Could The Metals And Mining Industry Soar On Green Energy Revolution While Reckoning With Its Own Climate Impact?

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The metals and mining industry is reportedly in the midst of some exciting transformations. With the growing global focus on building more sustainable, emissions-free economies, there’s a surge in electric vehicles (EVs), renewable energy technology and more efficient infrastructure.

All of that requires massive amounts of steel, aluminum, copper and other metals to build solar panels, wind turbines, EV batteries and new construction. But the emphasis on sustainability and reaching zero emissions also means the very mining industry that will supply these raw materials is facing increased scrutiny about the ecological impact of how it extracts those materials.

Even so, for companies agile enough to adapt to the evolving metals and mining landscape, growth potential could lie ahead. Here are some of the key trends and transformations shaping the industry and what traders might look for as they plan their trades this year.

An Existing Supply Squeeze Could Intensify

The pandemic-induced slowdown in mining has meant reduced output of metals and minerals, and while that’s already starting to rebound, it may still be hard for the industry to catch up with the rapid pace of rising demand.

President Joe Biden, for example, signed an executive order in December ordering federal agencies to work toward 100% pollution-free electricity generation by 2030. It includes provisions for increased investment in renewable energy, electric vehicles and retrofitting infrastructure to be compatible with the new green energy future.

Even with rebounding production and increasing exploration activities, it’s going to be hard to catch up to the massive amounts of raw materials that achieving a goal that ambitious in that short of time frame will require.

As a result of these dual forces, an  S&P Global report predicts that metals prices will continue to climb over the next few weeks & months. While it’s going to be tough to keep up with demand, the revenue potential is an attractive motivator and might be good news for traders looking for bullish swings to trade.

Innovations In Metal Recycling Are Finally Making It More Viable

While recycling metals is unlikely to completely eliminate the need for new mines, companies investing in more viable recycling methods could be positioned to meet rising demand, giving them an edge over companies focused exclusively on exploration and new projects that might take years to produce yield.

Alcoa Corp. AA, for example, already operates large-scale, energy-efficient aluminum recycling facilities and is now developing a process for converting low-quality aluminum scraps into high-quality aluminum that can be resold, tapping into a large supply of aluminum scrap that historically ends up going to waste.

Other companies are looking at ways to recycle lithium, cobalt and other rarer metals from batteries to meet the rising need for EV batteries.

Company Portfolios May Rebalance Away From Fuels And Toward Materials

Many companies in the industry are repositioning by divesting from coal and other consumable fuels and replacing them with battery minerals like copper, nickel and lithium. Joint ventures between big mining companies like BHP Group Ltd. BHP or Rio Tinto Ltd. RTNTF and smaller exploratory companies surged in recent years as these large ventures look to increase their foothold in the metals and minerals that will go into the growing number of EV batteries and renewable energy storage systems.

Mining Companies Will Need To Go Green, Too

The flipside of the green energy revolution is that mining companies will likely be held to stricter emissions and environmental impact standards as they work to meet the demand for the metals and minerals essential to renewable energy and EVs.

For companies dragging their feet, the threat of stricter regulations could leave them scrambling to become compliant or face production shutdowns. For the more proactive companies that start making changes early, regulatory crackdowns will be less of a concern and that initiative will likely help build trust with consumers and investors.

Fortunately, industry leaders are already choosing the latter. Newmont Corp. NEM, for example, announced plans to collaborate with Caterpillar Inc. CAT to develop an automated, zero-carbon end-to-end mining system.

How To Trade The Green Energy Revolution’s Impact On Mining

With increased revenue potential driven by rising demand and rising prices, bullish traders are likely to find plenty of tradeable opportunities in the metals and mining industry going forward.

One way to grab those opportunities and maximize them over short-term periods is with an exchange-traded fund (ETF) like Direxion’s Daily Metal Miners Bull 2x ETF. It tracks the S&P Metals and Mining Select Industry Index, which is made up primarily of steel and aluminum companies but includes a mix of all the metals and minerals that are becoming major players in the energy transition.

The top 10 holdings in the index as of 3/31/22  are:

  1. Alcoa Corp. AA – 5.19%
  2. Newmont Corp. NEM – 4.70%
  3. Freeport-McMoRan Inc. FCX – 4.62%
  4. Arch Resources Inc. ARCH – 4.57%
  5. Peabody Energy Corp. BTU – 4.57%
  6. Cleveland-Cliffs Inc. CLF – 4.57%
  7. Royal Gold Inc. RGLD – 4.56%
  8. Commercial Metals Co. CMC – 4.49%
  9. United States Steel Corp. X – 4.45%
  10. Steel Dynamics Inc. STLD – 4.39%

Short-term Metals & Mining Trade Opportunities

With the 2x leverage offered by Direxion’s ETF, traders have the potential to magnify the return of each trade by 200%. Of course, that means the risk is also magnified, so having a clear and back-tested strategy in place is important.

At the large scale, especially during the months leading up to elections, watch the headlines for new government-led climate initiatives, changing decarbonization and emissions regulations on the mining industry, and shifting consumer demand.

At the company level, check for merger and acquisition news, especially from the top 10 stocks in the index, as well as innovations in clean-mining tech and recycling capabilities.

This post contains sponsored advertising content. This content is for informational purposes only and is not intended to be investing advice.

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This post contains sponsored advertising content. This content is for informational purposes only and is not intended to be investing advice.

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