More than $1 trillion of investment will be needed in key energy transition metals—aluminum, cobalt, copper, nickel and lithium—over the next 15 years just to meet the growing demands of decarbonization, according to global research and consultancy business Wood Mackenzie. 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 realization 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 aluminum, cobalt, copper, nickel and lithium.
However, the fundamentals for several metals are poor and deteriorating, with prices for most well below long-term incentive levels. Understandably, investors are not totally convinced that the road to recovery is assured or of the sunlit uplands that the energy transition represents.
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.—Julian Kettle, Wood Mackenzie Vice Chairman of Metals and Mining
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. The green agenda will have a profound impact on the way these companies extract and refine metals, with lower carbon operations an increasing priority, Kettle added.
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.—Julian Kettle
The industry finds itself at the same crossroads it has been at before, says Wood Mackenzie. The short-term outlook is generally poor with deteriorating market fundamentals, albeit as a result of a global pandemic rather than overexuberant investment in supply.