Low-carbon transition to send metals demand soaring

The long-term demand for certain metals that are critical for the transition to a low-carbon economy is set to soar over the next couple of decades, says Fitch Ratings.

In a new report, the rating agency said that efforts to shift to a greener economy will stoke demand for the kinds of metals — including copper, nickel, cobalt and lithium — that are needed to build electric vehicles and renewable power generation facilities.

Indeed, it noted that forecasts from the International Energy Agency point to a six-fold increase in demand from current levels by 2050.

“This will require a vast supply response in the next two decades and investments from miners,” Fitch said.

While the resources needed to meet the expected surge in demand are available, Fitch also noted that “mineral resources are often geographically concentrated and their extraction may be subject to challenges.”

Indeed, the report said that an emerging issue is that investors now expect miners to ramp up production without compromising environmental standards.

“The key challenge is to reduce greenhouse gas emissions across the metal value chain,” Fitch said. “Emissions intensity of cobalt, aluminium and nickel mining and processing is high, so skyrocketing demand may result in rising net carbon footprints.”

The more conventional challenges also include the long lead times and large investments typically involved with mining projects.

“Lead times from resource discovery to production average 17 years, including 12.5 years from discovery to feasibility and 4.5 years for planning and construction, according to the IEA,” Fitch noted.

While lithium projects can be brought on line faster (in about seven years), the report said that copper, cobalt and nickel projects typically take the longest time to reach production.

For the next couple of years, supply and demand are expected to remain balanced, Fitch said — however, it suggested that supply shortfalls could start to emerge after 2025 “as the pipeline of new projects is not yet synchronised with the expected rise in demand.”

Ultimately, Fitch said that it views mining companies’ exposure to these so-called “energy-transition metals” as a positive.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.