The world is rapidly embracing digital and clean technologies that can help slow climate change, improve productivity, and connect millions of people around the world. Behind these disruptive technologies are many essential inputs like metals, minerals, and materials. Without them, these technologies would not exist as we know them.
Rare earth materials include nickel, lithium, copper, graphene and graphite, cobalt, manganese, palladium and platinum, zinc, as well as carbon fibre to name a few. These commodities are critical but often unheralded basic ingredients fuelling the advancement of modern technologies. In the current economic environment, disruptive materials stand out as key drivers of long-term growth in the clean energy and digital transition.
A supercycle era for disruptive materials
As economic conditions change, most cycles, or fluctuations in supply and demand for materials, tend to last anywhere from a few months to a few years. Supercycles, on the other hand, occur when prices rise above trend for extended periods of time, often decades long.
Historically, rapidly growing demand combined with persistent and insufficient supply have created the conditions necessary to spark a supercycle. The simultaneous emergence of several game-changing technologies that have been, and continue to be, heavily adopted could create similar conditions for supercycles in specific materials. We’ve started to see this in the ongoing transition from internal combustion engine (ICE) vehicles to electric vehicles (EVs) which is poised to be a significant driver of demand for materials like lithium, graphite, copper, nickel, cobalt, and manganese. An EV requires six times more of these materials than a traditional ICE.
Other clean technologies such as wind turbines and electric motors require rare earth minerals to manufacture permanent magnets such as neodymium, praseodymium, terbium and dysprosium.2 Copper also continues to gain importance because of its properties that make it a reliable conductor of electricity and heat, and resistant to corrosion. Solar power generation, for example, requires about 5 kilogrammes of copper per kilowatt, roughly twice that of conventional power generation.3 Given that copper is much cheaper than precious metals with similar electrical conductivity, it is frequently the metal of choice for the generation, transmission, and distribution of electricity. It is also a key component of renewable energy systems and data transmission in the telecommunications industry, including internet services and cable wiring.
Graphene’s use in end-markets like automotive & transportation, aerospace, electronics, and construction is expected to grow too. Often described as a wonder material, graphene is the thinnest and strongest material known, being 100 times stronger than the toughest steel.4 Graphene has a myriad of use cases, including quantum computing, sensors, transistors, and other electronic components.
Carbon fibre provides greater strength, stiffness, heat resistance, and durability than other 3D printed materials such as thermoplastics.5 Today, approximately 30% of all carbon fibre is used in the aerospace industry because of its extraordinary strength-to-weight ratio.6
Platinum has also become a vital material for the electronics industry, particularly for hard disks. It is additionally foundational for hydrogen fuel cells, as it is used as the catalyst that separates hydrogen into protons and electrons, which then generate an electrical current.7
Quantifying the opportunity
Climate change and clean technology initiatives have ignited many of the key demand drivers for disruptive materials. Renewable energy sources continue to gain on fossil fuel-based sources as they become more affordable. We expect to see continued adoption, driven by electrification, economies of scale, and climate action.
Today, the disruptive materials theme is in its early stages amid structurally changing demand drivers for certain raw components. Several companies across the Energy and Materials sectors are looking to enhance their exposure to the space by buying mines, land, processing capabilities, and established companies involved in disruptive materials. BP, one of the world’s largest oil & gas producers, expects to become net zero by 2050 or sooner, leveraging renewables, biofuels, and hydrogen.8
As companies move further into disruptive materials, we expect revenue profiles to shift significantly. According to one estimate, revenue from disruptive materials could increase five-fold by 2040, reaching over $250 billion, while mining coal revenues could decline by 59%.9
We believe the disruptive materials theme is an overlooked area in a decades-long shift towards digitalisation and clean energy. As technology continues to play an increasingly important role in all aspects of our lives, the fundamental ingredients for technology hardware are likely to become more and more critical. Given the physical limitations of mining, producing, and enhancing materials however, we believe demand could structurally outstrip supply, resulting in a targeted supercycle and rising prices. Investors with exposure to Clean Technology, Electric Vehicles, and/or Technology Hardware may be wise to consider upstream exposures to the disruptive materials-related activities as well in an effort to gain broader exposure to the ecosystem of companies that may benefit from the rise of several emerging technologies.