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There are simply not yet enough recoverable raw materials to decarbonize and electrify the global economy. For investors, this sets the stage for sustained rallies in copper, aluminum and nickel prices, among many others.

Goldman Sachs’s multi-asset solutions team, an advisory division within the firm’s wealth management operations, predicted this week that the global economy is set to move from a focus on fossil fuel scarcity toward shortages of key industrial metals.

In the case of copper, the team noted that photovoltaic energy production required between 11 and 40 times more copper than fossil-fuel generation. Wind power systems use six times the amount of copper, zinc and nickel as coal-fired electricity and 13 times more metals than natural-gas power.

That adds up to a lot of metals. Citi analyst Eric Lee estimates that an incremental 5.5 billion tonnes of metals for green energy will be required cumulatively between now and 2050 to reach net-zero emissions. For context, global copper production is currently just over 20 million tonnes annually.

Mr. Lee, in a research report this week, said he believes that copper prices, currently around US$9,400 per tonne or US$4.30 per pound, will have to average US$12,000 per tonne or US$5.44 per pound in the coming decade. Otherwise, there will not be sufficient financial incentive for the necessary mass recycling of available existing supplies.

Aluminum is on one hand a great material for decarbonization efforts because its light weight makes vehicles and machinery more energy-efficient. However, the production of aluminum is extremely energy-intensive, and the dominant energy used for the process is currently derived from fossil fuels. Like copper, Mr. Lee believes aluminum prices will have to rise significantly to incentivize recycling and more climate-friendly production methods.

The materials scarcity trend extends to select rare earth metals. Neodymium and praseodymium, for instance, are magnetic elements used to convert electrical energy into motion in electric vehicles.

James Litinsky is the chairman and CEO of MP Materials, a company that operates the Mountain Pass mine in California, which produces neodymium-praseodymium oxide. As the only rare earth mine in the United States, it generates 16 per cent of global rare earth production.

At BofA Securities’ Global Metals, Mining and Steel conference this week, Mr. Litinsky remarked that “to electrify all vehicles in the U.S., as much as three million Mountain Pass mines would be needed.”

The sheer scale of the decarbonization challenge makes it difficult to predict the exact course it will take. New technologies will be developed, and old technologies will be applied in new ways. It does seem, however, that the process will include a strong profit tailwind for mining companies in related materials sectors.

-- Scott Barlow, Globe and Mail market strategist

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The Rundown

How to avoid a GIC risk that can take five years to undo

Every week brings better news on returns from guaranteed investment certificates. Risk-free returns of 3 to 4 per cent and more, as long as you stay within deposit insurance limits, are on offer right now. What’s not to like? Here’s something: Automatic renewals of your GIC upon maturity. Rob Carrick explains.

Could inflation fears end run in Canadian oil and gas stocks?

The hottest trade of the year is on hold, as fears of uncontrolled inflation seep into the energy sector. With year-to-date gains of around 50 per cent, the Canadian oil and gas space has been the market’s bright spot in an otherwise lousy year for the entire financial market ecosystem. Those gains are a big part of the reason the S&P/TSX Composite Index is only down 5 per cent on the year, while the U.S. S&P 500 index has lost 18 per cent. Over the past month or so, the steady ascent of Canadian oil and gas names has given way to powerful day-to-day fluctuations, as volatility in the market for crude oil has reached new heights. Is this the end of the bonanza in oil and gas stocks? Tim Shufelt sizes up the situation.

Also see: A dividend bonanza is underway in TSX energy stocks - but Gordon Pape says don’t plan to ‘buy and hold’ for long

Always thinking long term when the stock market takes a downward turn is a problem

Many people have weighed in on how to behave when the stock market takes a downward turn. Usually, the typical advice is to simply ride it out. But adviser and portfolio manager John De Goey’s personal view is this: People who advise their clients to “stay the course” without determining how much pain those clients can withstand, and how long they can withstand it, are acting as if they know the downturn will be modest. The only problem is they don’t know. Their advice should reflect this, he argues.

Also see:

Amateur investors rode the bull up. Now the bear looms

Explainer: Why is Wall Street close to a bear market?

If Fed has to choose, markets could get much uglier

If the U.S. Federal Reserve were to take its political cue at face value and focus solely on putting inflation back in its box, already battered financial markets could get much uglier and investors don’t appear prepared for it. Mike Dolan of Reuters explains.

Others (for subscribers)

Number Cruncher: Three energy companies with value metrics and momentum on their side

Number Cruncher: These seven Canadian equity funds have weathered past storms better than others

The highest-yielding stocks on the TSX, plus risk data

Friday’s analyst upgrades and downgrades

Thursday’s analyst upgrades and downgrades

Friday’s Insider Report: Board members buy this stock after dividend hike and $1-billion repurchase

Thursday’s Insider Report: Large shareholder invests over $1 million in this REIT yielding over 8%

Globe Advisor

How the automotive supply chain crisis is leading to efficiency and investment opportunity

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Ask Globe Investor

Question: Why are real estate investment trusts such as Canadian Apartment Properties REIT (CAR-UN-T) down so much? Are rising interest rates the only reason? If so, we are in for a long, rough ride. Could you please comment on this?

Answer: It’s important to put CAP REIT’s drop in perspective. Yes, the units have tumbled about 22 per cent after hitting a record high in September. But even after the recent drop, they have still posted a total return – including distributions – of about 10.7 per cent on an annualized basis over the past five years. As a long-term owner of the units myself, I’m certainly not panicking.

Are rising interest rates the prime culprit here? Probably. REITs are typically slow-growing businesses that generate steady, bond-like cash flows. That makes them susceptible, like bonds, to rising rates. Unlike bonds, however, CAP REIT has ways to increase its cash flows and, in turn, raise its monthly distributions to unitholders. It can acquire additional properties, for example, or increase rents in its existing buildings.

Rent controls limit the size of annual increases for existing tenants, but when a new tenant moves in CAP REIT can hike the rent to market rates. With the COVID-19 pandemic easing, CAP REIT saw a 10.2-per-cent increase in rental rates on suite turnovers in the first quarter, up from a 3.4-per-cent lift in the same quarter a year earlier.

But rising interest rates aren’t the only headwind CAP REIT is facing. In its first-quarter results, the REIT said it was hit by higher utilities costs because of the cold winter weather and a significant jump in the cost of natural gas. It also faced rising property taxes and higher costs for weather-related maintenance.

These challenges aside, CAP REIT looks to be in solid shape. As of March 31, overall portfolio occupancy was at 98 per cent, with rent collections at 99 per cent.

What’s more, the REIT continues to grow. In 2021, it acquired 3,744 apartment units, townhomes and manufactured housing (or land-lease) sites in Canada and the Netherlands at a total cost of about $1.05-billion. In the first quarter, CAP REIT added another 1,015 suites and sites for $439-million.

“These new properties will make a strong, accretive and growing contribution in the months and years ahead,” CAP REIT said in its report to unitholders.

CAP REIT cited rising immigration, the return of international students following the pandemic, a growing seniors’ population and rising rents as reasons for optimism.

For what it’s worth, Bay Street remains bullish on CAP REIT’s units. Of the 15 analysts who follow the company, there are 14 buy ratings, one hold and no sells.

In light of the above, I wouldn’t lose any sleep over the drop in CAP REIT’s unit price. If anything, it might present an opportunity for long-term investors to add to their positions.

--John Heinzl

What’s up in the days ahead

Rob Carrick takes a look at the latest long-term return forecasts for financial planners to use in client plans. There’s some good news for the balanced portfolio and bad news for those who think double-digit returns are normal.

Surging inflation, recession risk, tanking markets and other market themes for the week ahead

Click here to see the Globe Investor earnings and economic news calendar.

More Globe Investor coverage

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Compiled by Globe Investor Staff