The Industrial Metal Renaissance: How European Rearmament is Fueling a New Era for Commodity Demand

The world is witnessing a seismic shift in industrial metal demand, driven not by traditional economic cycles but by a geopolitical imperative: European rearmament. As NATO allies ramp up defense spending in response to global instability, the demand for metals like copper, nickel, and steel is surging. Goldman Sachs' 6% 2027 forecast for industrial metal demand—anchored by defense-driven growth—signals a structural transformation in mining, infrastructure, and energy equities. This is not just a commodity story; it's a strategic reconfiguration of global supply chains.

The Geopolitical Catalyst: Defense Spending as a Demand Engine

Europe's defense budgets are no longer constrained by austerity. With military spending projected to rise from 1.9% of GDP in 2024 to 2.7% by 2027, the continent is allocating €167 billion annually to modernize its military capabilities. Crucially, 40% of this spending—double the NATO average—will fund metals-intensive equipment. This shift is creating a tailwind for industrial metals, particularly copper, which is essential for power systems, communications, and AI infrastructure.

Goldman Sachs estimates that European rearmament will add 0.9% to global copper demand, 1.3% to nickel, and 0.4% to steel by 2027. These figures are not just incremental; they represent a fundamental realignment of supply chains. For example, copper's role in both defense systems and AI data centers is creating a dual demand surge, with prices poised to climb as inventories normalize.

The Metals of Modern Warfare: Copper, Nickel, and Steel in Focus

Copper is the linchpin of this renaissance. Its conductivity and durability make it indispensable for military vehicles, radar systems, and power grids. Goldman Sachs notes that defense-driven demand could push global copper growth from 2% to 2.4% annually. Meanwhile, nickel—critical for high-performance batteries and armor—is seeing a 1.3% global demand boost, driven by both defense and energy transition projects.

Steel, often overlooked in favor of lighter materials, remains vital for infrastructure and heavy machinery. European defense contracts for armored vehicles and naval vessels are driving steel demand, with Germany's €500 billion infrastructure package further amplifying this trend.

Undervalued Producers: The Hidden Gems of the Industrial Sector

European industrial metal producers are trading at a discount relative to their U.S. counterparts, offering compelling value for investors. Companies like Rheinmetall (DE:RHG) and Rolls-Royce (UK:RR.L) are prime examples.

• Rheinmetall has surged 194% over the past year, fueled by Germany's defense modernization. Its exposure to steel and aluminum for combat vehicles positions it to benefit from both defense and industrial demand.
• Rolls-Royce has rebounded 103% since March 2024, driven by a £9.2 billion defense order book. Its reliance on high-grade metals for jet engines and propulsion systems aligns with the rearmament boom.

ETFs to Capitalize on the Renaissance

For investors seeking diversified exposure, defense-focused ETFs are capturing the momentum. The Select STOXX Europe Aerospace & Defense ETF (EUAD) has surged 20.6% in March 2025 alone, while the VanEck Defense UCITS ETF (DFEN.L) has attracted $1 billion in inflows. These funds hold stakes in companies reliant on industrial metals, offering a basket of beneficiaries from the rearmament-driven demand.

The Strategic Intersection: Where Geopolitics Meets Supply Chains

The true opportunity lies in the intersection of geopolitical strategy and industrial supply chains. As Europe shifts from austerity to rearmament, the demand for metals is no longer cyclical—it's structural. This shift is reshaping mining equities, infrastructure projects, and energy transitions. For instance, the EU's €800 billion ReArm Europe Plan by 2030 will require decades of capital expenditures on power grids, data centers, and military infrastructure.

Investors should prioritize companies and ETFs with direct exposure to copper, nickel, and steel, as well as those positioned in the defense supply chain. The key is to identify undervalued producers with strong balance sheets and clear demand drivers.

Conclusion: A New Era for Industrial Metals

The industrial metal renaissance is not a passing trend—it's a strategic realignment driven by geopolitical necessity. As European defense spending accelerates, the demand for metals will outpace traditional economic indicators. For investors, this presents a rare opportunity to capitalize on a structural shift, where the intersection of geopolitics and supply chains creates long-term value.

The time to act is now. Whether through undervalued producers like Rheinmetall or defense ETFs like EUAD, the path to capitalizing on this renaissance is clear. The question is not if the demand will materialize—it's how quickly investors can position themselves to benefit.