals’ total demand in the decades ahead.
Clean Energy Share of Metals Demand Expected to Increase Substantially
Source: IEA (2021), The Role of Critical Minerals in Clean Energy Transitions, IEA, Paris. Demand from other sectors was assessed using historical consumption, relevant activity drivers and the derived material intensity. Neodymium demand is used as indicative for rare earth elements. STEPS = Stated Policies Scenario, an indication of where the energy system is heading based on a sector-by-sector analysis of today’s policies and policy announcements; SDS = Sustainable Development Scenario, indicating what would be required in a trajectory consistent with meeting the Paris Agreement goals. Chart for illustrative purposes only. See important disclosures and index descriptions at end.
Can Green Metals Supply Support Demand?
The question remains: can supply keep pace with demand? It can take years before projects to source and process green metals are in production, and declining resource quality can make metals processing more complex. These and other factors have driven supply deficits in some metals. For example, copper production has lagged consumption in nine of the last 10 years and that trend is expected to continue in the near term.
Copper Production Not Meeting Demand
1990 – 2023
Source: Australian Government; Department of Industry, Science, Energy and Resources; September 2021. Surplus/deficit represents annual global copper production less annual global copper consumption. 2021 – 2023 are estimates.
China’s Influence on Green Metals
China has become increasingly dominant in the production and processing of many green metals, adding a level of risk to investment in the space. This dominance has led many countries to sound the alarm when it comes to their reliance on China. Many are investing in efforts to onshore their supply of and processing capacity for green metals.
Investing in Green Metals
Green metals like copper, nickel and zinc can be accessed by entering into futures contracts, but investing in futures introduces a unique set of risks and costs to investors. Furthermore, investment in many other green metals are not accessible via futures contracts.
Investing in companies that are involved in the production, refining, processing and recycling of green metals provides investors exposure to returns that are strongly influenced by the price of these metals. The VanEck Green Metals ETF (GMET) seeks to track, as closely as possible, before fees and expenses, the price and yield performance of the MVIS Global Clean-Tech Metals Index. The Index is intended to provide exposure to green metals companies.
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities/financial instruments mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of 3rd party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck.
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Investments in companies involved in the production, refining, processing and recycling of green metals used to facilitate the energy transition from fossil fuels to cleaner energy sources and technologies are subject to a variety of risks. Under certain market conditions, the Fund may underperform as compared to funds that invest in a broader range of investments. There may be significant differences in interpretations of what is considered a “green” metal and the definition used by the Index Provider may differ with those used by other investors, investment advisers or index providers. Additionally, there may also be a limited supply of companies involved in green metals, which may adversely affect the Fund.
An investment in the Fund may be subject to risks which include, among others, risks related to investing in green metals, clean energy companies, regulatory action and changes in governments, rare earth and strategic metals companies, Australian, Asian issuers and Chinese issuers, investing through stock connect, foreign securities, emerging market issuers, foreign currency, basic materials sector, mining industry, small- and medium-capitalization companies, cash transactions, equity securities, market, operational, index tracking, authorized participant concentration, new fund, absence of prior active market, trading issues, passive management, fund shares trading, premium/discount and liquidity of fund shares, non-diversified, and concentration risks which may make these investments volatile in price or difficult to trade. Small- and medium-capitalization companies may be subject to elevated risk.Investing involves risk, including possible loss of principal. Please call 800.826.2333 or visit vaneck.com for a free prospectus and summary prospectus. An investor should consider investment objectives, risks, charges and expenses of the investment company carefully before investing. The prospectus and summary prospectus contain this and other information. Please read the prospectus and summary prospectus carefully before investing.
Authored byBrandon Rakszawski
Senior ETF Product Manager