In the cooling cauldron of the capital market, the companies feel very well the heat of the battle for the attention of investors, and fight to present their relative advantage in overflowing value for them. But it seems that there may be one sector where the heat does not yet create bubbles that cause companies to surf beyond their natural threshold on the one hand, nor push them to wave their feathers at investors on the other hand – the mining sector and the industry of disruptive materials (Disruptive Materials).
Despite their name, these are rare materials and minerals (some more and some less) that serve and enable the implementation of the technological innovation breaking into our lives, such as the electric vehicle, carbon fuel cells, 3D printers and solar panels.
These technologies are among those defined as ‘disruptive innovation’ due to the fact that they create a new market, which disrupts the traditional market it seeks to replace, and are therefore defined as ‘disruptive materials’.
Among the materials you can find cobalt – a metal used, among other things, to create aircraft engines; Manganese – a metal used mainly for various alloy mixtures, also for stainless steel, carbon fibers used mainly in the transportation industry; Lithium – a metal known from the world of batteries, but with diverse industrial uses; And beside them also nickel, copper, platinum, zinc, palladium, graphene, graphite and other minerals.
The greener
And the more the world adopts “clean” and “green” technologies, such as electric vehicles, wind turbines, and robotics, the more it will need those metals, minerals, and materials to enable their application and production, since without them these technologies would not exist, at least in their current configuration.
An examination by Fortune Business Insights magazine in June 2021 produced forecasts indicating that the global market for rare materials and minerals may double from approximately $2.2 billion in 2020 to approximately $5.5 billion in 2028 – a 150% increase in approximately eight years.
And when the waves are high, there will always be those who will be happy to surf them towards the yield. The American exchange-traded company Global X launched last September a basket fund that mimics the movements of mining, manufacturing and technology companies operating in the field of disruptive substances, which includes dozens of companies.
An examination by Global X shows that about 89.2% of the companies operating in the field are mineral mining companies, 8.7% are industrial companies that process them, and about 2.2% are technology companies that provide information about them, such as companies that locate mineral deposits, etc.
The majority (about 80%) of the companies operating in the field come from five countries: China (26.7%), the USA (19.7%), Australia (12.8%), South Africa (11.6%) and Canada (9.6%). And the rest of the operating companies come from from several Asian countries, such as Japan and Hong Kong (about 7%), and from Europe while focusing on the Nordic countries (about 13%).
Hot commodity
An examination of the top five companies in this category (see table) shows a positive weighted return of 6.22% from the beginning of the year until the day of the stock examination, while the main indices on Wall Street, such as the S&P 500 and Nasdaq, showed declines of about 20% and about 32% respectively .
The share of Impala Platinum Holdings, which owns platinum, nickel, copper and cobalt mines, pulled the sector down with a decrease of about 18.47% since the beginning of the year, while the share of Livent, a lithium producer, showed an increase of 24.56% for the same period and was among the sector’s top movers.
Alec Lucas, a research analyst at the American ETF company Global X, explains: “Historically, the rapidly increasing demand and the supply that fails to satisfy it create conditions for super cycles. This, for example, happened during the rapid industrialization of the BRIC countries (Brazil, Russia, India and China) from the mid-1990s, which created a super-cycle of goods that lasted more than 20 years.
“In our opinion, the appearance of several technologies at the same time, which change large markets and are supported by regulation, may create a situation similar to over-circulation in specific materials. Thus, for example, the transition from vehicles with an internal combustion engine to electric vehicles is expected to be a significant factor in the demand for materials, such as lithium, graphite , copper, nickel, cobalt and manganese.
Other clean technologies, such as wind turbines and electric motors, also require rare earth minerals to make permanent magnets, such as neodymium, perseodymium, terbium and dysprosium. The global production of rare earth materials has already reached about 280 thousand tons in 2021 compared to 240 thousand tons in 2020, with China accounting for 60% of the total production in 2021, followed by the USA with 15%.
“Thus, the increasing adoption of some game-changing technologies, such as electric vehicles, renewable energy and 3D printing, may create a super-cyclical era for disruptive materials.”
Zero emissions
Lucas continues to explain about one of the main reasons for the increase in demand: “The policy to mitigate climate change may serve as a major catalyst for the demand for these materials, and different levels of action definitions in the climate policy may lead to its doubling by up to six times by the year 2040 from the level the demand was at in 2020.
“The various policy scenarios of the IEA (International Energy Agency) show this well, starting with the more conservative scenario of the stated policy, which shows the doubling of the total demand for disruptive substances for the mentioned period.
“A 300% increase, according to the organization’s Sustainable Development Scenario (SDS), which assumes that all developed economies will reach net zero emissions by 2050, and up to a six-fold increase in demand according to the organization’s Net Zero scenario by 2050, which is the ideal scenario for climate change goals , which takes into account that the entire world will reach zero net emissions in the next three decades.
“Examples of the adoption of new technologies by old players as well as moving beyond disruptive substances are already beginning to be seen in the field. For example, BP – British Petroleum, which is the third largest company in the world in the field of oil and natural gas, has stated its expectation to reach zero net emissions by 2050 or Earlier while leveraging the fields of renewable energies, biofuels and hydrogen.
Shares of the most prominent mineral companies on Wall Street (photo: Yehcat)“The expectation is that as companies begin to make the transition to disruptive substances, the sector’s revenue profile will change significantly. “According to one estimate, revenues from disruptive substances may increase fivefold by the year 2040 and reach more than 250 billion dollars, while revenues from coal mining, for example , are estimated to decrease by about 59% for this period.
“The field of disruptive materials is one that is ignored when looking at industries that are undergoing a transformation towards the worlds of digitization and green energy, even though it forms the material basis for their existence. This is because as technology continues to play a more important role in our lives, the basic components of technological hardware are expected to become more essential.
“At the same time, there are physical limitations of mining, production and improvement of materials, so we estimate that there is a possibility of a structural increase in demand over supply, resulting in a lead to a targeted super cycle and an increase in prices.
“Therefore, we believe that it is possible that investors with exposure to clean technology, electric vehicles or technological hardware may have an interest in considering exposure to the activity of disruptive substances, which are part of the ecosystem of companies that may benefit from the breakthrough and growth of some developing technologies.”