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.
“One can argue about both the pace and scale of the energy transition but the criticality of metals to its realisation is without question, says Julian Kettle, Wood Mackenzie’s Vice Chairman of Metals and Mining. “Put simply, the energy transition starts and ends with metals. If you want to generate, transmit or store low/no-carbon energy you need aluminium, cobalt, copper, nickel and lithium.”
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.
“The energy transition starts and ends with metals. If you want to generate, transmit or store low/no-carbon energy you need aluminium, cobalt, copper, nickel and lithium”
Julian Kettle, Vice Chairman of Metals and Mining, Wood Mackenzie
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.”
Producers are becoming increasingly carbon-conscious, with many setting targets for net zero carbon, and some high-profile majors have offloaded their high carbon assets and/or acquired low carbon replacements.
Kettle says it isn’t just about portfolio balance, and the green agenda will have a profound impact on the way companies extract and refine metals, with lower carbon operations an increasing priority.
“Green energy procurement and generation is at the fore and portfolio optimisation is now a must-have on any board agenda. It feels like the tipping point is imminent,” adds Kettle.
“We expect carbon to become a non-negotiable component of any AGM – as safety did in the 1990s.”
