Will The S&P GSCI Electric Vehicle Metals Outperform With Copper Leading The Way?

By Jim Wiederhold

Recent bullish fundamentals appear to be falling in line for the electric vehicle metals space. A decade of weak metals prices has led to underinvestment by miners and refiners, as private investment and bank financing support waned. In 2022, S&P Global released a comprehensive report on copper outlining the current trending Rocky Road supply scenario and a second scenario where everything goes right from a supply perspective to meet the forecasted quickly rising demand.¹

Just-in-time inventory is not possible for metals. Years of exploration and planning are the only way to get a new mine online. There is no shortcut. Recent floods in Indonesia shut down operations at Grasberg, the world’s largest copper mine. This is just the latest in a string of extreme weather-related disruptions affecting the mining industry. Continued disruptions to metals supply could lead to increases in price.

Copper is the second-largest weight in the S&P GSCI Electric Vehicle Metals Index, due to its heavy use in wiring electronics. Gold and silver are the only two metals more conductive to electricity. Copper is almost equivalent to silver in conductivity. Within the theme of electrification, copper is the most important metal when considering all renewable energy applications.

While certain metals tend to be highly pollutive to produce, metals overall will play a key role in the energy transition. Our newly launched S&P GSCI Climate Aware saw the biggest increase in weight in copper at the expense of crude oil compared to the S&P GSCI benchmark. Copper is currently the highest weight in the index at 18%. Crude oil’s overall greenhouse gas emissions led to the biggest drop, while copper is one of the least pollutive metals to produce today.

Forecasts for higher demand of metals are expected to increase over time as the electric vehicle (EV) market continues to expand. One way of reducing our reliance on fossil fuels is by switching from internal combustion engines to electric vehicles. Industrial and battery metals will be needed in far greater quantities than are currently being produced and the mix of metals will likely shift over time. We don’t know which battery chemistry will win long-term, as new batteries are tested to try to meet the demands of lower cost and extended EV range.²

Cobalt and lithium will play a crucial role, but newer battery chemistries heavier in nickel and iron ore are being tested and could win out in the long term. The S&P GSCI Electric Vehicle Metals Index is designed to adjust over time as the overall EV metals market adjusts with the changing world. S&P Global Commodities Insights conducts a biyearly research-based check-in on the EV market to determine the current mix and weights of the metals making up the average EV.

The underlying industrial metals will be critical, and prices tend to be correlated to PMI readings around the world. Economic sentiment affects metals prices over the long term. If we are headed toward a prolonged recession, this could be a key risk in the short term against the case for higher-trending metals prices.

¹ S&P Global, “The Future of Copper: Will the looming supply gap short-circuit the energy transition?” 2022.

² Lazzaro, Nick. “World copper deficit could hit record; demand seen doubling by 2035.” S&P Global. July 14, 2022.

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