The $173 Trillion Market That’s Putting The World Back Together

The $173 Trillion Market That’s Putting The World Back Together
Reda Farran, CFA

over 2 years ago5 mins

  • The green revolution is set to deliver an unprecedented boom in demand for the materials essential for emissions-free power and transport.

  • Wind turbines need a lot of regional cement and steel, whereas solar panels also need steel as well as aluminum and polysilicon.

  • Copper is the main material in EV chargers, and – on top of lithium and nickel – a major element of EV batteries too.

The green revolution is set to deliver an unprecedented boom in demand for the materials essential for emissions-free power and transport.

Wind turbines need a lot of regional cement and steel, whereas solar panels also need steel as well as aluminum and polysilicon.

Copper is the main material in EV chargers, and – on top of lithium and nickel – a major element of EV batteries too.

Mentioned in story

According to Bloomberg New Energy Finance (BNEF), the green transition could require as much as $173 trillion in infrastructure and energy supply investment over the next three decades, with a massive focus on four key components: solar panels, wind turbines, EV charging stations, and lithium-ion batteries. And all that investment could make you some serious profits if you know where to look…

Critical mineral needs across new energy technologies. Source: Bloomberg
Critical mineral needs across new energy technologies. Source: Bloomberg

Wind turbines

While some niche materials like glass fiber-reinforced plastic go into wind turbines, the bulk is made out of concrete, steel, or both. And the demand for these two materials is only increasing as wind turbines become taller and bigger, with some now reaching skyscraper-like heights.

Forecasted wind capacity additions and materials demand. Source: Bloomberg
Forecasted wind capacity additions and materials demand. Source: Bloomberg

The sheer size of these wind turbines is what makes the materials market for them more regional in nature. That is to say, a developer building a wind farm in China will most likely source the concrete and steel locally. That’s why it’s important to look at the wind market’s forecasted growth by region before looking at individual steel and concrete producers.

Forecasted growth of wind power capacity by region from 2021-2025. Source: Global Wind Energy Council
Forecasted growth of wind power capacity by region from 2021-2025. Source: Global Wind Energy Council

The key ingredient of concrete is cement, which is then mixed with water and aggregates like sand and gravel. Fortunately, you don’t have to look for regional cement players in each of the three key wind regions – Asia, Europe, and North America – because it mostly comes from the largest cement producer in the world, Holcim, which makes around 30% of its revenue from each of these three regions. As for steel producers, the largest publicly listed ones in Asia, Europe, and North America are Nippon Steel, ArcelorMittal, and Nucor respectively. But just a word of caution: investing in cement and steel producers exposes you to the ups and downs of the wider construction industry, so these stocks are far from pure-plays on the wind industry.

Solar panels

The top three materials that go into solar panels are steel (which we’ve already covered), aluminum, and polysilicon.

Forecasted solar capacity additions and materials demand. Source: Bloomberg
Forecasted solar capacity additions and materials demand. Source: Bloomberg

The largest aluminum producers in the world are based in China, with Chalco and Hongqiao taking the two top spots. Russia’s Rusal takes the third spot. Other big producers are American firms Alcoa, Kaiser Aluminum, and Century Aluminum, as well as France-headquartered Constellium. You also have an ETF tracking the price of aluminum, but it’s rather small in size, meaning it can be more difficult to trade if you’re investing large amounts. The ETF is up by around 15% this year.

The largest polysilicon producers in the world also happen to be based in China (it’s no wonder the country dominates the global solar industry). Some of the big ones are Tongwei, GCL-Poly Energy, Daqo New Energy, and Xinte Energy. Outside of China, you have Germany’s Wacker Chemie and South Korea’s OCI. Just watch out for one thing: other than Daqo New Energy, none of the companies solely produce polysilicon, meaning you’re investing in the potential – and potential risks – of a variety of other materials when you invest in them.

EV chargers

Copper’s durability and excellent electrical conductivity makes copper the metal of choice in EV charging stations, which are growing proportionately with the number of EVs on the road. As an added bonus, EVs themselves contain three to five times more copper than a conventional vehicle.

Forecasted EV charger additions and copper demand. Source: Bloomberg
Forecasted EV charger additions and copper demand. Source: Bloomberg

You can gain exposure to copper by investing in shares of copper-mining companies like Freeport-McMoRan (the world’s largest independent producer), Southern Copper Corporation, or First Quantum Minerals. Alternatively, a more diversified way to invest would involve buying into the Global X Copper Miners ETF, which tracks 30 copper mining firms. Bear in mind, though, that you’ll be exposed to more than just the copper price: these companies also mine other metals, and you could lose out on the back of poor profits. A more direct way to gain exposure to the red metal is through ETFs that track its price, with WisdomTree Copper and the United States Copper Index Fund two of the biggest out there.

Lithium-ion batteries

On top of copper and aluminum, lithium-ion batteries contain a lot of nickel and – you guessed it – lithium. In fact, according to BNEF, consumption of lithium and nickel by the battery sector will be at least five times higher by 2030.

Forecasted lithium-ion batteries demand and materials demand. Source: Bloomberg
Forecasted lithium-ion batteries demand and materials demand. Source: Bloomberg

Around 75% of global lithium production is controlled by just five firms, each with publicly traded stocks you can buy: Albemarle, SQM, Ganfeng Lithium, Tianqi, and Livent. Alternatively, virtually all of these stocks are held by the Global X Lithium & Battery Tech ETF, which invests in a diversified basket of lithium and battery-focused stocks.

Like lithium, the supply of battery-grade nickel is concentrated, with seven firms accounting for more than 80% of supply.

Battery-grade nickel production is concentrated. Source: William Blair
Battery-grade nickel production is concentrated. Source: William Blair

All seven of these firms are publicly traded, and it’s worth noting that the biggest of them – Russia’s Nornickel – has an ambitious strategy of increasing production by 17% by the end of the decade. But there’s the same catch I’ve laid out in previous instances: none of the companies solely produce nickel, meaning you’re investing in the potential – and potential risks – of a variety of other metals. Take Nornickel: despite what its name might lead you to believe, it only actually made 20% of its revenue last year from its nickel operations. You also have an ETF tracking the price of nickel, but it’s small in size, meaning it can be more difficult to trade if you’re investing large amounts. The ETF is up by around 16% this year.

Finimize

BECOME A SMARTER INVESTOR

All the daily investing news and insights you need in one subscription.

Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

/3 Your free quarterly content is about to expire. Uncover the biggest trends and opportunities. Subscribe now for 50%. Cancel anytime.

Finimize
© Finimize Ltd. 2023. 10328011. 280 Bishopsgate, London, EC2M 4AG