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Cobalt and lithium among commodities to benefit from green transition

By Indrabati Lahiri

09:30, 9 December 2021

Image of green energy
Green energy – Photo: Shutterstock

Green transition was a term brought to life by the European Green deal, proposed by the European Commission, as a way to achieve a climate neutral Europe by 2050.

This strategy attempts to take facets of climate risk into account, such as emissions, waste, pollution and loss of biodiversity, attempting to improve them in a responsible and sustainable manner.

Reducing emissions by 55% instead of 40%, as previously planned, by 2030, is also one of the main goals on this agenda. This move is also expected to give rise to new jobs in specialised sectors, while gradually phasing out some other sectors, such as coal-powered electricity.

However, there is a great emphasis on “just transitioning”, which highlights the need to provide adequate support and rehabilitation to those sectors and employees which could lose jobs.

New goals

Countries such as India with developing economies and a high dependence on fossil fuels still, have also tried to establish green transition goals, such as attempting to increase their established renewable power capacity to 450 gigawatts by 2030.

While governments are doing their part to encourage as many companies as possible to take part in the green transition, company investments mainly depend on three things, namely, technological viability, government support and policies and social acceptance.

The United Nations has also proposed six climate positive actions that could go a long way in helping governments restructure their economies in a more sustainable and climate friendly way. These include:

  • Green transitioning by speeding up the decarbonisation process of as many sectors of the economy as possible
  • Increase in sustainable solutions investments, by raising emission taxes and bringing an end to fossil fuel subsidies
  • Worldwide cooperation, with nations being united on climate change goals
  • Climate risks and opportunities incorporated into the financial system
  • Inclusive and sustainable growth, with an emphasis on green jobs
  • Green economy, by increasing resilience in societies and companies through a movement that takes everyone along

According to Jessica Fung, head strategist at Pala Investments, the new commodity supercycle will be driven by the energy transition which has taken decades to happen, but she highlights that the best time to invest in this movement is right now.

Robert Johnson, adjunct senior research scholar at Columbia University’s Center on Global Energy Policy, is of a similar opinion as he believes that not acting fast enough in this case may even inc

With this in mind, certain sectors, assets and commodities are poised to benefit hugely from an ongoing green transition, and the resultant changes in climate policies that it will bring. These are:

Commodities

  • Cobalt: With cobalt almost doubling its 2020 average price, to touch approximately $62,850 a ton by the end of November this year, the metal has successfully sidestepped the fall sustained by a number of other metals following the shock of the Omicron variant discovery.

Cobalt is expected to continue doing very well throughout a green transition, as the metal has fairly low connection or exposure to the Chinese property development and construction sector, which means that it will not be affected by any sudden crashes in those sectors either due to property developer Evergrande defaulting or other factors.

Oil - Brent

74.28 Price
+2.970% 1D Chg, %
Long position overnight fee -0.0094%
Short position overnight fee -0.0125%
Overnight fee time 21:00 (UTC)
Spread 0.04

Natural Gas

2.18 Price
-3.800% 1D Chg, %
Long position overnight fee -0.1420%
Short position overnight fee 0.1201%
Overnight fee time 21:00 (UTC)
Spread 0.005

Gold

1,977.86 Price
+0.740% 1D Chg, %
Long position overnight fee -0.0183%
Short position overnight fee 0.0101%
Overnight fee time 21:00 (UTC)
Spread 0.30

Oil - Crude

70.18 Price
+3.640% 1D Chg, %
Long position overnight fee -0.0203%
Short position overnight fee -0.0017%
Overnight fee time 21:00 (UTC)
Spread 0.04

Since cobalt is primarily used for the production of lithium-ion batteries, which in turn, are used to produce electric vehicles or EVs, amongst others, the metal’s outlook seems optimistic as the demand for EVs has been steadily increasing over the last few years and will continue to do so as the green transition progresses.

  • Copper: Copper being absolutely crucial to the development of renewable energy structures, will experience a hike in demand in the medium to long term. According to a report by Fitch Solutions, they expect strong upside risks to our green copper demand forecasts as grid-scale energy storage for renewables, a nascent industry at present, is set to experience robust growth in the medium term.”

This is in line with nickel and lithium forecasts as well, both also important for the renewable energy sector. Copper demand is also expected to be driven by manufacturing, building demand and infrastructure. By 2030, the percentage of demand for copper from the auto and renewable sector, as the green transition is developed further, could be as high as 7.9%.

  • Lithium: Lithium has been highly valued in technology, with it being used in smartphones, laptops, lithium-ion batteries and more. However, mining the metal has been quite expensive, leading investors to question whether it could still have a place in a more sustainable future, which seeks to reduce costs and wastage as much as possible.

The recent discovery of a more sustainable source of lithium, namely in Cornwall. This has quelled investor doubts and placed lithium firmly back on the radar to advance extensively during the green transition. Cornwall’s source, from geothermal waters, is one of the purest grades of lithium available today, which makes it all the more vital to be used in electric vehicles’ batteries, which are expected to see enormous demand in the coming years.

Sectors

  • Manufacturing: Manufacturing is one of the sectors which is primed to receive the greatest boost from a green transition, as green manufacturing takes over. With consumers being more conscious about end-to-end sustainable production practices, a number of manufacturers have come under considerable pressure to switch to more environmentally friendly practices.

With benefits such as decreased costs, tax incentives and credits and increased business growth by building a better green reputation, more players in the manufacturing industry may be encouraged to take the plunge in the foreseeable future.

  • Travel: Ecotourism has been on the rise for the past few years, with Costa Rica, Iceland, Brazil and the Galapagos Islands emerging as some of the top destinations for the environmentally-conscious traveler today.

The United Nations World Tourism Organization describes ecotourism as “tourism that takes full account of its current and future economic, social and environmental impacts, addressing the needs of visitors, the industry, the environment and host communities.” This trend is expected to continue with increased awareness campaigns, as luxury travel also makes its place within this sphere.

Megan Epler Wood, head of Epler Wood International and Co-Executive Director of the Planeterra Foundation, mentions to GreenMoney that “what the ecotourism experience will be like in 20 years depends on the commitment of governments to create well-planned destinations. Local people are increasingly recognizing that they need to protect their resources. What local people do to preserve their destinations must be a high priority for the future of ecotourism.” With green tourism on the rise, it looks like this change has already been set in motion.

  • Renewable energy: Renewable energy has been the driving force behind the green transition so far and as such, is expected to grow in leaps and bounds in the next few years as well. With increased funding, grants and loans going to clean and renewable energy projects, such as electric vehicles, and mounting pressures to reduce fossil fuel subsidies, investors expect this to be a sector to experience rapid growth in the coming years.

Climate change activists are also campaigner more strongly for a quicker move to low-carbon emission infrastructure as well as to minimize the chances of locking-in outdated high-carbon emission layouts.

Assets

  • Green bonds: Green bonds, or climate bonds, which come under the category of fixed-income securities, and assist companies, banks and governments to carry out environmentally-friendly projects, are expected by investors to be one of the strongest financial assets to grow in the later stages of the green transition. Since a number of these bonds also provide tax relief, they may prove to be a better choice than traditional bonds in the long run. This has been backed up by the European Commission recently announcing the biggest-ever green bond initiative, which will be approximately worth €12 billion and have a time period of 15 years.
  • Green equity: Green equity is also expected to see much growth in the foreseeable future, as more investors are looking at companies with climate positive goals, dealing in sectors such as alternative materials and energies as well as recyclables. With a focus on using organic and recyclable materials, these companies range from clothing to food to cosmetics and vehicles and are creating more awareness with affordable price structures and transparent supply chains and reporting measures.
  • One of the best companies dealing with green equity and leading by example is considered to be Tesla, which has a heavy focus on environmentally-conscious clients. Patagonia, Seventh Generation and New Belgium Brewing are a few others which have seen massive growth recently and are expected to continue doing so.
  • Green funds: Green funds are mostly exchange traded funds (ETFs), mutual funds or index funds, but are constantly seeing innovating and variety in the way they present themselves and appeal to investors.

These funds are expected to do well during a green transition, as they offer investors the opportunity to pick and choose and create their own baskets of environmentally-conscious securities, which stand to do well. Some of the most popular green funds recently have been the NASDAQ Clean Edge Green Energy Index, the Green Century Balanced Fund and the MAC Global Solar Energy Index.

Although there are a number of industries which are expected to advance greatly as the green transition moves along, fossil-fuel reliant industries, such as coal-powered electricity and oil and gas mining amongst others, may see a decline in demand as consumers look towards more renewable and cleaner options. They may also experience a reduction in subsidies and investments as greater pressure from governments, investors and climate activists mount. 

Read more: Cobalt price forecast: Will rising supply pressure the market?

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