Viewpoint: Metals demand to ride green energy wave

Plans to reduce carbon emissions worldwide are likely to accelerate as governments unveil green stimulus measures to revive economic growth in the post-Covid-19 era, increasing demand for many minor metals.

Economies worldwide are renewing their focus on the electrification of power generation and transport sectors to cut their dependency on fossil fuels, such as coal and oil, by increasing low or zero-carbon energy sources and ramping up electric vehicle (EV) production.

Countries such as China, Japan and South Korea have pledged to cut greenhouse gas emissions and plot a path to a zero-carbon future by mid-century. In December, the world's largest emitter of CO2, China, outlined plans to raise its share of non-fossil fuels in primary energy consumption to around 25pc.

With the current energy policies in place, renewables capacity, including solar photovoltaics (PV), onshore, offshore wind and hydropower are expected to meet 80pc of global demand in the next decade, the International Energy Agency (IEA) said in October.

And to complement the swift rise in renewables supply amid expectations of higher electricity demand, nuclear, natural gas, liquified natural gas and hydrogen are likely to play a bigger part in the energy mix to provide firm and flexible sources of energy.

This transition to a clean energy future, which has already spurred demand for metals including cobalt, nickel and lithium from the automotive sector, is likely to boost demand for other light and high temperature metals.

Alloys such as S and 242 contain around 15-25pc molybdenum and are used in gas turbines, while 304 stainless steel, chromium, nickel, manganese and molybdenum are used in nuclear reactors. Selenium and tellurium are used in solar panels, while vanadium and lithium are key for electric battery storage.

The IEA touted solar PV as the "new king" of the electricity markets, adding that the number of final investment decisions for gas-fired generation rose in 2020 for the first time since 2016. The IEA estimates that worldwide nuclear capacity will rise by an additional 140GW to be built by 2030, or an extra 180GW capacity in the best-case scenario of a net-zero emissions future.

Competition grows as new demand emerges

Traditional markets for most minor metals are having to rapidly grapple with the growth of demand from the transition to low-carbon technology, which impacts supply availability and increases price volatility.

The healthcare industry, which uses cobalt in the sterilisation of medical equipment and in radiosurgery devices, is facing a supply shortage and now largely competes with the automotive industry for material. Government incentives in Europe and China are driving demand for EVs and battery metals higher.

Cobalt, which is also used in the pigments and superalloys industries, faces increasing pressure on its supply and cost. The nickel market is witnessing a similar trajectory, with a structural deficit in supply likely to hit the traditional stainless steel and aerospace sectors, along with the fast-growing battery and automotive industries. This has led to consumers such as Tesla's Elon Musk to call for increased production of nickel to meet future demand, despite current low prices.

The London Metals Exchange's three-month official nickel year-to-date 2020 price of $13,680/t by mid-December is more than 11pc lower than the 20-year average of $15,395/t.

To mitigate the supply and price risks, traditional and newer market players are increasingly seeking long-term supply volumes. For example, Chinese solar panel producers are locking in long-term volumes of polysilicon, while EV producers are seeking long-term cobalt contracts.

Some companies are focusing on acquiring minor metal assets in anticipation of higher demand. Diversified metals producer China Molybdenum became the world's second-largest cobalt producer after buying 95pc of the Kisanfu copper-cobalt mine in the Democratic Republic of Congo from US miner Freeport-McMoRan for $550mn.

As prices and demand rises, and countries look to reduce their dependency on China for commodities, newer sources of supply could emerge.

By Anuradha Ramanathan