Energy Transition to Drive Next Super Cycle
Energy Transition to Drive Next Super Cycle
Director, Sustainable Finance
Magali Gable joined BMO’s Sustainable Finance team in early 2020. She supports BMO’s Energy and Natural Resources clients by offering advisory services,…
Magali Gable joined BMO’s Sustainable Finance team in early 2020. She supports BMO’s Energy and Natural Resources clients by offering advisory services,…
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The transition to a lower-carbon world could drive a commodities price boom that is even longer, deeper and broader than the storied, decade-long super cycle that came on the back of voracious Chinese demand in the early 2000s, experts told BMO’s 30th Global Metals and Mining Conference.
Panelists on an Energy Metals Transition breakout session, hosted by BMO Capital Markets commodities analyst Colin Hamilton, also said the next super cycle will be multi-metal and will not be limited to a single region or geography.
“A lot of people have asked the question, where is the next big demand wave going to come from? Is there ever going to be another super cycle?” said Oskar Lewnowski, CEO and CIO at Orion Resource Partners.
“I think what nobody really foresaw was that the next big source of demand growth for metals globally wasn’t going to be on a geographic basis, but really on the thematic basis of the energy transition.”
All Things Energy
Whether it’s aluminum or copper for electric vehicles or transmission infrastructure, or metals ranging from cobalt to nickel and lithium in the manufacture of EV batteries, the energy transition will apply pressure to metals across the sector as the world’s economies drive toward net zero.
Panelists predicted strong demand growth for minerals and metals ranging from vanadium – used in nuclear reactors, ceramics and superconducting magnets – to nickel, zinc, platinum and even tin.
According to Charlie Durant, Research Manager at CRU Group, copper and nickel will experience massive demand jumps in the next 20 to 25 years, driven by the transition to renewable fuels and especially as electric vehicle production becomes the standard for automobile manufacturers; copper will get an additional boost from offshore and onshore wind power generation and solar power generation.
Durant said that, by 2035, 33% of primary nickel demand will come from electric batteries, versus 8% now, while EV and renewable energy related refined copper demand will rise to potentially 4.5 million tonnes in 2035, from about 1 million tonnes today.
As a reference, the last super cycle saw average annual demand for key commodities grow at a rate that was three times the average growth rate for the past 50 years, Lewnowski said, predicting that copper and aluminum will be the big winners in the next super cycle, as long as prices don’t rise too far, too fast and prompt substitution.
The question is not whether prices rise, but how they will ebb and flow amid various scenarios around the intensity of supply and demand, Durant said.
“There’s some really huge step gains here,” he noted. “While the future is incredibly uncertain, this is something that will impact many different commodities.”
The Sustainability Key
To sustain the super cycle, the industry must be able to attract further investment to help finance some $160 billion in capex needed to fulfill just the incremental demand from renewables in the next ten years.
With much of the world’s GDP now committed to a carbon neutral future – many governments around the world are targeting zero carbon emissions by 2050 – the fundamental challenge for the industry will be attracting new investment.
Part of the work of miners will be to assure investors that the industry is not just producing the metals required for the transition, but that it is doing so responsibly, and is fully integrated into building sustainable production solutions.
“I think this is about, how do we actually participate?” said Gillian Davidson, non-executive Director and Chair of the Sustainability Committee at Central Asia Metals. “And the other is, how do we become an innovation partner?”
Davidson says there’s been great initiative and leadership from the mining sector, but that it all comes down to driving sustainability from the mine face through the supply chain. She said reducing a company’s carbon footprint at the mine level is indeed required, but she also urged the industry to look across the entire supply chain to see where it can decarbonize and introduce even more sustainable practices.
“We’re moving the narrative beyond ‘we're important because you need us,’ to ‘how do we help solve your problems and some of these bold goals that have been set out,’” she said.
John Mulligan, Director of Market Relations and Climate Change Lead at World Gold Council, agreed if miners do more to show how they are reducing their carbon footprints it is likely to prompt new financing to really flow.
“It’s that full value chain approach, combined with increasing demand for renewables, that will make this next cycle truly super,” said Lewnowski. “If you want multiple expansion and interest to increase, the industry itself needs to be more virtuous in its production of metal … We need to set the bar higher.”
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