Thermal coal, blast furnace-basic oxygen furnace (BF-BOF) steelmaking and its raw materials are the segments of the metals and mining sector that are most vulnerable to long-term climate risks owing to their large direct emissions, credit ratings agency Fitch Ratings says.
Demand for many nonferrous metals will remain high in the long term owing to their role in the low-carbon transition, even though producers will need to decarbonise their mining and processing, the agency adds.
It notes that the vulnerability of gold to climate risk will remain unchanged owing to its limited industrial use and expected reductions in production-related emissions.
Fitch warns that thermal coal mining faces a long-term existential threat as coal-fired energy generation is the single largest source of greenhouse-gas (GHG) emissions and cleaner sources of energy are already available.
Fitch explains that steelmaking is highly carbon-intensive, particularly if using the BF-BOF route, which relies on metallurgical coal for iron-ore reduction, Fitch points out.
Electric arc furnaces (EAFs) are easier to decarbonise as their emissions are much lower and largely depend on power supply, the agency outlines.
Fitch notes that steel demand will grow in the long term, but that major changes in technology will be required to achieve carbon-neutral primary steelmaking.
EAFs that are based on direct-reduced iron (DRI) and powered by renewables or, when feasible, green hydrogen, are currently viewed as the key way to achieve carbon-neutrality, the company points out.
It says carbon capture and storage (CCS) is another option; however, the UN Principles for Responsible Investment expects this technology to be used less often.
Fitch says BF-BOF steelmaking faces greater long-term climate risks than EAF steelmaking, as it will become less competitive owing to the growing pressure of carbon costs and significant capital expenditure needs.
It notes that metallurgical coal faces similar climate vulnerability because demand will decline as less steel is made using the BF-BOF route, of which it is an input.
Fitch explains that iron-ore is required in all steelmaking processes except for EAF facilities that only use scrap. This, it says, reduces its long-term climate risks compared with metallurgical coal.
Fitch indicates that mining of non-ferrous metals is responsible for just under 1% of global GHG emissions. The use of such metals in the energy transition supports long-term demand, leading to significantly lower climate vulnerability compared to steelmaking and its inputs, the company outlines.
In terms of copper, Fitch notes that this is used in a broad range of electronic and industrial applications, including electricity networks, charging infrastructure, solar and wind power, and electric vehicles, therefore, demand for it should more than double by 2050.
This, the company says, leads to lower climate risk vulnerability, although it can be replaced with aluminium in some applications.
Fitch expects nickel to be the least vulnerable nonferrous metal.
It adds that nickel has been predominantly used in stainless steel production and other corrosion-resistant alloys, but it expects demand to surge fivefold in the next 30 years owing to its application in rechargeable batteries and electricity storage.
Moreover, Fitch says nickel mining and refining emits a high level of GHGs, but that the carbon costs of nickel are a fraction of its price.
However, rising nickel prices that can lead to the metal’s substitution and the need to develop low-carbon production processes increase its long-term vulnerability, the company warns.
Fitch mentions aluminium as another critical mineral for the energy transition. However, it cautions that its production is energy-intensive, with almost 60% currently powered by thermal coal, leading to a large carbon footprint.
Aluminium demand fundamentals are weaker than those of copper and nickel, but comparable to that of steel. Electricity price volatility and rising carbon costs can change market dynamics, Fitch points out.
The agency expects greater demand for zinc from wind turbine manufacturing and hydro and solar power.
Zinc is primarily used for steel galvanisation. Like aluminium, zinc refining is energy-intensive, suggesting increasing long-term decarbonisation requirements and rising carbon and electricity costs, Fitch says.