Global energy transition will drive next commodities supercycle

July 16, 2021

Add global research and consultancy business Woods MacKenzie to the growing list of those predicting another mining supercyle powered by the industrial metals that will be needed to create a carbon free society.

In a report titled, ‘Champagne supercycle: Taking the fizz out of the commodities price boom’, Woods MacKenzie writes that there is indeed a commodities supercycle coming, but this one will be different than others as it will be metals like cobalt, lithium, copper, nickel and aluminium driving.

The report states that the predicted energy transition around the world will likely to fuel a sustained increase in demand over the next two decades, supporting a new supercycle narrative.

US$50 trillion of investment will be needed over the next two decades to achieve a 1.5?C global warming trajectory. This will electrify societies’ infrastructure and engineer out the aspects of economic activity that most significantly contribute to carbon emissions. Metals supply will play a vital role in achieving this.

Three potential developments could challenge how this commodities supercycle unfolds and who, ultimately, benefits from it:

? The concentrating control of metals’ supply chains is likely to exclude many from the party.
? Systemic supply uncertainty and ensuing price volatility, encouraging disruptive new technologies such as next generation electrofuels, polymeric energy storage, and cobalt free batteries - thereby forcing ‘traditional’ commodities into obsolescence.
? The rise of ‘consumption consciousness’, undermining the long-term reliance on primary metal.

“While China’s move to secure battery raw materials is well documented, less well-known is its increasing self-sufficiency extending downstream. 75 percent of global lithium-ion batteries, 70 percent of all solar panels, and 60 percent of electric vehicles are made in China. But its aspirations have not yet been satisfied and we expect its control to continue to grow,” Simon Morris, Wood Mackenzie Head of Metals, said.

“With China dominant in its control of energy transition value chains, non-Chinese entities face an ever-diminishing share of any commodity windfall. With greater cash comes greater investment capability, enabling China to realize a strategy of supply security at any cost. Those who choose to participate too late in the cycle – be they nations seeking to secure supply for themselves, customers wanting to protect their production lines, or investors wanting to cash in on supernormal profits – are likely to find that they either can’t afford to participate or are precluded altogether,” said Morris. “Price fluctuations could also throw a spanner in the works. With electric vehicles (EV) emerging as a critical source of demand, metals producers will have to consider how they supply a new type of consumer - one with an acute focus on price and supply predictability. If EV manufacturers cannot guarantee access to critical metals at an affordable and predictable price, they will look to innovate or thrift them out to the greatest extent possible. As the supply challenge materializes, the inexorable rise in prices will surely incentivize alternatives.

“As we saw with the increasing rejection of plastic usage, a greater focus on sustainability may see society react against the very considerable rise in the use of primary metals used in cars, mobile phones, telecoms, and infrastructure. Either buying less or demanding greater re-use presents a considerable downside risk for the producers of tomorrow.”

According to the Wood Mackenzie report, the forces that are shaping up to drive this boom are unique. But even for those commodities stepping into the limelight, decarbonization creates as many risks as it does opportunities.

Under Wood Mackenzie’s proprietary Accelerated Energy Transition-2 (AET-2) scenario, which is consistent with limiting the rise in global temperatures since pre-industrial times to 2 °C, 360 Mt of aluminium, 90 Mt of copper and 30 Mt of nickel will feed the energy transition over the next 20 years. This level of additional metal presents obvious challenges for producers and consumers alike.

 

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