Green Energy Commodities

Recently, there has been a boom in the prices of green energy commodities such as Lithium, Nickel and Cobalt. Why have we seen this growth and what are some of the predictions?

With investors betting on a global shift to EVs and renewable energy resources in the near future, we have seen a surge in ETFs comprised of green battery materials. For example, shares in the Global Lithium and Battery ETF have risen around 170 per cent over the past year. Cobalt, another essential metal, has also jumped by 63.44% since the start of 2021. According to the FT, producers of lithium, an element crucial to green batteries, have also benefitted, raising $2bn from investors over the last few months.

However, what are the main factors driving these increased prices?

One factor causing the spike is the increased focus on environmental sustainability which has been highlighted by the coronavirus pandemic, with the market for EV vehicles set to grow at a CAGR of 29% over the next 10 years.

The rising investor interest in green commodities reflects the increased realisation that governments will have to reach 0 net greenhouse gas emissions by the middle/ end of this century. These pledges will cause large increases in derived demand for metals used in the production of EVs and renewable energy resources, and therefore, has led to the higher prices we are seeing.

Furthermore, this demand is coming from North America, China and Europe, hosting some of the largest economies in the world. The amount of spending to build clean energy infrastructure, EV charging stations and electricity grids is predicted to create another ‘supercycle’, similar to the one seen when China saw dramatic economic growth. However, this time, it is said to be much more significant.

Another reason for the increase in the price of these commodities is where they are mined. The reserves of the raw materials needed to produce car batteries are highly concentrated in a few countries with nearly 50% of world cobalt reserves in the Democratic Republic of the Congo and 58% of lithium reserves in Chile.

This highly concentrated production, situated in countries with higher levels of political instability, is raising concerns over the supply of these precious metals, leading to tighter markets and the higher prices we are seeing.

Analysts have predicted that the demand for battery metals is set to skyrocket by 500% by 2050, with more than 1.5million metric tonnes of lithium being produced by 2025!

Albemarle, Chile’s SQM, and China’s Ganfeng Lithium, some of the biggest lithium producers in the world, have realised the potential and have planned equity funding in order to expand their production and take advantage of current market opportunities.

The extraordinary increases in demand for green energy commodities driven by the greater need for the electrification of the economy has the potential to create a supercycle unlike any other. Fuelled by government regulation, and tight market supply, this is a major reason why investors should keep an eye on the opportunities within this market.