$1 trillion needed for key energy transition metals by 2035: WoodMac

Over $1 trillion of investment will be needed in key energy transition metals, namely aluminum, cobalt, copper, nickel and lithium, over the next 15 years to meet the growing demands of decarbonization, Wood Mackenzie said Oct. 21.

The consultancy noted that this was almost double the figure invested over the previous 15 years, with governments globally using stimulus packages to either kick-start or accelerate their decarbonization journeys.

WoodMac vice chairman of metals and mining Julian Kettle said in a press release that these metals were critical no matter what pace or scale the energy transition took.

"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," Kettle said.

However, he noted that prices for most of these metals were below long-term incentive levels, due to poor and deteriorating fundamentals, which had led investors to be uncertain about the road to recovery and not completely convinced "of the sunlit uplands that the energy transition represents."

Kettle said that metals producers were becoming increasingly carbon conscious, with many setting targets for net-zero carbon and several high-profile major miners having sold off 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," Kettle said.

He said this had led to the resurgence of interest in the collection and use of scrap, as increasing the use of secondary metal would help to meet sustainability goals, reduce capital demands and decrease production's carbon footprint.

However, Kettle noted that there were limitations to using secondary metals in energy transition, with several applications, such as electricity cabling and wiring only being able to use primary metal.

Crossroads

Kettle noted that long-dated returns from investing in mining and processing sat uneasily against the need for certainty of regular dividend payments or the near-term gains that could be made from other popular asset classes, which severely hampered the ability of boards to undertake the necessary long-term decisions needed to develop the supply that high-growth energy transition related commodities demand.

According to WoodMac, the metals mining industry had found itself at crossroads, with the short-term outlook generally poor, with deteriorating market fundamentals, albeit as a result of a global pandemic rather than overexuberant investment in supply.

This raised the questions whether producers could position themselves for investment in new supply for growth in conventional and energy transition markets, not only to offset mine depletion, and whether they could decarbonize and navigate the increasingly complex minefield of the environmental, social and corporate governance landscape and deliver the returns expected.

Kettle said if producers could not meet the most basic of consumers' needs -- for predictable, affordable and ethically sourced supply -- there would surely come a time when ways were found to innovate out unreliable raw components from the supply chain.

"Miners are adept at juggling conflicting demands. The question is whether they are adept enough to manage this perfect storm of problems and opportunities," Kettle said.

Kettle added that green energy procurement and generation was important and portfolio optimization was now crucial for any board.

"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," Kettle said.