The Rebuilding of the West: Why Materials Demand Is Structural, Not Cyclical
- 13 hours ago
- 11 min read
I grew up in Hamilton, Ontario, where my father spent thirty years as a metallurgical engineer at one of Canada’s largest steel mills. The materials sector is not an abstraction to me. That background shaped how I think about what comes out of the ground and what the world does with it.
In November 2022, writing in the Curve Appeal column in Financial Post Magazine, I argued that energy would be the inflation hedge of the decade. The thesis was grounded in supply-side underinvestment: years of capital discipline and ESG-driven constraints on exploration had left the energy sector structurally unable to respond to rising demand. That thesis was validated in March 2026 when the Strait of Hormuz crisis sent oil prices to levels that caught most market participants off guard but not those who had been watching the supply picture.
The supply-side story I identified in energy has a broader chapter. The same structural underinvestment is now playing out across the materials complex, from copper and uranium to steel and nickel. But this time, the demand side is not one force. It is three, and they are arriving simultaneously.
For Canadian investors, this matters more than most people realize. The typical Canadian portfolio carries significant home bias, which means meaningfully higher exposure to materials and energy than a globally benchmarked portfolio. The conventional wisdom is that home bias is a risk to be managed. This article makes the case that in the current environment, your home bias might be your edge.
What did COVID reveal about Western supply chains?
The pandemic exposed what decades of efficiency-driven globalization had obscured: Western economies had built supply chains optimized for cost, not resilience. When shipping lanes closed, factories shut, and border restrictions tightened, the consequences were immediate. Medical supplies, semiconductors, energy inputs, and industrial materials all experienced disruptions that governments and corporations were unprepared to manage.
Critical supply chains routed through single points of failure, concentrated in jurisdictions with different strategic interests than those of the consuming nations, created vulnerabilities that could not be solved in real time. The policy response, first under the Biden administration and then accelerated under the Trump administration, has been to treat supply chain resilience as a national security priority.
Why is the United States rebuilding its materials supply chain as a national security priority?
The current U.S. administration has moved beyond rhetoric. In March 2025, President Trump signed an executive order designating critical minerals production as a priority industrial capability under the Defence Production Act, with the National Energy Dominance Council overseeing implementation. In January 2026, a Section 232 proclamation ordered negotiations with trading partners to establish price floors for processed critical minerals and their derivative products. The Department of Energy has committed nearly $1 billion to reshoring critical mineral processing, with $355 million directed specifically at extracting minerals from existing industrial byproducts and establishing next-generation mining technology proving grounds.
The policy direction is unmistakable: the United States intends to reduce its dependence on foreign supply chains for the materials that underpin its industrial base, its military capability, and its technology infrastructure. But there is a fundamental constraint. It takes an average of 29 years to bring a new mine online in the United States, the second longest permitting timeline in the world. The country does not have sufficient reserves of every critical material, and its processing capacity, particularly for rare earths and certain battery metals, is decades behind China's.
The Carnegie Endowment for International Peace noted in a 2025 analysis that the U.S. critical minerals strategy centres on streamlined permitting, legislative support through the One Big Beautiful Bill Act, and protective tariffs. But the same analysis concluded that a purely domestic approach faces severe constraints, and that international agreements are essential to making the strategy work.
The scale of the policy commitment was crystallized on February 2, 2026, when Robert Friedland, founder of Ivanhoe Mines and one of the most consequential figures in global mining, stood in the Oval Office beside President Trump for the launch of Project Vault, a $12 billion strategic critical minerals stockpile backed by the largest loan in Export-Import Bank history. Friedland told the President that mining had fallen to one per cent of the S&P 500, but that “this is the first administration where we’ve got hope.” When the architect of some of the world’s largest copper and platinum discoveries is personally briefing the President on supply chain security, the policy signal is unmistakable.
This means the United States cannot do this alone. The most natural partner for reshored and friendshored supply chains is Canada. Canada holds world-class deposits of copper, uranium, nickel, and critical minerals across multiple provinces. The Athabasca Basin in Saskatchewan contains the highest-grade uranium deposits on earth. British Columbia, Ontario, and Quebec have significant copper and nickel resources. Canada operates under a transparent regulatory framework, shares a border and a trade agreement with the United States, and has a mining sector that accounts for a significant share of its equity market.
Why are AI and electrification competing for the same materials?
The physical infrastructure required to power the artificial intelligence revolution is staggering, and it is copper-intensive. A single hyperscale data centre campus requires 27 to 33 tonnes of copper per megawatt of installed capacity for power distribution, cooling, grounding, and connectivity. S&P Global projects that global copper demand will reach 42 million metric tonnes by 2040, a 50 per cent increase from current levels, while supply is projected to peak at 33 million metric tonnes in 2030. That gap is structural.
Northland has been investing in data centre construction for more than seven years through our allocation to institutional global real estate managers. When we first allocated to the sector, the thesis was straightforward: digital infrastructure was a long-duration real asset with contractual cash flows and growing demand. The generative AI revolution accelerated that demand beyond what anyone modelled. What we are now watching is the second-order effect: the physical materials required to build, power, and connect these facilities are running into supply constraints that the market has not yet fully priced.
Uranium is the energy story within the materials story. Nuclear power is the only scalable, zero-emission baseload energy source capable of providing the 24/7 uptime that AI data centres require. BloombergNEF expects approximately 15 reactors to come online in 2026, adding close to 12 gigawatts of new capacity. Technology companies including Microsoft, Google, Amazon, and Meta are signing nuclear power agreements or investing directly in reactor development. More than 85 per cent of investors surveyed by Uranium.io expect uranium prices to rise into 2026, with many citing a range of $100 to $120 per pound. Mined uranium currently meets less than 75 per cent of reactor requirements, and that gap is widening.
Steel is less discussed but equally important. Large hyperscale data centre campuses require 10,000 to over 200,000 tonnes of steel depending on architecture and scale. Limited production of grain-oriented electrical steel is constraining transformer manufacturing, with procurement timelines now stretching to two to three years for large power transformers. Every data centre that is built creates demand for the grid infrastructure to connect it, and that infrastructure runs on copper, steel, and aluminum.
Why is the global defence rearmament cycle the demand driver most investors are missing?
At the 2025 NATO Summit in The Hague, allies committed to investing 5 per cent of GDP annually on core defence requirements and defence-and-security-related spending by 2035. This is not an aspirational target. It is a formal commitment with annual reporting requirements. At least 3.5 per cent of GDP is to go directly to military capability, with the remaining 1.5 per cent directed to critical infrastructure protection, cybersecurity, and defence industrial base strengthening.
To put this in perspective, in 2014, only three NATO members met the then-target of 2 per cent of GDP. As of March 2026, all 32 NATO allies are meeting or exceeding the 2 per cent benchmark. The path to 5 per cent represents a further doubling of defence spending across the alliance over the next decade.
NATO Secretary General Mark Rutte stated at Davos in January 2026 that without President Trump's pressure, the Hague commitment would never have happened. That is a politically charged statement, but the spending trajectory is a matter of public record. Whether motivated by U.S. pressure, the war in Ukraine, or broader geopolitical instability, the result is the same: the Western world is rearming at a pace not seen since the Cold War.
Canada's own trajectory illustrates the scale. On March 26, 2026, NATO confirmed that Canada had met the 2 per cent target for the first time since the fall of the Berlin Wall, spending over $63 billion on defence, an increase of more than 65 per cent since 2014. Prime Minister Carney has committed to reaching the 5 per cent target by 2035, which analysts estimate would require approximately $150 billion annually. Over the next decade, Canada has pledged half a trillion dollars in defence investment.
S&P Global's January 2026 study on copper demand explicitly identifies global defence spending, projected to potentially double to $6 trillion by 2040, as a new and distinct demand vector for critical minerals alongside AI and the energy transition. Modern weapons systems, communications infrastructure, surveillance equipment, and the physical hardening of critical infrastructure all require copper, nickel, specialty steels, and rare earths. These categories of demand are cumulative with, not a substitute for, the AI and electrification demand.
What makes this different from a commodity cycle?
Commodity cycles are driven by price signals and sentiment. Prices rise, producers invest, supply responds, prices fall. The current materials demand picture is different because the demand is driven by government policy commitments with multi-year horizons. The NATO 5 per cent target runs to 2035. The U.S. critical minerals executive orders and DOE funding programs are designed to build domestic capacity over a decade. AI infrastructure investment by the major technology companies is budgeted in the hundreds of billions annually, with data centre construction starts accelerating, not decelerating.
When three structural demand forces arrive simultaneously and all compete for the same constrained pool of materials, the supply response cannot keep pace. New mines take a decade or more to develop. Smelting and refining capacity, particularly outside China, is inadequate. The International Energy Agency’s critical minerals outlook indicates that nearly 30 per cent of projected 2035 copper demand has no identified supply source.
The thesis is not that commodity prices will go up in a straight line. There will be cyclical volatility. China's demand weakness, Indonesian nickel oversupply, tariff escalation, and policy reversals are all real risks. Nickel, in particular, faces a projected global surplus of roughly 260,000 to 290,000 tonnes in 2026, driven by Indonesian production expansion and a structural shift toward lithium iron phosphate batteries that use less nickel. Not every material is in deficit. The thesis is that the structural demand trajectory for the materials complex, over a five-to-ten-year horizon, is the strongest it has been in decades. And Canada is uniquely positioned to supply what the world needs.
What does this mean for the typical Canadian investor?
The S&P/TSX Composite Index allocates 22.2 per cent to Materials and 16.3 per cent to Energy, a combined 38.5 per cent. The S&P 500 allocates approximately 2.0 per cent to Materials and 4.1 per cent to Energy, a combined 6.1 per cent. A Canadian investor with even moderate home bias carries roughly six times the materials and energy exposure of someone benchmarked exclusively to the U.S. market.
Home bias is typically discussed as a portfolio risk. Canadian investors are overconcentrated in a narrow set of sectors, the argument goes, and should diversify internationally. That argument has considerable merit in normal environments. But the current environment is not normal. If the structural demand thesis outlined in this article is correct, then the sectors where the TSX is most heavily weighted are precisely the sectors facing the most favourable supply-demand dynamics over the coming decade.
Consider the alternative. A family that reflexively reduces Canadian exposure in favour of the S&P 500 is, in effect, selling the sectors facing structural demand to buy an index where materials and energy together account for roughly 6 per cent. That is not diversification. It is a bet that the demand thesis is wrong. It may be the right bet. But it should be a conscious one, not a reflex.
This is not a recommendation to increase home bias or to concentrate further in commodities. It is a recommendation to understand what you own and to ensure your positioning is deliberate rather than accidental. A family managing $25 million across a personal portfolio, a holding company, and a family trust may have materials exposure in all three entities without anyone having made a conscious decision about aggregate positioning. A family office coordinates that exposure, ensures it is tax-efficient across entities, and has access to private market vehicles, including mining royalty funds, private equity in resource development, and institutional real estate allocations to infrastructure, that most retail investors and bank-advised clients cannot access.
Northland’s portfolios are positioned overweight in metals and mining relative to global benchmarks. That positioning is deliberate, informed by the thesis described in this article, and managed as part of an integrated investment strategy that accounts for tax, liquidity, and risk across each family’s entire balance sheet.
The rebuilding of the West is not a prediction. It is a policy commitment backed by trillions of dollars over the next decade. The question for Canadian investors is not whether this shift is happening, but whether they understand how their portfolios are already positioned for it.
My father spent thirty years making steel. The world is going to need a lot more of it.
Frequently Asked Questions
Why are copper, uranium, and steel all facing supply constraints at the same time?
Decades of underinvestment in new mining capacity, combined with long permitting timelines (averaging 29 years in the United States), have left supply unable to respond to the simultaneous demand from AI infrastructure, energy transition, and defence rearmament. Each of these demand drivers was developing independently, but they are now converging on the same pool of physical materials. The supply response will take years to materialise, which is why the imbalance is structural rather than temporary.
How does U.S. industrial policy affect demand for Canadian resources?
The United States has designated critical minerals as a national security priority through executive orders, Section 232 actions, and nearly $1 billion in Department of Energy funding for domestic processing capacity. However, the U.S. lacks sufficient reserves of several critical materials and faces the longest mine permitting timelines in the developed world. Canada, as a transparent, allied jurisdiction with world-class mineral deposits and an existing trade framework, is the natural partner for the reshoring and friendshoring of U.S. supply chains. This creates structural demand for Canadian resource production that is policy-driven, not market-driven.
Is the defence spending increase actually large enough to move commodity markets?
S&P Global's January 2026 study projects that global defence spending could double to $6 trillion by 2040, and identifies it as a distinct demand vector for copper and critical minerals alongside AI and the energy transition. The NATO commitment to 5 per cent of GDP by 2035 represents a further doubling from the 2 per cent target that most allies only recently achieved. Canada alone has pledged half a trillion dollars in defence investment over the next decade. The materials intensity of modern defence systems, from advanced electronics and sensors to communications infrastructure and physical hardening, means this spending translates directly into demand for copper, specialty steels, nickel, and rare earths.
Should Canadian investors reduce their home bias given the current environment?
Home bias is typically discussed as a risk because it concentrates a portfolio in a narrow set of sectors and a single economy. That concern remains valid. However, the structural demand thesis for materials and energy suggests that the specific sectors where the TSX is most heavily weighted may face the most favourable supply-demand dynamics over the coming decade. The question is not whether to have home bias but whether you understand the exposure it creates and are managing it deliberately. A family office can coordinate materials exposure across personal accounts, holding companies, and trusts, access private market vehicles unavailable to retail investors, and ensure the positioning is tax-efficient and aligned with the family's overall investment policy.
How does a family office approach materials exposure differently than a retail investor?
A retail investor typically accesses materials through public equities or ETFs. A family office has additional tools: private mining royalty funds, direct co-investment in resource development, institutional global real estate allocations that include infrastructure and data centre construction, and the ability to structure commodity-sensitive positions across multiple entities for tax efficiency. Northland has been investing in data centre construction through institutional real estate managers for more than seven years, a position that predates the generative AI revolution and illustrates how alternatives access can provide early exposure to structural trends before they become consensus.
About the Author
Arthur Salzer, CFA, CIM, is the Founder and CEO of Northland Wealth Management Inc., an independent multi-family office registered as a Portfolio Manager with the Ontario Securities Commission. Arthur wrote the Curve Appeal column in Financial Post Magazine from 2016 to 2022 and has been featured in BNN Bloomberg, the Globe and Mail, Reuters, and the New York Times. He advises ultra-high-net-worth Canadian families on investment strategy, portfolio construction, and intergenerational wealth management from Northland's offices in Oakville, Ontario and Calgary, Alberta.
