Raw materials will be at the core of decarbonization efforts
The shift to a net-zero economy will be very resource-intensive in metals. It is expected that the metals and mining industry will be put to the test as the shift toward cleaner technologies develops since it will be needed to provide the vast amounts of raw materials necessary for the energy transition.
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A consequence of the lengthy lead times and high capital intensity of the metals and mining industry is that price fly-ups will be inevitable when demand outstrips supply. Price volatility will generate uncertainty surrounding the substantial up-front capital inputs required for production. Supply, market, and price interactions will arise across a range of commodities, resulting in feedback loops followed by a mix of technological changes, demand destruction, and materials substitution, among other things. The industry will have to expand faster than ever before while becoming more eco-friendly. At the same time, end-user sectors will need to take in the possibility of resource limits while developing and expanding their technology portfolio.
By the conclusion of the 26th United Nations Climate Change Conference (COP26) in November 2021, it was evident that the tide had turned against the climate change movement. In Glasgow, climate agreements were made that have solidified the net-zero goal of lowering global carbon emissions (intending to stop the globe from warming by more than 1.5°C) as a fundamental business value. Another fact emerged at the same time: net-zero promises are outperforming the development of supply chains, market mechanisms, finance models, and other solutions and structures that will be required to smooth the world’s decarbonization route. Even while the argument over whether or not the summit was successful continues, it is clear that the following decade will be critical in decarbonizing the world’s economy. The global economy is under pressure from various sources, including stakeholders and investor demands that companies decarbonize their operations. But metals and mining companies are facing a unique challenge of their own: supplying the critical inputs required to drive the massive technological transition that lies ahead.
Decarbonization and electrification need raw materials to move away from fossil fuels and toward renewable energy sources like wind and solar. There are related technical mixes, including numerous raw-material combinations, each with its own set of repercussions for the global economy. Fundamental demand adjustments will occur regardless of the decarbonization route we choose.
Not only will demand additional supply come from relatively large-volume raw materials—for example, copper for electrification and nickel for battery electric vehicles, both of which are expected to see significant demand growth beyond their current applications—but also from relatively niche commodities, such as lithium and cobalt for batteries, tellurium for solar panels, and neodymium for permanent magnets, which are used in both wind power generation and electric vehicles. Some commodities, most notably steel, will also play an enabling role across a range of technologies that will need the development of new infrastructure.
To avoid shortages and keep new-technology costs competitive, the availability of certain raw materials will need to be scaled up in a brief period – and, in some cases, at volumes ten times or more than the current market size – to prevent shortages to keep new-technology costs competitive.
