Shock of the old: investing in heavy industries in a new-energy world

As the basis of the world’s energy supply shifts from fossil fuels to mainly metal-based technologies, we face upheaval in many commodity markets. There are opportunities for investors, but also potential pitfalls.

Nov 5, 2021

14 minutes

George Cheveley
As the basis of the world’s energy supply shifts from fossil fuels to mainly metal-based technologies, we face upheaval in many commodity markets. There are opportunities for investors, but also potential pitfalls.

The fast view

  • Decarbonisation will be mineral intensive. The world is switching from a fossil fuel-based power system to one which is essentially metals-based.
  • Heavy industries such as copper and steel will be crucial to enabling the clean-energy transition. That will give rise to investment opportunities, but they may not be obvious.
  • The long-term outlook for copper demand appears strong, given copper’s vital role in electrification. But supply expansion could lead to a sharp reversal following recent price gains.
  • Steel has been unloved by investors, partly because of poor returns and also on environmental grounds. However, several factors could lead to higher steel prices longer term.
  • Emissions-intensive industries like copper and steel are central to the clean-energy economy we are working towards. Through engagement, active investors have an opportunity to help make them fit for the future.


Copper – the transition metal
Steel – unloved, but due a comeback?


Two engineers working machine parts
Much uncertainty surrounds the economic transformation required to achieve the energy transition.
Which technologies will prevail? What materials will be required to enable those technologies? These are just two of many questions yet to be answered.

One thing we know is that decarbonisation will be mineral intensive. The world is switching from a fossil fuel-based power system to one which is essentially metals-based. The power source may be wind and solar, but wind turbines are 70% steel, while copper is required to generate and carry the electricity.

It amounts to what we might call a ‘shock of the old’. In the 1980s, a BBC television series titled ‘The Shock of the New’ explored European society’s encounters with modernism in art. In today’s economy, the clash of cultures is closer to the opposite: an economy increasingly focused on transitioning to a clean-energy future is having to grapple with old industries with old business models and old technologies that are essential for enabling that transition.

The intensifying focus on tackling climate change has combined with other, nearer-term factors to put the spotlight back on commodities:

  • Pandemic stimulus packages have led to consumers buying durables and to governments promising green infrastructure.
  • Logistics bottlenecks have highlighted the weaknesses in just-in-time global supply chains, leading companies to consider larger inventories and even on-shoring.

It adds up to a complex backdrop for materials markets. We believe there will be many opportunities for commodity investors as the energy transition progresses, but they will not always be obvious. And those looking to capture them need to be active and careful, because supply/demand balances are volatile and long-term structural themes will continue to crash into short-term stocking cycles.

As active investors, our aim is to pinpoint where capital is most needed and will generate the best returns. That does not only mean identifying the right technologies and materials. We also need to work out which companies are making a success of the decarbonisation-driven trends in their sector and are able to generate good returns on capital.

This report examines two commodity markets that are essential to the net-zero transition, copper and steel, and considers the investment outlook.

Authored by

George Cheveley
Portfolio Manager

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