IMF warns: Rising metal prices could impede energy transition

  • 16 November, 2021
  • 5:26 pm EET

Industrial metals prices have skyrocketed after the pandemic, with economies reopening, and a growing push toward renewable energy technologies.

The accelerating global trend to reduce carbon emissions is likely to stimulate unprecedented demand for industrial minerals used in renewable energy generation and storage in a carbon-neutral scenario by 2050, according to a recent IMF report.

Although higher prices for metals such as cobalt and nickel may be supportive of some economies that are major exporters of these metals, higher costs could impede the energy transition, according to the report.


Carbon Neutrality Scenario

Under the 1.5°C scenario, the energy transition increases demand for minerals used in low-emission technologies, including renewable energy, electric vehicles, hydrogen, and carbon capture and storage.

Following the IEA’s roadmap to achieving carbon neutrality by 2050 would result in a more than 6-fold increase in lithium and cobalt consumption to meet the needs of batteries and other clean energy uses over the next decade, according to the report.

While the use of copper is expected to double, and the use of nickel will increase fourfold in the next decade, although this includes meeting non-clean energy needs, according to the IMF.

This comes with the fact that these 4 minerals – in particular – have many diverse uses in energy transformation.


Metal Prices

Amid expectations of higher demand for the minerals, supply usually reacts slowly to pricing signals, as producing metals such as copper, nickel and cobalt are investment-intensive, taking on average more than a decade from discovery to production, according to the Energy Agency.

The combination of increased demand and slow changes in supply can stimulate prices higher.

In fact, the accelerating demand for minerals needed to achieve carbon neutrality would push prices to historical peaks for an unprecedented period of time, but these high costs could delay the energy transition itself, according to the report.

Specifically, cobalt, lithium and nickel prices will rise several times from 2020 levels, and peak around 2030, according to the report.

For example, lithium used in electric car batteries could rise from $6,000 per metric ton by the end of 2020 to $15,000 late this decade, with expectations that it will remain high throughout most of the 2000s, according to the IMF.


Biggest Winner

The value of production of the four metals – lithium, cobalt, copper and nickel – used in the energy transition is expected to rise sixfold to $12.9 trillion over two decades, as demand accelerates, the IMF sees.

This increase could roughly rival the estimated value of oil production in a carbon-neutral scenario over the same period, according to the report.

The higher value of mineral production would provide significant gains for mineral producers, such as the Democratic Republic of the Congo, which accounts for 70% of global cobalt production and half of the reserves, and Australia; It has lithium, cobalt and nickel.

Also, Chile could benefit from the price jump due to its large production of copper and lithium, as well as Peru, Russia, Indonesia, and South Africa, among others, the rising prices would benefit them.

The IMF estimates that a 10% rise in the fund’s metals price index would add an additional two-thirds of a percentage point to the pace of economic growth in metal-exporting countries compared to importing countries.


The Role Of Decision Makers

The significant uncertainty surrounding demand scenarios is an important caveat; Because it could hinder investment in mining and increase the odds that higher mineral prices will impede the energy transition, with technological change difficult to predict, and the speed and direction of the transition away from fossil fuels dependent on the evolution of policy decisions, according to the report.

With this in mind, the IMF calls for credible and globally coordinated climate policy and high environmental, social and governance standards, as well as the need to reduce trade barriers and export restrictions.

This would allow markets to operate efficiently and direct investment to increase production of minerals adequately, as well as avoid unnecessary cost increases for low-carbon technologies, according to the report.




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