Over USD$1 trillion needed for energy transition metals, study finds.

An investment of over $1 trillion will be needed in key energy transition metals – aluminium, cobalt, copper, nickel and lithium – over the next 15 years just to meet the growing demands of decarbonisation, enabling the shift away from fossil fuels and into renewables and other green sources of energy.

Wood Mackenzie, in a new report, says the figure is double what was invested over the last 15 years. Julian Kettle, Vice Chairman of Metals and Mining at Wood Mackenzie notes, “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.”

While acknowledging that producers are becoming carbon conscious, Julian Kettle, Wood Mackenzie’s vice chairman for metals and mining, said the green agenda is not just about portfolio balance as it “will have a profound impact on the way these companies extract and refine metals, with lower carbon operations an increasing priority.”

Kettle also noted the increasing reliance on secondary metal, which will help in achieving sustainability goals, reducing capital demands and cutting carbon footprint.

“Green energy procurement and generation is at the fore and portfolio optimization 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 [annual general meeting] — as safety did in the 1990s,” Kettle said.

While the coronavirus pandemic has slowed climate change mitigation efforts this year, governments across the world are using stimulus packages to either kick-start or accelerate their decarbonisation journeys, WoodMac points out.

In a note, Kettle says the fundamentals for several metals are deteriorating, with prices for most well below long-term incentive levels as investors are not convinced that the road to recovery is assured.

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, Kettle says, and this 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,” Kettle emphasizes. “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.”

COVID-19 has highlighted many things for the industry, including a focus on the climate and decarbonisation and we are seeing governments around the world now using their stimulus recovery packages to restart or accelerate their decarbonisation efforts.

This is welcome news for Romco, and only spurs on our resolve for increased efforts in the secondary metals market.

Miners themselves are increasingly carbon-conscious, with many of the high-profile majors dumping their coal assets and others transitioning their mine sites to be net zero carbon. Romco believes that the green agenda will greatly impact the way that mining companies extract and refine metals as well as the way that we source new metals and recycle used metal.

The focus on decarbonisation explains the growth in interest in the collection and use of scrap metals. Increasing our use of secondary metals to help meet sustainability goals, reduce capital demands for mining, and lower the carbon footprint of production.

That said, the scrap industry is still not in the place where its use is as widespread as we will be required moving forward, and certain technological applications for metal call for the use of primary metal. As Kettle notes, “Miners are adept at juggling conflicting demands. The question is whether they are adept enough to manage this perform storm of problems and opportunities”. That is, those challenges and opportunities that come with global energy transition, especially in the midst of a global pandemic.