More than $1-trillion of investment will be needed in key energy transition metals - aluminium, cobalt, copper, nickel and lithium - over the next 15 years to meet the growing demands of decarbonisation, says consultancy group Wood Mackenzie (WoodMac).
This is almost double the figure invested over the previous 15 years.
“One can argue about both the pace and scale of the energy transition, but the criticality of metals to its realisation is without question. Put simply, the energy transition starts and ends with metals. If you want to generate, transmit or store low/no-carbon energy you need aluminium, cobalt, copper, nickel and lithium,” says WoodMac vice chairperson of metals and mining, Julian Kettle.
However, he notes that the fundamentals for several metals are poor and deteriorating, with prices for most well below long-term incentive levels.
"Long-dated returns from investing in mining and processing sit uneasily against the need for certainty of regular dividend payments or the near-term gains that can be made from other popular asset classes. This severely hampers the ability of boards to undertake the necessary long-term decisions needed to develop the supply that high-growth energy transition related commodities demand.
“This poses fundamental questions – and not just for the consumers of these metals who will rely on predictable, affordable and, for some, ethically sourced supply. If producers cannot meet the most basic of consumers’ needs, a time will surely come when they find ways to innovate out such unreliable raw components from their supply chain,” says Kettle.
Producers are becoming increasingly carbon conscious, with many setting targets for net zero carbon. Several high-profile majors have offloaded their high carbon assets and/or acquired low carbon replacements.
“It isn’t just about portfolio balance. The green agenda will have a profound impact on the way these companies extract and refine metals, with lower carbon operations an increasing priority.
“This, in part, explains the resurgence of interest in the collection and use of scrap. Increasing our reliance on secondary metal will help to meet sustainability goals, reduce capital demands and decrease the carbon footprint of production.
“However, scrap collection and sorting remain problematic and secondary metal cannot be used in several applications driving the energy transition, such as electricity cabling and wiring that require primary metal.
“Green energy procurement and generation is at the fore and portfolio optimisation is now a must-have on any board agenda. It feels like the tipping point is imminent. We expect carbon to become a non-negotiable component of any AGM - as safety did in the 1990s,” adds Kettle.
The industry finds itself at the same crossroads it has been at before – the short-term outlook is generally poor with deteriorating market fundamentals, albeit as a result of a global pandemic rather than over-exuberant investment in supply.
“Can producers position themselves for investment in new supply, not just to offset mine depletion but also for growth in conventional and energy transition markets? Can they decarbonise and navigate the increasingly complex minefield of the ESG landscape and deliver the returns expected?
“Miners are adept at juggling conflicting demands. The question is whether they are adept enough to manage this perfect storm of problems and opportunities,” says Kettle.