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Metals – from copper and nickel to rare earths and uranium – are likely to see strong demand in 2024, driven by a growing economy, one focused increasingly on electrified energy as the world moves away from fossil fuels. Yet, advisors and investors seeking to get exposure to this theme should not expect a smooth line to profitability.
“In theory, based on net zero by 2050 … you would expect demand to be on fire, driving up prices,” says Theo Yameogo, mining and metals leader at Ernst & Young LLP for the Americas and Canada in Toronto, which recently published a report highlighting the top risks and opportunities for mining and metals in 2024.
Yet, not only are metals subject to the same supply-demand imbalances leading to the cyclical nature of many commodities, production of metals is also subject increasingly to the new environmental, social and governance (ESG) paradigm, he adds.
In short, mining companies listed on North American markets can no longer produce “at any cost” and must pay more attention to the environment and impact on communities where they operate, Mr. Yameogo says.
He points to The Copper Mark, a movement by major businesses such as Amazon.com Inc. AMZN-Q and Ford Motor Co. F-N that use copper, molybdenum, nickel and zinc in their value chains to seek out sustainable operations, including those of BHP Group Ltd ADR BHP-N and Freeport-McMoRan Inc. FCX-N.
ESG concerns aside, challenges for production already exist, likely to lead to price volatility, says Robert Cohen, vice-president, portfolio manager and head of the metals and mining team at Dynamic Funds in Toronto.
“One of those [challenges] is the Chinese economy mired in one of its slowest economic periods in decades,” Mr. Cohen says about the world’s largest consumer of copper and other metals.
Despite China’s slowdown, copper’s price remains elevated by historical standards, although down significantly from its peak in 2022 after Russia invaded Ukraine.
What’s more, copper’s supply is constrained, driven by events such as the recent closure of the First Quantum Minerals Ltd. FM-T Cobre Panama mine – a decision by the Panamanian government amid protests and after negotiations broke down over compensation for extending the mine’s life.
That could help boost prices if demand for copper picks up – along with other metals – after the Chinese New Year when most factories there generally increase production, Mr. Cohen predicts.
Should the global economy stick a soft landing, as interest rates plateau and even ease, copper miners are likely to benefit because supply is “very tight” due to “underinvestment in mines for years,” he explains.
That said, not all metals face the same near-term outlook. That includes nickel – also required for growing electrification needs, says Sam Crittenden, research analyst at RBC Capital Markets in Toronto.
“Demand has been strong for nickel with demand for batteries; however, supply may overshoot demand for the next few years, which has put pressure on prices.”
He points to Indonesian producers recently increasing output, which further depressed prices that are already down significantly from their 2022 highs. Long-term, nickel and other metals, copper included, are likely to see more demand, he says.
Electric vehicles “use as much copper as a traditional car, while renewable energy and electrical grid upgrades are copper intensive.”
The forecast is not without risks, including the potential for a global recession, Mr. Crittenden cautions.
That’s one reason Brad Mol, portfolio manager and senior financial planner at TriDelta Private Wealth in Oakville, Ont., is limiting client exposure to metals producers.
“We’re modestly underweight the broader materials sector, in fact,” he says. “That said, one positive story has been uranium.”
Uranium’s demand has been driven by the need for non-fossil-fuel energy sources, with India, China, the U.S. and other nations constructing dozens of nuclear power plants – and many more planned, recent World Nuclear Association statistics show.
Mr. Mol gets clients exposure via an exchange-traded fund, Global X Uranium ETF URA-A. However, he notes he has pared back the position after the ETF grew more than 46 per cent in 2023, driven by Canadian producer Cameco Corp. CCO-T, which accounts for more than 20 per cent of the ETF’s portfolio’s value.
Mr. Cohen says despite uranium’s spot price exceeding US$100 a pound, double the price last spring, it should continue to see strong, albeit volatile, demand growth long-term.
“We cannot produce enough baseload energy to meet global demand with wind and solar alone,” he says.
Rare earth metals such as neodymium, used in magnets for electric vehicles and electronics, are also likely to see growth. Yet, prices for neodymium and many other rare earth metals have fallen substantially in the past year.
Long term, these metals are forecast to have strong growth along with other metals on the U.S. Department of Energy’s ‘critical minerals list’ because they’re deemed essential for the energy transition. That list also includes non-rare earths such as copper, cobalt, nickel, graphite, aluminum and lithium.
Mr. Cohen notes lithium is another good illustration of the promise and challenges for metal producers.
Its price has fallen steeply from its 2022 peak, but production needs to grow as much as four-fold to meet long-term demand for batteries and other uses.
“Almost every lithium deposit we know of, in theory, should become a mine someday, but a lot of things have to fall into place to get there.”
He points to many Canadian exploration companies that are sitting on promising deposits, including Patriot Battery Metals Inc. PMET-X. But they face challenges such as developing mines in often very remote locations.
In the short term, lithium prices could rebound as demand strengthens. In the long-term, production for it and most other metals needs to expand to meet mounting electrification needs, he adds.
That production must also become more sustainable as more users of these commodities are willing to pay “a greenium” – also known as green premium, Mr. Yameogo says.
Strong long-term tailwinds and ESG growing pains aside, “investors should expect ongoing price volatility, especially for rare earths, that’s likely to lead to a lot of consolidation favouring companies with strong balance sheets that can withstand the ups and downs,” he adds.
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