The long-term outlook for the metal is bright, but miners aren’t betting on it

Metals are the new oil and gas when it comes to the energy transition. Achieving the vision of a zero-emissions economy powered by wind, solar, hydrogen, and batteries requires massive amounts of certain metals and minerals labeled critical—and with good reason. Without these metals, there will be no transition. And now, many of them are facing critical shortages.

Earlier this month, BloombergNEF estimated that the mining industry needs about $2.1 trillion in new investment to secure supplies of critical metals and minerals. Otherwise, Bloomberg’s transition forecasting arm said, the cost of the transition will be even higher than it already is.

“The report indicates that key energy transition metals such as aluminum, copper and lithium could face primary supply shortfalls this decade — some as early as this year,” BloombergNEF wrote, adding that according to its estimates , the world could need 3 billion metric tons. of metals between now and 2050 to “properly build low-carbon solutions such as electric vehicles, wind turbines and electrolysers”. Furthermore, this is only half the amount needed to be produced by 2050 to succeed in the net-zero vision.

Such an outlook, while looking rather bleak for architects in transition, represents an opportunity for investors. Indeed, Reuters columnist Andy Hume wrote this week that deficit forecasts should bring big investors back to metals funds after flows to commodity funds have fallen sharply over the past decade.

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However, there may be a problem with this. The outlook for metals and minerals is indeed equally bullish. However, this prospect has failed to motivate miners to expand production of these metals in a significant way. On the contrary, this outlook – repeated again and again by various forecasting institutions – has led to price declines.

It’s quite a paradoxical development, but demand expectations for elements like copper and lithium were so high that when this bombastic increase in demand didn’t materialize soon enough, prices fell and stayed low. The situation is similar to Chinese demand for oil holding back and international prices. However, optimistic forecasts continue.

According to Hume, copper, lithium and other transition metals could become as essential to the economy of the future as oil is to the economy of today. They could be, he wrote, “as powerful future engines of inflation as oil and gas are in today’s carbon-intensive economy.” If investors help them do this by piling into mining commodities.

However, news of declining electric vehicle sales almost everywhere except China did not help the case for bullish metals. Electric vehicles have been one of the biggest drivers of future copper demand and perhaps the biggest driver of lithium demand – and forecasts have been consistently bullish. However, the reality failed to live up to expectations, disappointing investors who bought the predictions and sending prices of both commodities down. In an ironic turn of events, this has discouraged miners from committing to expanding production in what increasingly looks like a vicious cycle for industries in transition.

According to BloombergNEF, copper and lithium could move into a supply shortage as early as this year — and so could steel and aluminum. However, lithium miners in Australia are struggling to keep their mines running due to falling lithium prices over the past year. The BBC reported last month that many are losing the battle and closing mines as electric vehicle sales fall and lithium supply remains outstripping demand.

Copper fared better, with prices rising earlier this month after China announced economic stimulus measures. The country is the largest consumer of the metal and the largest transition market. However, copper prices could still reverse course, as oil did, after the effect of the stimulus announcement wore off. Miners, meanwhile, warn of increased price volatility in the segment and blame governments for delays in issuing new mining permits.

In steel, we have bombastic predictions again, and reality is still not catching up. This is largely because the forecasts make certain assumptions that continue to fail to materialize despite strong government support. The rise in sales of electric vehicles that never happened is an example of such assumptions. Expectations of equally strong growth in wind and solar deployments, unopposed, was another of those assumptions. Indeed, there was a surge, but it was not without opposition.

It’s a complicated landscape for investors to navigate. Of course, they could put their faith in forecasts from BloombergNEF and the International Energy Agency, risking a nasty surprise when electric vehicle demand once again fails to live up to those forecasters’ expectations. Or they can choose the cautious path of waiting. It is not the best path from the perspective of the transition architects, but after a series of optimistic predictions did not come true, investors were forced to start asking questions and having doubts about the whole story of the transition.

By Irina Slav for Oilprice.com

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