Breakthroughs in battery technology, as well as economies of scale in production of batteries, have drastically improved the cost competitiveness of electric vehicles versus internal combustion engine vehicles, making EVs one of the big stories of the energy transition. And while China is ahead of other regions in terms of market penetration, there is a global trend toward higher EV adoption.

Considering this EV market growth and wider decarbonization efforts in the global economy, which metals stand to benefit the most? Copper and aluminum are old stalwarts of the global metals landscape – widely used across industries and applications and with a rich history of being traded on commodity exchanges.

The energy transition is adding a new angle to that story. Copper will be in high demand because it is so versatile and used in energy storage, EV charging infrastructure and related applications. For instance, the International Energy Agency estimates that “clean energy technology” may account for over 40% of total copper demand. Due to its low weight, aluminum can be helpful in offsetting the weight of EV batteries, and thereby increasing vehicle range. Aluminum is also required to construct solar panels. In total, BloombergNEF estimates that between 30-40% of global aluminum demand will be tied to the energy transition.

If copper and aluminum are old stalwarts, that makes cobalt and lithium the new kids on the block of the metals trading universe. Ten or 20 years ago, these metals were used in niche applications, such as superalloys or magnets (in the case of cobalt) or the production of ceramics and glasses (lithium). Because volumes were small, and the universe of participants limited, trading was often done using fixed price long-term contracts. The introduction of lithium-ion batteries, first for consumer electronics and then progressively in EV batteries, has dramatically changed this once tranquil landscape. Market analysts forecast that overall demand for lithium-ion batteries may grow by 30% year-on-year over the coming decade. Expectations are that EVs will dominate demand and account for 90% or more of total consumption of lithium and cobalt. The industry has had to adapt to this new environment by changing long-established practices. For instance, lithium procurement is now often tied to spot prices, or formula indices that reflect current market pricing.

The required ramp-up in supply required to meet this demand surge may pose challenges to the mining industry. In the case of cobalt, supply is heavily concentrated in the Democratic Republic of Congo, and cobalt is often extracted as a byproduct of copper and nickel production – meaning, what happens in these metals can influence how much cobalt will be produced. In the case of lithium, supply is more evenly distributed with mining in Australia, the South American “lithium triangle” (Argentina-Bolivia-Chile), and other regions. But lithium faces other challenges; it does not store well, meaning that stocking excess production to clear the market is, at best, an imperfect solution. With industry growth rates of around 20-40% annually, small shifts in the supply/demand balance can have a huge impact on prices – something witnessed over the past 36 months. Over that time, lithium went into a wild ride with spot prices growing by a factor of 6x before coming back down to earth.