Chokepoint Investing Through the Lens of Copper and Aluminium

Copper and aluminum are becoming key focus areas for chokepoint investing, as they underpin the growth of AI, electric vehicles, and defense industries
Companies that control critical chokepoints often enjoy stronger pricing power and can benefit from long-term structural demand growth
Chokepoint investing can help capture long-term growth opportunities while enhancing portfolio resilience

Artificial Intelligence (AI), electric vehicles (EVs) and the military are among the red-hot sectors that have frequently surfaced in recent discussions about investing. Supporting these long-term trends include base metals — copper and aluminium — which play pivotal roles in the supply chain. Without copper, the rapid transmission of massive amounts of data at AI data centres would prove difficult, while EV sensors would struggle to function. Any shortage of aluminium could limit the development of aircraft and military equipment. As the race for global resources and technologies heats up, the notion of 'chokepoint investing' is gaining traction among investors.

Chokepoint investing' refers to identifying and investing in companies that control critical positions along the supply chain. The absence of these firms could cause severe disruptions to their respective industries. Such businesses typically have relatively higher barriers to entry, possess technologies, equipment, or resources that are difficult for competitors to replicate and for end-users to replace with alternatives. Consequently, these firms generally enjoy stronger pricing power. This enables them to raise prices and stabilise — or even improve — profitability amid surging demand or inflation. For investors, structural demand enables chokepoint companies to maintain stable cash flows, helping to reduce portfolio volatility during market fluctuations. As global awareness over energy security and national security increases, alongside intensifying AI competition, governments worldwide are actively seeking ways to secure reliable supplies of resources and technologies, providing further support to chokepoint companies.

Take copper as an example. Copper is an indispensable material in power production and transmission. It is difficult to replace with other metals due to its characteristics, including strong heat resistance, high electrical conductivity, and corrosion resistance. Energy transition and AI developments are among the key drivers of copper demand. A case in point: because electric vehicles are equipped with batteries and a large number of sensors, their need for copper is three to four times higher than that of traditional cars. The International Energy Agency estimates that the global copper market could face a supply deficit of approximately 30% by 2035, due to a slew of factors, including the lengthy time required to develop new mines, limited discoveries of new large-scale mines, and rising costs. This structural gap creates a genuine chokepoint for companies that can offer a steady copper supply.

Take aluminium as another example. With a broad range of applications spanning aerospace, military, and AI infrastructure, aluminium's chokepoint lies in the smelting process. Aluminium smelting is highly energy- intensive, requiring a massive stable and low-cost power supply—something that may not be affordable for every country with abundant aluminium deposits. China accounts for approximately 60% of global aluminium smelting capacity. With the majority of its output absorbed by domestic demand, the amount available for export is relatively limited. More recently, the disruptions around the Strait of Hormuz have further pushed aluminium prices higher. Against a backdrop of geopolitical friction and highly concentrated resources and supply, the roles of aluminium-related chokepoint companies are increasingly coming into focus.

To assess whether a certain company genuinely controls a chokepoint, it is imperative to thoroughly analyse the industry's supply chain to determine whether its assets or technologies truly occupy a critical position that is difficult to replace. In addition, should there be any drastic changes to the macro trend, government policies, or technological development, a company currently controlling a chokepoint could lose its competitive edge, potentially altering its investment value. As such, maintaining a reasonably diversified allocation is key to effective risk management when seeking to capitalise on long-term growth through 'chokepoint investing'. Investors could also consider a multi-asset portfolio with exposure to chokepoint investments to participate in this potential growth.