David Clancy, Portfolio Manager of the abrdn Future Raw Materials ETF, says a combination of rising demand and constrained supply is creating a compelling long-term investment case for critical minerals.
Critical minerals are increasingly being viewed as a long-term investment theme, driven by rising demand from electrification, energy infrastructure, artificial intelligence and robotics.
According to Clancy, the investment case is strengthened by supply constraints, with declining ore grades, fewer discoveries and lengthy mine-development timelines making it harder for production to keep pace with demand.
He believes materials such as copper, lithium, uranium, aluminium and rare earth elements are becoming increasingly important to the global economy and sit at the centre of several structural growth trends.
Clancy says that the challenge facing many critical mineral markets is that supply is struggling to respond to growing demand.
“The case for future raw materials would be far less compelling if supply could respond quickly to higher demand. The supply response, however, looks increasingly difficult and many critical mineral markets face a combination of declining resource quality, a shortage of new discoveries, long development timelines and growing geopolitical constraints. The result is a supply base that is struggling to keep pace with rising demand.”
Rather than gaining exposure through commodities directly, the strategy invests in companies involved in extracting and processing these materials. The rationale is that equities can offer exposure not only to commodity prices, but also to factors such as production growth, project execution, cost control, balance-sheet strength and capital allocation.
abrdn believes the theme is supported by powerful demand drivers, ongoing supply challenges and a market that has yet to fully reflect the strategic importance of these materials.
Looking further ahead, the firm points to continued growth in electricity demand, expanding investment in AI infrastructure and increasing adoption of robotics as key drivers of future mineral demand. At the same time, supply remains constrained by a lack of new discoveries, falling resource quality and long development timelines.
Copper is highlighted as one of the clearest examples, with forecasts suggesting significant supply deficits could emerge over the coming decade if investment in new production capacity fails to keep pace with demand.
Clancy believes investors should view the theme through a long-term lens rather than as a traditional commodity cycle.
“In our view, this is not a tactical, cycle-timing trade. It is a multi-decade structural opportunity, comparable in scale and duration to the oil boom of the 20th century or the technology cycle of the 21st century.”
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The writer’s views are their own and do not constitute financial advice.
This information should not be relied upon by retail clients or investment professionals. Reference to any particular investment does not constitute a recommendation to buy or sell the investment.
Main image: copper, zizi-zi-f9akaYyHK-U-unsplash
