Commodities 2022: Transition to renewables driving demand and opportunities across swath of metals and minerals
- February 1, 2022: Vol. 9, Number 2

Commodities 2022: Transition to renewables driving demand and opportunities across swath of metals and minerals

by Benjamin Cole

The short story first: Even though commodities cooled a bit in late 2021, on the year the broad-based S&P GSCI commodity index surged forward more than 40 percent, rewarding nearly every sector within the index.

There was no shortage of eye-popping returns, from lithium, up more than 430 percent in price in 2021; to crude oil, up more than 50 percent; to corn ethanol, up more than 125 percent.

Less glamorous commodities also increased in price, from corn, up nearly 35 percent; to cotton, up 43 percent; to coffee, up 84 percent. The nonprecious metal aluminum rose 41 percent on the year.

Businesses with basic products to sell in 2021 made profits, along with investors.

Of course, the years 2020-2021 were like few in history, defined by a tenacious global pandemic and aggressive monetary accommodation by the world’s major central banks, as well as fiscal stimulus across North America, Europe and Asia. The unified goosing of the global economy worked and a worldwide Great Depression was sidestepped. No small accomplishment.

But in the wake of record stimulus, many distortions and unusual stresses emerged in global supply and demand networks. Of course, inflation has again become the obsessive concern of the macroeconomist solons, while energy-sector gnomes ponder whether oil and power scarcities could become chronic, due to mismanagement or programs intended to limit global warming.

Other fundamentals will come back into play in the 2020s, including a global population that is still growing, along with rising incomes across Asia. If past is prologue, the more money consumers have, the more goods they buy and, consequently, the more commodities there will be consumed.

Moreover, the global economy is transitioning away from fossil fuels, if only under government mandates. The International Monetary Fund asked in late 2021, “The energy transition requires substantial amounts of metals such as copper, nickel, cobalt and lithium. Are these metals a key bottleneck?” The IMF answered the question thusly: “Metal prices would reach historical peaks for an unprecedented, sustained period in a net-zero emissions scenario.”

So, for 2022, the promising commodities for investors include lithium, aluminum and (surprise!) oil. Yes, global warming concerns or not, oil looks to have a great year ahead.

But first, the “energy transition” commodities.


The Tesla story has gone from exotic to cliché, with startup electric vehicle manufacturers reaching valuations of tens-of-billions on Wall Street or Shanghai by the handfuls, even as the old-line auto giants also enter the market. The U.S.-based Rivian and Lucid Motors, and the China-based Nio and Xpeng are leading the startup EV charge, while late in 2021 Toyota announced it would release 30 electric vehicles by 2030 to target annual EV sales of 3.5 million units (about one-third of total production), and that it will transform the upscale Lexus marque line into an EV-only brand by 2035.

What all the EV-makers have in common is lithium-ion batteries, large enough to power a car for hundreds of miles on a charge. As consumers migrate to EVs, whether by market choice or government mandate, the outlook for lithium demand staggers the imagination. By 2030, lithium demand globally is expected to rise an eye-popping 637 percent, reported business consultancy EY in a 2021 study.

For all of the promise of lithium, individual investors face challenges in the sector, foremost that Wall Street is pretty close to the theoretical perfect market and has already priced in the risks and rewards for public lithium-related enterprises.

A second problem is that lithium producers often face uncertain exposure to politics. For example, the world’s largest lithium producer is the China-based Jiangxi Ganfeng Lithium Co., while other producers are active in South America. Investors are reminded near daily of Beijing’s evolving regulatory apparatus, which has already affected casino, property and tech enterprises, while South American politics have long made for business uncertainties.

On the more dependable side, there are two notable public Australian-based lithium producers, Albemarle and Pilbara Minerals, which mine in-country. Both are richly priced and offer scant dividends.

Also, U.S.-based producer Piedmont Lithium is developing mining prospects in the so-called Carolina TinSpodumene Belt region of North Carolina.  The company is still negotiating with local officials to obtain the proper permitting, and like residents everywhere, few Carolinians want to live next to a large, operating, open-pit mine. But if Piedmont Lithium can establish operations, it will have obvious logistical advantages for supplying domestic lithium-ion battery manufacturers.

The Global X Lithium & Battery Tech ETF is an easy way for investors to place a diversified bet on the lithium sector. However, for better or worse, the ETF is not a pure play and includes exposure to battery manufacturers and even EV-maker Tesla, and charges a 0.75 percent annual fee on assets under management. What’s more, the ETF reports more than 45 percent on its holdings are exposed to mainland China.

There is little doubt lithium has a big future, a fact not overlooked by investors globally, resulting in rich asset values. Individual investors may be challenged to find a pot under the lithium rainbow but can hardly be blamed for looking.


A silvery metal that may have a solid 2022 is aluminum, with the 1960s Space Age metal making a revival hit in both energy transition and investor circles. The demand for aluminum is expected to rise by 6.5 percent annually compounded through 2025, reported the Market Research Future advisory service in late 2021.

Like so many commodities, demand for aluminum was strong in 2021, but supplies were constrained by environmental considerations. China, for example, appears to be limiting aluminum production to curtail CO2 emissions. Aluminum production peaked in 2000 in the United States and has been in an uneven decline since.

Not surprisingly, much aluminum demand is generated by the EV industry and the imperatives for lighter-weight alternatives to steel. Aluminum weighs about one-third as much as steel, but in most applications is also pricier.

Aluminum is also useful in solar power panels and related systems, reported Wood Mackenzie, the business consultancy, in late 2021. In a base-case scenario, the solar-power industry demand for aluminum should more than double by 2040, but if governments accelerate climate change initiatives, demand could quadruple in the next 20 years, said Wood Mackenzie.

Wall Street does not miss much, and industry behemoth Alcoa shares rose nearly 170 percent in 2021. Shares in other aluminum-producers fared well also this past year, making for a market that looks fully priced.

An interesting longer-term play is Norway-based Norsk Hydro, one of the world’s largest aluminum companies, well known for its efficient smelting processes. And, as the name implies, the company also produces hydropower. The production of aluminum is famously energy intensive, and the company’s ownership of renewable energy resources should hold the company in good stead if electric rates rise worldwide.

Norsk Hydro trades near a modest 14 times earnings and offers a 3.7 percent dividend, certainly a reward for patient investors willing to look over the horizon. Norsk Hydro shares are trading near 52-week and multi-year highs, but never recovered from the global financial crisis of 2008 and the slump in commodities demand that followed.

Lightly covered on Wall Street, the small analyst community that follows the company expects Norsk Hydro shares to rise nearly 40 percent in 2022. Coupled with the dividend, that outlook would make a shiny return on the base silvery metal.


The contentious topic of petroleum can hardly be avoided for investors interested in commodities, and yet this most useful of earthly gifts is also a prime culprit in global warming.  Consider oil as the alt-right alternative to lithium.

For investors, that sets up a riddle inside an ironic enigma. Reduced development of oil will eventually result in less production of crude, and thus higher petroleum prices, and that generally means higher profits for oil producers. Those higher crude prices, however, may have to wait. Indeed, for 2022 the petroleum investment world looks split into two.

For bullish speculators playing the commodity oil futures and options markets, the year 2022 may be a disappointment. The U.S. Energy Information Administration in late 2021 issued its forecast for 2022, predicting a generally soft 12 months for prices as global production outpaced demand. Benchmark West Texas Intermediate oil should trade near mid-$60s a barrel for much of 2022, before trailing lower in later months to a flat $60 a barrel, estimated the EIA. By way of comparison, through most of the second half of 2021 WTI traded above $70 a barrel.

But for integrated oil producers, who have run tight ships in recent years due to lower crude prices, $60 a barrel is plenty. With exploration and development budgets in check, a lot of oil-giant revenue in 2022 will drop to the bottom line.

For example, the consensus of 26 analysts late in 2021 is that Exxon’s stock will rise by about 18 percent in 2022, while the stock pays a relatively fat 5.8 percent dividend. ConocoPhillips is another favorite, with the consensus among 29 Wall Street analysts that shares in the industry colossus will rise about 28 percent in 2022, although only a rather meager 1 percent dividend is offered.

For investors who favor diversity rather than lone oil stocks, the SPDR S&P Oil & Gas ETF invests in a variety of oil-and-gas producers.

In the longer run, the integrated oil producers likely have a brighter rather than limited profit future. The giants are set up to deliver crude and refined products as global demand keeps growing. If the necessity of reducing oil consumption due to global warming is enforced through curtailed production, then the outlook for higher crude prices and related profits seems probable.


The glamour commodities of gold and silver, and other precious metals or gems, may face headwinds in 2022. To be sure, gold has long been seen as the investor’s bulwark against inflation, and consumers will surely see higher prices in the United States in 2022. But gold wandered sideways through 2021, while silver actually slipped a bit, despite the obvious inflationary outlook by late 2021.

The gold and silver investment class is perhaps undercut by Bitcoin and other cryptocurrencies now seen as new-age inflation beaters, and also by prospects for higher interest rates in 2022 as global central banks try to soften upward price momentum. In the past, investors have tended to migrate into the safe yields of sovereign government bonds when interest rates are higher.

A joker in the gold deck is that some buying pressure is also artificial — the result of central banks buying gold. Thus, the gold market, sometimes seen as a refuge from the excesses of central banks, is also a market influenced by central bank gold buying, especially by the People's Bank of China, Russian National Bank and several other nations.

In the third quarter of 2021 the largest demand for gold was from private sector investors in the form of bars and coins, and for jewelry, but central banks challenged the technology and industrial sectors as the third largest buyers of the yellow metal.

It may be central bank buying of gold will continue, as the sovereign printing of money to acquire the yellow metal is seen as a backdoor way to lower the international exchange rate of a national currency, considered a positive in many nations that seek expanded exports.

But in the main, the prospects for gold and silver in 2022 will be determined by investor sentiments. Such moods tend to be mercurial and difficult to predict.


In late 2021, the IMF identified the metals of copper, nickel, cobalt and lithium as prime candidates to be in perennial short supply in coming years, in a report entitled, Energy Transition Metals.

The IMF found that if major national governments pursue a policy of net zero emissions by 2050, “producers of these four metals alone could generate revenues similar to those of the oil sector over the next 20 years.” The metals are vital to battery production, but are also used in other applications, such as solar power.

Given strong demand, the prices of the aforementioned metals could rise several fold in the next 30 years, concluded the IMF.

However, the commodities sector can offer obstacles for investors. Many producers are in mainland China, or other countries in which policies and treatment of investments could change. For example, Nornickel, aka Norilsk Nickel, is the world’s largest nickel producer, but the company is based in Moscow and operates huge facilities in Siberia. The Russian nickel giant in late 2021 traded at a modest 6.5 times earnings and offered an 11.3 percent dividend yield. The analyst community consensus posits about a 13 percent share price gain in 2022. For investors comfortable with Russian politics and corporate governance, Nornickel could fill the bill.

For those so inclined, there are also the futures and options markets in the energy transition metals, but such bets are ever risky.

For a more diversified, general play on battery-related metals, there is the Amplify Lithium & Battery Technology ETF. The United States Copper Index Fund beckons those looking for play on the red metal.


The case for a long bull market in commodities appears fairly solid, especially for materials that will be used to help global economies wean off of fossil fuels — although, ironically, as fossil fuel supplies become curtailed, they will also likely become pricier.

Rising incomes and populations in Asia and elsewhere should undergird the commodities market in years ahead also.

The challenge for investors is that the safe plays in commodities are already richly priced. The underpriced or contrarian opportunities in commodities likely offer exposure to geopolitical, governance or regulatory risks.

But for investors willing to perform liberal amounts of due diligence, the returns in commodities in the 2020s could strike well above other asset categories.


Benjamin Cole ( is a freelance writer based in Thailand.

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