The demand for green metals is at an all-time high. In recent months, Britain has come to an agreement with Zambia, Japan has closed one with Nambia, and the European Union has shaken hands with Chile. While US officials were in Mongolia, the representatives from the bloc began negotiations with the Democratic Republic of the Congo. The single goal of this scattered campaign, which also targets Saudi Arabia and the Philippines, is simple – to acquire the minerals needed for rapid decarbonisation. In the upcoming decades, the demand for green metals will surely increase due to the clean energy transition necessary to tackle climate change’s worst effects – requiring as much as 3 billion tonnes.
For example, an electric vehicle battery pack typically requires 8kg of lithium, 35kg of nickel, 20kg of manganese and 14kg of cobalt. Charging stations, on the other hand, require a significant amount of copper. Solar panels require a lot of copper, silicon, silver, and zinc to produce green power, while wind turbines need iron ore, copper, and aluminium. Based on the October World Economic Outlook research and a new IMF staff paper, such needs will cause the demand and prices of these metals to skyrocket for many years. This trend has led to the coining of the term “green inflation” – a surge in the price of metals and minerals used in sustainable technology. Since the re-opening of the economy after the pandemic, metal prices have observed large increases, highlighting a dire need to analyse factors that could hinder production and delay supply responses.
Seventy-two nations – which account for almost 80% of the world’s emissions – have prioritised net-zero targets. According to the Energy Transitions Commission (ETC), hitting net zero by 2050 will require 15 times today’s wind power, 25 times more solar, a tripling of the grid’s size and a 60-fold increase in the fleet of electric vehicles (EVs). By 2030, copper and nickel demand could rise by 50-70%, cobalt and neodymium by 150%, and graphite and lithium six- to seven-fold. A carbon-neutral world in 2050 will need 35 million tonnes of green metals a year, predicts the International Energy Agency, an official forecaster. Adding aluminium and steel, the ETC expects demand to exceed 6.5 billion tonnes between now and then. Policymakers are starting to fear that a massive supply crunch is looming. The ETC expects shortages of market-breaking magnitudes by 2030 – some 10-15% for copper and nickel and 30-45% for other battery metals.
Under the International Energy Agency’s Net-Zero by 2050 Roadmap, the share of power from renewables would rise from current levels of around 10% to 60%, boosted by solar, wind, and hydropower. Fossil fuels would shrink from almost 80% to about 20%. Renewable energy investments will need to be increased eightfold to replace fossil fuels with low-carbon technology, resulting in a significant increase in metal consumption. However, developing mines is a lengthy process that usually takes a decade or more and involves numerous hurdles at the firm and country levels. Given the expected rise in metal consumption through 2050 under a net-zero scenario, graphite, cobalt, vanadium, and nickel production rates appear insufficient, with a more than two-thirds deficit versus demand. Current copper, lithium and platinum resources are also inadequate to meet future needs, with a 30% to 40% gap between supply and demand. Benchmark Mineral Intelligence estimates that at least 384 new graphite, lithium, nickel, and cobalt mines will be required to meet electric vehicle demand by 2035.
When scarcity causes prices to rise, producers increase output, and customers use these limited materials more efficiently. However, any unmet demand will be erased when would-be buyers who cannot or will not pay higher prices get taken out of the market. Too much demand destruction will suffocate the green transition. So, the question becomes straightforward – can the crunch be minimised?
Aluminium and steel are frequently employed in industrial processes to manufacture panels and turbines, while copper is used for everything from cables to automobiles. Then there are the elements that power EVs: cobalt, lithium, and nickel, which make up battery cathodes, and graphite, the primary anode material. With the exception of nickel, which is also a stainless steel component, all have only specialised applications. The final group includes magnetic rare earths, such as neodymium, used in electric motors and turbine generators. These are only needed in trace levels.
A troubling reality makes such metals less urgent – climate regulations are unlikely to limit global warming to 1.5°C over pre-industrial levels, as most projections imply. Furthermore, many forecasters believe that demand for green gear, and thus metals, will climb linearly, even if some countries will undoubtedly begin to run in the closing yards. Steel, for which green uses will likely remain a drop in the bucket, will most likely remain abundant. Cobalt, a byproduct of other valuable metals, may outlast demand indefinitely. However, troubles persist. Industry oracles asked by The Economist predict copper-supply gaps of 2 million to 4 million tonnes, or 6-12% of potential demand, by 2030. They also foresee a shortfall of lithium of 50,000 to 100,000 tonnes, a 2% to 4% deficit. Because batteries demand pure material, nickel and graphite, which are abundant in theory, could present complications. There aren’t enough smelters to turn bauxite into aluminium. Outside of China, hardly anyone manufactures neodymium.
Reduced access to finance by enterprises with lower ESG ratings might impede manufacturing, adding another potential bottleneck to the supply chain. Miners are attempting to lower their carbon impact in response. An S&P Global analysis shows that the ESG average score of the S&P Global 1200, an index representing about 70% of global stock-market capitalisation, stood at 62 out of 100, while the metals and mining sector’s score rose to 52 last year from 39 in 2018. This might signal that miners are catching up to other industries in terms of becoming more appealing to global investors looking to create more responsible portfolios. McKinsey estimates that to fill supply gaps by 2030, annual capital expenditure in mining must double to $300 billion. CRU, another consultancy, reckons that spending on copper alone must hit $22 billion in 2027, compared with an average of $15 billion in 2016-21. Although the progress is slow, investment by big miners is rising. General Motors is investing $650 million in Lithium Americas, a miner in Nevada. CATL, a Chinese battery firm, is spending billions to source cobalt and lithium. Since the start of the year, pension and sovereign funds have invested $3.7 billion in private mining assets, the most since 2013. And about $21 billion in capital raised by private equity firms since 2010 is also chasing deals.
As nations work towards net-zero targets, the surge in demand for green metal aligns with SDG 7 (Affordable and Clean Energy) and SDG 13 (Climate Action). Pursuing renewable energy sources requires a plan of action with SDG 12 (Responsible Consumption and Production) to address potential supply crunches. The shift must satisfy demand while properly integrating with SDG 9. (Industry, Innovation, and Infrastructure). Mining firms, which are now essential in the SDG landscape, must balance economic expansion (SDG 8) with environmental stewardship (SDG 15). The impending green inflation problem provides an opportunity to reimagine sustainable progress, pushing global players to unite under the larger umbrella of the SDGs, assuring a balanced and robust path.
There will likely be enough new mining and recycling by the late 2030s. The issue is how significant the disruption will be in the meantime. Things will undoubtedly be tight. Because supply will be concentrated, markets may be impacted by local instability, geopolitical conflict, or severe weather. According to Liberum Capital’s simulations, a miner’s strike in Peru or three months of drought in Indonesia could tip the copper or nickel markets into 5-15% supply shortfalls in 2028. Low-carbon energy technologies are needed to prevent global temperatures from increasing by more than 1.5°C, and the shift might result in extraordinary demand for metals. While resources are generally sufficient, increasing mining investment and operations may be difficult for particular metals and hampered by market- or country-specific concerns. The mining and metals business has challenges and possibilities due to green inflation. On the one hand, rising prices can enhance mining businesses’ profits. Conversely, higher pricing might make it more difficult for companies to compete, ultimately leading to higher consumer costs for sustainable products.
Mining and metals firms must strike a fine balance between investing in sustainable practices and maintaining competitive pricing to manage green inflation properly. They must also collaborate closely with governments and other stakeholders to establish policies and strategies that support the industry’s long-term success. Overall, green metal inflation is expected to have a mixed bag of effects on people’s daily lives. While it may result in higher costs and less availability of products and services, it may also result in more investment in sustainable practices and a decrease in environmental effects. How governments, corporations, and consumers respond to the problem will determine green inflation’s overall impact.
Author: Amar Chowdhury
