The mining giant and 4 ETFs Bell Potter expects to win the commodities boom

For years, investors have heard warnings about looming commodity shortages. Most have come and gone without triggering the sustained rally many expected.

Bell Potter believes this time may be different.

In a recent strategy note titled Early innings of a commodity supercycle, the broker argues that three powerful structural trends are converging at once:

1. The AI infrastructure boom
2. Global electrification
3. The rewiring of supply chains away from China.

Combined with a mining sector that has underinvested for more than a decade, Bell Potter believes the ingredients are in place for a prolonged period of elevated commodity prices.

"We believe new and higher price floors are being established across a basket of commodities. We see this as the early innings of a sustained supercycle."

The last boom was powered by China's industrialisation and construction frenzy, lifting bulk commodities such as iron ore, coal and oil. Bell Potter argues this new cycle is being driven by the metals needed to build data centres, power grids, electric vehicles and defence systems.

Its preferred commodities are:

• Copper - Bell Potter's top pick and the "cleanest beneficiary" of the AI boom.
• Gold - benefiting from central bank buying and a weakening US dollar.
• Aluminium – a leveraged play on AI infrastructure and electrification.
• Uranium – exposure to the power requirements of AI and the energy transition.
• Rare earths – riding electrification, defence spending and supply-chain reshoring.
• Lithium – supported by EV batteries and energy storage demand, with deficits forecast into the 2030s.

Three forces driving demand

The broker expanded on the three structural demand drivers that are reinforcing one another.

1. AI's insatiable appetite for metals

The AI arms race has triggered an unprecedented wave of capital expenditure from the world's largest technology companies.

Data centres require enormous quantities of copper and aluminium, both inside the facilities and in the power infrastructure needed to connect them to the grid. Bell Potter estimates that once grid connections are included, every megawatt of data centre capacity requires roughly 27 tonnes of copper.

"Building and connecting hyperscale capacity at this pace requires a step-change in grid capacity, and the grid requires very large volumes of copper, aluminium and other materials."

2. Electrification and decarbonisation

The transition away from fossil fuels is highly commodity intensive.

Electric vehicles require substantially more copper than conventional cars, while renewable energy infrastructure consumes significantly larger volumes of industrial metals than traditional generation technologies.

Bell Potter argues this trend alone should support demand for base metals and battery materials for years to come.

"The electrification thematic is a long term thematic which should underwrite the demand in base metals and battery metals over the next decade (or more)," the broker said.

"We expect the recent Iran/US conflict to accelerate the shift, as the energy and fuel price spikes it triggered push governments and consumers to reduce their exposure to the oil price.

The broker also argues that nuclear energy will play an increasingly important role in meeting that demand. As data centres require reliable, around-the-clock power, major technology companies are increasingly turning to nuclear generation, providing a supportive backdrop for uranium demand.

"Global nuclear capacity already consumes around 180 Mlb of U3O8 per year against existing mine production of roughly 150 Mlb, a deficit before any new growth, with the World Nuclear Association’s reference scenario pointing toward 390 Mlb per annum by 2040," the broker said.

"Against a slow, capital-intensive supply response, uranium sits among the tightest-supplied commodities that benefit from both AI capex and electrification.

3. Rewiring of global supply chains

The third driver is geopolitical, but it reinforces the other two themes.

Governments increasingly view critical minerals as strategic assets rather than simple commodities. Efforts to diversify supply chains, reduce reliance on China and build domestic processing capacity are creating an additional source of demand across a range of commodities.

"The pandemic, the war in Ukraine, successive rounds of Chinese export restrictions on critical materials, US tariffs and the recent Iran/US conflict have pushed governments and companies to prioritise security of supply over lowest cost," Crookston and Murdoch said.

The shift is also reshaping demand for gold. The broker argues that the freezing of roughly US$300 billion of Russian foreign exchange reserves following the invasion of Ukraine highlighted the political risks associated with holding US dollar-denominated assets.

In response, central banks have accelerated their gold purchases, buying more than 1,000 tonnes annually over the past three years – roughly double the pace of the previous decade.

"The US dollar's share of global reserves has drifted down from around 70% at the start of the century to under 60% today, and gold has absorbed much of that shift," they said.

"This is a structural, price insensitive source of demand: central banks buy gold as policy rather than as a trade, which puts a firmer floor under the price than investment flows alone."

Why supply can't keep up

Strong demand alone doesn't create a supercycle.

What differentiates this cycle, according to Bell Potter, is that supply may struggle to respond quickly enough.

After the previous commodity boom ended, mining companies spent much of the next decade prioritising dividends and balance sheet repair over exploration and project development.

Bell Potter describes this as a "pivot" from the debt-fuelled acquisitions and overinvestment that characterised the last cycle, one that "hardened boards against growth spending for the rest of the decade".

The result is a mining sector that entered this new period of demand growth with a relatively thin project pipeline.

"With few major projects sanctioned over the past decade, there is limited new supply ready to come online as demand accelerates," Crookston and Murdoch said.

Copper stands above the rest

While Bell Potter is constructive on several commodities, copper is its highest-conviction idea.

The metal benefits from all three demand drivers simultaneously:

• AI and data-centre construction
• Electrification and grid expansion
• Defence spending and supply-chain reshoring

At the same time, copper faces some of the most severe supply constraints in the mining sector.

In Bell Potter's commodity scorecard, copper receives the highest overall conviction rating, supported by strong demand growth and a structural supply deficit.

How to invest in the supercycle

Bell Potter favours producers over physical commodities because miners can benefit disproportionately from higher prices.

With much of their cost base fixed, a sustained rise in commodity prices flows directly into earnings and cash flow.

The broker also notes that consensus forecasts still assume lower commodity prices than those currently prevailing, meaning many producers could deliver earnings upgrades even if spot prices don't rise further.

"As that gap closes, the re-rating comes through earnings and cash-flow upgrades rather than a higher commodity price. Although, we think there is upside risk to spot for some commodities, which will also support share prices," Crookston and Murdoch said.

TOP PICK: Copper

Bell Potter's preferred copper ETF is:

• Global X Copper Miners ETF (ASX: WIRE)

For stock pickers, the broker highlights:

• BHP (ASX: BHP)
• Rio Tinto (ASX: RIO)
• Sandfire Resources (ASX: SFR)

Bell Potter also highlighted the implications for the major diversified miners, particularly Rio Tinto and BHP.

"Copper is fast becoming a third earnings pillar alongside iron ore and aluminium as Oyu Tolgoi ramps up; however, consensus still marks that copper exposure to a long-run price below spot," the broker said.

In other words, Bell Potter believes the market continues to value Rio's growing copper business using commodity price assumptions that are more conservative than current market prices. If copper prices simply hold their ground, rather than rise further, the broker sees scope for earnings and cash-flow upgrades.

The balance-sheet implications could also be significant. Bell Potter estimates that, at current commodity prices, BHP's net debt could fall towards zero, while Rio Tinto and South32 (ASX: S32) could move into net cash positions by 2028.

how to play aluminium

For aluminium, Bell Potter's preferences are:

• Rio Tinto (ASX: RIO)
• South32 (ASX: S32)
• Alcoa (ASX: AAI)

how to play gold

For investors seeking gold exposure, Bell Potter points to:

• Perth Mint Gold Structured Product (ASX: PMGOLD)
• Global X Gold Bullion (Currency Hedged) ETF (ASX: GHLD)
• VanEck Gold Miners ETF (ASX: GDX)

Among gold miners, its list includes:

• Evolution Mining (ASX: EVN)
• Northern Star (ASX: NST)
• Genesis Minerals (ASX: GMD)
• Capricorn Metals (ASX: CMM)
• Bellevue Gold (ASX: BGL)

The thesis here centres on continued central-bank buying and a gradual shift away from US-dollar reserve assets.

how to play Uranium

Bell Potter sees uranium as a direct beneficiary of the AI buildout.

As hyperscale data centres seek reliable, carbon-free baseload power, major technology companies have increasingly embraced nuclear energy.

Its preferred ETFs include:

• Global X Uranium ETF (ASX: ATOM)
• Betashares Global Uranium ETF (ASX: URNM)

Preferred stocks include:

• Paladin Energy (ASX: PDN)
• Deep Yellow (ASX: DYL)
• NextGen Energy (ASX: NXG)

how to play rare earths

Rare earths remain a more specialised thematic exposure.

The broker's preferred ASX name is Lynas Rare Earths (ASX: LYC).

The investment case is linked to defence spending, robotics, electric motors and efforts by Western nations to reduce reliance on Chinese processing capacity.

how to play lithium

Lithium receives a lower conviction rating than copper but remains part of Bell Potter's preferred basket.

The broker highlights:

• Global X Battery Tech & Lithium ETF (ASX: ACDC)
• Pilbara Minerals (ASX: PLS)
• Mineral Resources (ASX: MIN)
• Liontown Resources (ASX: LTR)
• IGO (ASX: IGO)

The key challenge is that lithium markets remain more volatile and susceptible to supply swings than some of the other commodities on Bell Potter's list.

The one stock and four ETFs Bell Potter likes most

When it comes to Bell Potter's preferred stock for the commodities supercycle, the broker's pick is Rio Tinto.

"RIO offers exposure to our top two commodity picks (copper and aluminium) in a single, large-cap name," Crookston and Murdoch wrote.

The broker notes that Rio is one of the largest Western copper producers, with the Oyu Tolgoi underground expansion expected to lift copper production through the back half of the decade. At the same time, it operates the largest aluminium business among the diversified miners, spanning bauxite, alumina and smelting.

"With a balance sheet that trends towards net cash at spot prices, RIO can fund that copper growth while sustaining its dividend, giving investors leverage to both the electrification/AI copper theme and the aluminium-substitution trade without taking single-commodity risk."

For investors who prefer a diversified approach, the broker prefers WIRE for copper miners, GDX for gold producers and ATOM or URNM for uranium exposure, arguing these funds offer a simple way to gain broad exposure to the themes underpinning the commodities supercycle.