Soaring metal prices may delay energy transition

Prices for industrial metals have already seen a major post-pandemic rally

By Lukas Boer, Andrea Pescatori , Martin Stuermer and Nico Valckx

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Published: Tue 16 Nov 2021, 9:34 PM

The world’s historic pivot towards curbing carbon emissions is likely to spur unprecedented demand for some of the most crucial metals used to generate and store renewable energy in a net-zero emissions by 2050 scenario.

A resulting surge in prices for materials such as cobalt and nickel would bring boom times to some economies that are the biggest exporters—but soaring costs could last through the end of this decade and could derail or delay the energy transition itself.

Prices for industrial metals, an important foundation for the global economy, have already seen a major post-pandemic rally as economies re-opened. Our latest research, included in the October World Economic Outlook and a new IMF staff paper, details the likely effects of the energy transition for metals markets and the economic impact for producers and importers.

For example, lithium, used in batteries for electric vehicles, could rise from its 2020 level around $6,000 a metric ton to about $15,000 late this decade—and stay elevated through most of the 2030s. Cobalt and nickel prices would also see similar surges in coming years.

Net-zero scenario

We look specifically at the goal of limiting global temperature increases to 1.5ºCelsius, which requires a transformation of the energy system that could substantially raise metals demand as low-emission technologies—including renewable energy, electric vehicles, hydrogen, and carbon capture—require more metals than fossil-fuel counterparts.

Our focus is on four important metals among the variety being used for the transition. They are copper and nickel, major established metals that have traded on exchanges for decades, and minor-but-rising lithium and cobalt, which have traded on exchanges only recently but are gaining popularity because they are important for the energy transition.

The fast pace of change needed to meet climate goals, such as the International Energy Agency’s (IEA) Net Zero by 2050 Roadmap, implies soaring metals demand in the next decade. Under the roadmap’s ambitious scenario, lithium and cobalt consumption jumps more than sixfold to satisfy needs for batteries and other clean energy uses. Copper use would double and nickel’s would quadruple, though this includes meeting needs unrelated to clean energy.

Metal prices

While metals demand could soar, supply typically reacts slowly to pricing signals, partly depending on production. Copper, nickel, and cobalt come from mines, which require intensive investment and take on average more than a decade from discovery to production according to the IEA. In contrast, lithium often is extracted from mineral springs and brine via salty water pumped from below ground. That shortens lead times for new production to average roughly five years. Supply trends also are influenced by extraction technology innovation, market concentration, and environmental regulations. The combination of soaring demand and slower supply changes can spur prices to climb. In fact, if mining had to satisfy consumption under the IEA’s net-zero scenario, our recent analysis shows prices could reach historical peaks for an unprecedented length of time—and those higher costs could even delay the energy transition itself.

— IMFBlog

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