Investing: How to Make Money in the Coming Metals Super Cycle!

What is a Metals Supercylce?

A supercycle is a prolonged period of economic expansion that is characterized by high commodity demand that exceeds supply. During a supercycle, demand for raw materials and manufactured products is robust and sustained over many years. This leads to tight supplies and rising prices for commodities like metals and plastics. The strong commodity demand that defines a supercycle tends to support strong economic growth more broadly.

These sustained periods of expansion provide a beneficial climate for producers and investors in the commodity space. However, supercycles eventually end when high prices lead to overinvestment and demand growth starts to slow.

Investors Should be Excited by a Metals Supercycle

There are a few key reasons investors tend to get excited about a potential new metals supercycle:

• Prolonged gains - Metal supercycles can produce years or even decades of rising metal prices and strong returns for investors. The last metals supercycle saw a 6-fold increase in metal prices over 10 years.
• Early positioning - Investors who take positions early can see the most gains. Identifying which metals will lead the new metals supercycle is key. Last time, iron ore, copper, and uranium saw huge gains.
• Increased mining investment - Higher prices justify major investments by mining firms to develop new projects. This provides opportunities for investors in mining stocks and metal deposits early on.
• Strong dividends/cash flow - Mining firms generate substantial cash flows during periods of high metal prices. This allows them to issue strong dividends to investors.
• Leverage - Mining stocks tend to outperform the underlying metal prices during a metal supercycle thanks to operational leverage. Investors saw 5-10x returns in mining equities last metal supercycle.

During the 2000s metal supercycle, metals like iron ore, copper, and uranium, saw over 500% price gains. Mining stocks soared even more. However, metals supercycles don't last forever, so investors must be wary of inevitable corrections. Proper timing and risk management are key to effectively benefit from a prolonged metal bull market. But the gains can be tremendous if played right.

Why You Will Make Money Investing in a Metals Supercycle

Investors can potentially make substantial money investing in metals producers and developers during a metals supercycle, but proper analysis and risk management are crucial. Here are some key ways investors can benefit:

• Producing miners benefit from higher commodity prices allowing them to generate significantly more cash flow and profits. Many miners pay healthy dividends. Their shares also experience leverage, gaining faster than the metal price rise.
• Juniors developing new mines and projects are able to attract investment more easily due to bullish sentiment around metals. Rising metal prices increase the value of their deposits.
• Active miners aggressively expand production and new projects during the cycle while prices are supportive. This boosts their future earnings potential.
• Exploration companies see increased interest as well, as the upstream pipeline needs replenishing. New major discoveries can send stock prices soaring.
• If timed well early in the cycle, investors see the most gains. But staying invested too long leads to losses when the inevitable downturn comes. Managed well though, 5-10x returns are possible.
• Diversification is key - it's hard to predict which metals will outperform. Spreading exposure across several companies and metals reduces risk.
• Avoid excessive speculation in untested juniors, stay with quality companies with solid assets, management and finances.

The upside for producers, developers and explorers can be tremendous in a metals supercycle but investing prudently and taking profits along the way remains key. The cycle doesn't last forever.

A metals supercycle refers to a prolonged period of rising prices and growing demand for metals and minerals, typically driven by rapid industrialization and urbanization. Some key aspects of a metals supercycle include:

• Demand Growth - There is sustained growth in demand for metals due to rising population, urbanization, and industrial/infrastructure development that outpaces supply. This leads to tightness in supply.
• Price Appreciation - Metal prices rise significantly above their long-term inflation-adjusted trend. High prices persist for 5-10 years or even decades.
• Investment - High prices lead to increased investment in mining capacity and exploration activity to boost future supply. However, supply is slow to respond due to long lead times in mining projects.
• New Demand Drivers - Economic development in emerging economies such as China and India drives new demand. They undergo rapid urbanization and industrialization requiring metals and minerals.
• Duration - Super cycles typically last 15-35 years from the trough of one cycle to the next. They are driven by fundamental shifts in demand that support higher prices over the long term.
• Transition Phases - Periods of rapidly falling prices are usually transition phases between super cycles. These can last several years before demand fundamentals strengthen and prices recover.

The most recent metals super cycle is thought to have begun in the early 2000s, driven by China's rapid development. It led to a boom in prices of metals like copper, iron ore and others until 2011-2012.

Demand Growth for Precious Metals

Gold

• Gold has seen steady growth in demand over the past two decades, driven by a few key factors. Central banks have been major buyers of gold, building up their reserves to diversify foreign currency holdings. Jewelry demand, particularly in China and India, has also risen as incomes increase in those countries.
• Central Bank net purchases of gold hit a 50-year high in 2022. Countries like Russia, China, India and Kazakhstan have led buying as central banks diversify away from the US dollar. Rising geopolitical tensions also boost gold's appeal as a safe haven asset.
• In terms of jewelry and technology demand, China and India account for over 50% of annual gold demand. Rising incomes in those populous countries is a key driver.
• Demand for gold used in technology is also rising steadily as more gold is used in electronics and computing. Gold is utilized across various industries from dentistry to aerospace due to its durability, conductivity and resistance to corrosion.
• Investment demand for gold including bars, coins and gold-based ETFs has seen strong inflows during periods of uncertainty and stock market volatility. Gold is seen as a store of value and hedge against inflation, especially in crisis times.
• Going forward, most analysts expect central bank purchases, technology demand and jewelry demand especially from China and India to drive gold demand higher over the next decade, which bodes well for prices. However, investment demand tends to be more variable.

Silver

• Industrial applications have become the largest source of silver demand. Silver is used in electronics, batteries, solar panels, RFID chips, et cetera due to its high conductivity and antimicrobial properties.
• Industrial silver demand has risen steadily over the past decade, from around 400 million ounces in 2010 to over 1.2 Billion ounces in 2022. Major growth areas include photovoltaic solar panels, printed electronics, and the automotive industry.
• Use of silver in jewelry and silverware remains strong, especially in markets like India where silver jewelry is preferred for weddings and festivals. Global jewelry fabrication demand rose to 212 million ounces in 2018.
• Silver's use as an investment vehicle has also increased with the introduction of silver-backed ETFs and growth in coin/bar demand. Investor demand can fluctuate year-to-year depending on economic conditions.
• Photography's use of silver has declined due to digital imaging, but new technologies have offset that drop in demand. Overall industrial uses are expected to drive most of the growth in silver demand going forward.
• The Silver Institute predicts total physical demand for silver to rise to 1.5 billion ounces by 2030. Industrial demand is forecast to rise the fastest at nearly 100 million additional ounces.
• Solar power is likely to be one of the main demand growth segments, especially with the focus on renewable energy. With increased uncertainty in global markets, investment demand is also poised to rise further.

Demand Growth for Battery Metals

Copper

• Global copper demand is projected to increase steadily over the next decade driven by electricity, EVs, and construction. The copper market could face a large deficit by 2030.
• Electrical networks will require major copper-intensive investments to meet rising power demand and improve grid reliability. Renewables also utilize twice as much copper as conventional energy sources.
• Widespread adoption of electric vehicles (EVs) will be very copper intensive due to the high copper content in motors, batteries, and charging stations. EVs use 2-4x more copper than internal combustion engine vehicles.
• Construction demand will be underpinned by urban population growth and rising middle classes, especially in China and India. This drives demand for copper wiring, pipes, and appliances.
• Overall, copper demand could grow from the current 24 million tonnes per year to over 40 million tonnes by 2030, a 60% increase. New mines take 10-15-years to develop, setting the stage for potential supply deficits.
• Some analysts speculate the coming copper bull market could rival the 2000s metals supercycle which saw a 6-fold price surge. Positioning early in copper investments could yield strong returns if that transpires.

Lithium

Lithium demand is projected to grow significantly, driven by electric vehicles and lithium-ion batteries. Total lithium demand could reach over 1 million metric tons by 2025, more than double current levels. Major growth markets are China, Europe and the U.S.

• Electric vehicles are expected to drive most of the surge in lithium demand over the next decade. Lithium is a key component of EV lithium-ion batteries.
• According to forecasts, lithium demand from the EV battery sector alone will grow over 20-fold from 100,000 tonnes in 2018 to over 2,000,000 tonnes of lithium carbonate equivalent by 2025.
• Grid-storage lithium battery projects are also expected to require over 200,000 tonnes of new lithium demand by 2025 as renewable energy expands.
• Demand from consumer electronics like smartphones and tablets has been steadier but is forecast to double from 100,000 tonnes to nearly 200,000 tonnes by 2025.
• Other industrial applications of lithium in ceramics, glass, and lubricating grease may add another 100,000 tonnes of demand growth.
• Overall, total lithium demand is projected to triple from about 300,000 tonnes in 2018 to around 2.5 million tonnes by 2025, representing significant annual growth.
• New lithium supply from mines and brine operations takes significant time to ramp up. Supply shortfalls are likely if demand grows too quickly.
• This setup of surging demand and challenged supply growth could create opportunities for investors in lithium producers and processors.
• Lithium price may be erratic but the general trend will rise as not all miners will get into production as technology and jurisdictional risk will play a big part.

Cobalt‍

Cobalt demand is also expected to rise sharply, potentially doubling by 2025. Though there are efforts to reduce cobalt content in batteries, it remains a key component. The main drivers are e-mobility and consumer electronics. Political instability in key producing countries like DR Congo poses supply risks, as does cobalt being produced as a by-product in silver, copper and other commodities by current producing mines. Cobalt pricing has been traditionally very opaic.

Nickel

Nickel demand will be boosted by its use in lithium-ion batteries, especially those for electric vehicles. While nickel is also used heavily for stainless steel, demand for nickel in batteries could grow over 20% annually through 2025.

Graphite

Flake graphite demand is forecast to increase significantly for use as anode material in lithium-ion batteries. Total graphite demand could exceed 2.5 million metric tons by 2025. China controls most graphite supply currently.

Manganese

This metal is commonly used in steel production but also has battery applications. Manganese demand for EVs could multiply tenfold by 2030 as it is used in certain lithium-ion chemistries.

Demand growth for Rare Earth Elements (REEs)

Why rare earth elements are considered "rare":

• Scarcity in economic concentrations - The rare earth elements are relatively abundant in the Earth's crust, but they are dispersed and not often found concentrated in high enough quantities to make their extraction economically viable. The elements are often mixed together, making processing complex.
• Limited major mineral deposits - There are very few identified large deposits of rare earth ores in the world. Major deposits are confined to specific geologic settings. China accounted for over 60% of rare earths production, mainly from its Bayan Obo mines.
• Difficult to economically extract and process - Rare earth ores require extensive physical and chemical processing to separate the 17 elements from each other and extract them individually. This is complex and expensive compared to processing typical base or precious metal ores.
• Prone to supply restrictions - As there are few major producers globally, supply issues or trade disputes can severely restrict supplies. China has leveraged its dominant production for geopolitical ends before, alarming governments.
• They're not "rare" geologically - The name is misleading, as rare earths are relatively abundant in the Earth's crust similar to common industrial metals like copper or zinc. However, their specific physical and chemical properties make it difficult to concentrate on mineable deposits.
• Limited substitutes - For many high-tech applications involving magnets, batteries, catalysts, alloys, etc, there are no easy substitutes for rare earths, underscoring their supply importance.

It is the combination of geological, geopolitical, and technological factors that make rare earths "rare" from an economic standpoint despite not being scarce elements inherently.

• Rare earths refer to a group of 17 elements that have unique magnetic, catalytic, and luminescent properties. They are vital to many high-tech applications.
• Global demand for rare earths is projected to expand significantly in the coming decades, potentially tripling by 2030. This growth will be driven by rising demand for rare earth permanent magnets, catalysts, alloys, ceramics, etc.
• The magnets segment accounts for over 20% of REE demand presently. The use of powerful neodymium iron boron (NdFeB) magnets in electric vehicle motors, wind turbines, consumer electronics, and defense systems is a major demand driver.
• Catalysts using rare earths are essential for petroleum refining and automotive catalytic converters. This application represents 15-20% of consumption.
• Metallurgy is another key segment where rare earths are used to make superalloys, ceramics, and glasses. Yttrium and lanthanum compounds are most common in metallurgy.
• Phosphors made using europium, yttrium, and terbium are vital for energy-efficient lighting, TVs, monitors, and other display applications.
• China has been the leader in rare earth production and currently accounts for over 60% of global output. But supply risks have led governments to strategize greater domestic supply of rare earths.
• While recycling efficiencies are improving, mining and separation processes will need to expand significantly to meet projected REE demand growth in the coming years.

Demand Growth for Uranium

• Nuclear power generation is the primary driver of uranium demand. Over 50 countries operate nuclear reactors, requiring a steady supply of uranium fuel.
• World nuclear electricity generation capacity is forecast to grow 26-88% from nearly 400 GWe in 2017 to 700-1,000 GWe by 2030. This will require substantially more uranium.
• New reactor construction in countries like China, India, Russia, Europe and the Middle East will be key sources of demand growth. Reactor life extensions in the US and Europe also add demand.
• Uranium demand directly correlates to reactor capacity. Annual global uranium demand could rise from the current 190 million lbs to anywhere from 250-350 million lbs by 2030.
• Secondary supplies like recycled fuel, inventories and down-blended weapons material have depressed uranium prices since 2011. Primary mine output has dropped as a result of this, disruption to the supply chain, workforce restrictions, rising costs caused by the pandemic and a low incentive price from buyers. This however is changing as uranium prices have doubled in the last 2 years.
• With inventory stockpiles declining and lead times of over 10 years to develop new mines, forecasts suggest the uranium market could enter a large supply deficit by 2024 if new investment is not incentivized soon.
• This impending supply-demand imbalance presents opportunities for investors positioning early in quality uranium miners and developers with solid assets. But the uranium market has many complex dynamics to analyze.

What is Uranium used for?

Uranium is primarily used as fuel for nuclear power plants, which account for the vast majority of uranium consumption globally. Here is a quick overview of how uranium is enriched for use as nuclear fuel:

• Natural uranium is mined from the ground and consists mostly of two isotopes - U-238 (99.3%) and U-235 (0.7%). Nuclear reactors require uranium enriched to contain 2-5% U-235.
• Enrichment increases the concentration of U-235 by separating it from U-238. This is done by exploiting the slight mass difference between the isotopes using complex processes like gas centrifuge or gaseous diffusion.
• In gas centrifuge enrichment, uranium is converted into uranium hexafluoride gas (UF6) and spun rapidly in cylinders. The lighter U-235 condenses closer to the center while U-238 moves to the edges. This allows U-235 to be extracted.
• Gaseous diffusion uses porous membranes through which UF6 repeatedly diffuses. The slightly lighter U-235 moves through faster, resulting in a steady enrichment. This very energy-intensive process is being phased out.
• Enrichment is a complex, costly process conducted in only a few facilities worldwide. Less than 20% of mined uranium actually ends up being enriched for use as reactor fuel. The rest remains unenriched.
• Once enriched, the UF6 is converted to uranium dioxide powder, processed into ceramic fuel pellets, and sealed in long metal fuel rods for placement inside nuclear reactor cores where fission occurs.

So in summary, uranium enrichment increases the ratio of fissile U-235 to make nuclear fuel, which then generates heat to produce steam and electricity. It requires specialised facilities due to the complexity of isotope separation.

Are we running out of metals? What happens to prices when there is more demand than we can supply?

There are concerns we could face metal shortages in the future, but we are not running out of metals anytime soon. However, demand growth could outpace supply, leading to higher prices which can benefit metal investors. Here are some key points:

• Earth's crust contains vast, albeit finite quantities of most metals. Reserves are affected by economics, technology, and geopolitics rather than physical scarcity. As prices rise, more marginal resources become economical.
• However, demand has risen rapidly while the discovery of new high-quality deposits has slowed. Environmental restrictions also hamper mine output growth. This supply-demand imbalance can lead to metal price spikes.
• When metal demand persistently exceeds available supply, prices tend to appreciate substantially until higher prices incentivize enough new supply. But that can take years due to long mining project development timelines.
• Metal shortages generally manifest in low inventory levels rather than physical unavailability. But tightening inventories exacerbate supply squeezes during spikes in demand. This dynamic played out in many metal markets over the past decade.
• Rising prices due to supply-demand deficits directly benefit investors holding the physical metal or equities of metal mining firms. Mining stocks offer leverage to underlying metal prices.
• Savvy investors can gain exposure early to metals poised to enter sustained deficits. But prices can be volatile, so active management of positions is required. Overall, scarcity helps boost metals as a strategic portfolio allocation.

So while outright depletion is not an immediate threat, metal investors with a longer-term horizon can still benefit from periods of prolonged demand outpacing supplies for certain metals.