Recently, the United States Commodity Funds LLC (USCF) announced it has launched the USCF Sustainable Battery Metals Strategy Fund (ZSB), which seeks total return by investing primarily in metals derivative instruments and, to a lesser extent, the equity securities of companies that are economically tied to the metals that are necessary for the process known as “electrification.”
The gold rush parallel
During the gold rush, wealth was garnered mostly by those who sold “pickaxes and shovels” to the prospectors who dug for gold. As the world moves toward electrification, no doubt there will be a myriad of technological innovations brought to market, but they all will require the necessary battery metals for them to be viable; the USCF Sustainable Battery Metals Strategy Fund aims to capitalize on the growing demand of said metals and the integral part they will play in the transition to a carbon neutral society.
The rising costs of battery metals
As outlined by data from the Institute of Rare Earths and Strategic Metals, the cost of battery metals is increasing, due to the growing demand for electric vehicles and energy storage technologies. As detailed in the table below, lithium carbonate, one of the most refined forms of lithium used in batteries, now costs approximately $80,000 per tonne.
Though the rising cost of battery materials can be attributed to the increasing demand for electric vehicles and energy storage technologies, the limited availability of these resources is also a contributing factor. In 2022, lithium supplies were affected by heatwaves in China, which has a dominant control over cathode, anode, and refined battery materials production. Furthermore, from a capacity-building standpoint, it takes anywhere between three to five years for new lithium supply capacity to come online, making it difficult for suppliers to react quickly to rising demand.
Regarding other metals, such as cobalt, its high cost is due to where it is geographically located – as approximately 70% of globally mined cobalt production comes from the Democratic Republic of Congo. Mining and moving these metals are a capital and labor-intensive process that requires ongoing due diligence.
Electrification movement - the opportunity
As electric vehicles and energy storage technologies become mainstays in our global economy, the companies and securities that reflect the value of battery materials will represent real economic value and be a source of wealth-building for investors. Thus, the electrification movement is not only about energy advancement, but also an opportunity for wealth generation within an ecosystem focused on sustainability.
Key takeways
Undoubtedly, electrification is the energy infrastructure pathway being chosen by society. As the world transitions to a low-carbon economy, investors are presented with an opportunity to participate in innovations that will usher in a new energy ecosystem. The ZSB ETF provides investors with a pure-play investment in the materials that are instrumental to bringing electrification to the masses.
For investors who are concerned with the future and sustainability, or who merely want to hedge against the volatility present within fossil fuel-producing industries—investing in this solution offers the potential for beneficial portfolio outcomes, while also advancing the climate transition for a more sustainable economy.
This content was originally published by our partners at ETF Central.