With pressure on traditional finite resources increasing, driven by population growth and increased consumption, we have now reached an inflection point where the development of substitute materials and productivity gains will play an increasingly important role in the effort to cope with resource scarcity.
Lightweight and innovative materials such as high strength steel (HSS), aluminium and carbon fibres are increasingly prevalent in industries such as aviation and automotive leading to new long term investment alternatives to traditional resources.
Automotive industry
Penetration rates for lightweight materials in the automotive industry are expected to approach 67 per cent over the next decade, mainly at the expense of standard steel which is being replaced by HSS.
A recent study by McKinsey projects that HSS as a share of material usage in the automotive sector will increase from 15 per cent in 2010 to 38 per cent in 2030. These shifts should have significant ramifications for the traditional basic resources industry, which could lose 40 per cent of volume according to IHS Consulting.
The introduction of CO2 emission targets by the EU and the US combined with the emergence of new welding technologies that allow the adhesive bonding of automotive aluminium structures have made aluminium a viable option for carmakers. New and innovative aluminium alloys with better heat and corrosion resistance and more efficient production processes have also helped. By 2025, aluminium is expected to account for an average of 16 per cent of total vehicle weight, up from 9 per cent today.
Carbon fibres are currently used mainly in F1 racing cars and high-end luxury cars, rather than in mass produced vehicles. However, process technologies have improved considerably, and carbon fibres in automotive applications are expected to account for 19 per cent of the total carbon fibre market by 2020, up from 5 per cent in 2013.
The new BMW i3 is the largest-volume production car to make extensive use of carbon fibres with a current annual production rate of 12,000 units. At BMW’s projected target rate of 30,000 units, the i3 could use more than 2,600 tons of carbon fibre each year, more than the current carbon fibre use in the entire automotive industry.
Aviation industry
The aviation industry has been a proponent of using lightweight materials for decades. Technological advances in manufacturing processes have driven down the costs of carbon fibres and aluminium alloys, making them ubiquitous in aviation today. The industry uses 9,500 tons of carbon fibre per year, accounting for 24 per cent of the total carbon fibre market.
In the 1970s, the first Boeing 747 was primarily made of aluminium and only contained about 1 per cent in carbon fibres. Today, composite materials such as carbon fibres make up roughly 50 per cent of the Boeing 787 and 53 per cent of the Airbus 350. Deliveries of Boeing’s 787 started in 2013 and the first Airbus 350 was delivered in late 2014.
Upgrades to a number of single-aisle airplane models are expected to contribute to growth in the carbon fibre market, offering attractive investment opportunities.
Hexcel Corp, a company specialising in advanced composites, is now benefiting from strong order backlogs for the Boeing 787 and Airbus 350, which are driving demand for carbon fibres.
Automation and robotics
The automation market has grown between six and eight per cent per year since 2003, reaching $180bn in 2013. This growth provides a range of investment opportunities as cost savings, product quality and uniformity, faster production cycles and better resource efficiency continue to drive adoption of automation.
China is expected to be a major driver of robotics in the coming years, having developed into a manufacturing giant over the past decades. The country was the largest market for robots in 2013, accounting for 20 per cent of global sales. The International Federation of Robotics expects robot shipments to China to grow 26 per cent per year, or more than double the growth of global shipments, through 2017.
Included in our portfolio is Kuka AG, which is at the forefront of developing “collaborative” robots that are safe to work alongside humans, which should enable entry into new markets such as the service industry.
As the demand for natural resources increases, supply will continue to be squeezed, putting greater emphasis on materials innovation and production efficiency. By investing in these new alternatives, investors can benefit from long term growth with low volatility, especially when compared to that of the natural resources sector.
Pieter Busscher is manager of the RobecoSAM Smart Materials strategy. The views expressed above are his own and should not be taken as investment advice.
