Related News

Dutch ECA readies critical minerals import facility

Trafigura seals US$300mn ECA facility for Korean critical minerals supply

Commodity traders turn to pre-payment facilities ahead of uncertain future

Gemcorp launches new commodities fund in trade finance push

Nickel supply chains ‘vulnerable’ as China influence grows

Gaps between supply and demand for critical metals appear to be narrower than previous forecasts, but limp commodity prices mean investment in production is still lagging, research by McKinsey finds. 

The consulting giant has long warned that demand for metals crucial to the energy transition, including lithium, nickel and copper, is likely to far outstrip supply over the next decade. 

It has repeatedly called on industry participants, including commodity traders and lenders, to provide financial and advisory services to ensure production can be increased sufficiently, particularly by supporting companies and projects in the mining sector. 

A report published by McKinsey today finds that supply of critical metals is “scaling up more quickly than expected”, meaning expected supply-demand in 2035 is “more balanced compared with our 2023 perspective”. 

Production of lithium and nickel has exceeded 2020 projections by nearly 20%, it finds. Lithium has benefited from assets coming online more quickly than expected in Australia and the US, as well as from a scale-up in China, while nickel’s ramp-up largely stems from assets in Indonesia. 

Nickel and cobalt have both moved from expected undersupply to oversupply in the past year, McKinsey adds. At the same time, demand has already shifted towards alternative materials in anticipation of supply gaps. 

However, the report finds there are still anticipated supply shortfalls for several metals over the next decade, including gaps of 30-40% for lithium, 30-40% for rare earth elements and 10-20% for copper. 

In the copper market, McKinsey says expected projects have not yet become operational and existing assets have decreased production more quickly than anticipated.  

And despite the increase in lithium production, material demand is forecast to increase by as much as 475% by 2035. 

To ensure supply can keep up with rising demand, the report says commodity price increases will likely be required to make financing more attractive. 

International organisations have previously found low prices are causing the mining industry to delay projects, while commodity traders face further obstacles due to limited access to derivatives and hedging tools and opaque market pricing information. 

“According to our analysis, there is currently sufficient financing capacity in the industry to scale up production, with US$5.9tn in financing capacity available,” said Michel Van Hoey, senior partner at McKinsey.  

“However, the business case is not always attractive enough to incentivise investment.” 

Van Hoey says that based on current pipelines, research suggests lithium prices would need to increase by around 30%, copper by 20% and nickel by 5% to strengthen supply sufficiently. 

The report suggests such price increases appear unlikely in the immediate term. 

The extreme market fluctuations and price volatility that characterised much of the post-pandemic period – and resulted in record profits and cash accumulation by large commodity traders – are “unprecedented in scale”. 

“2024 is projected to be a more challenging year for the industry as overall economic growth slows down and the shift toward low-carbon technologies unfolds more slowly than expected, both of which are putting downward pressure on price levels, especially for battery materials such as nickel and lithium,” it says. 

A survey carried out by McKinsey adds that industry participants are unlikely to pay extra for low-carbon materials. 

“In fact, less than 15% of surveyed decision makers indicate they would be willing to pay a premium of around 10% if there was a scarcity of green materials by 2030,” it says. 

A separate McKinsey report, also published today, finds that global carbon emissions are likely to remain well above the levels needed to limit warming to 1.5°C by 2050 – even if all countries deliver on existing climate commitments. 

It says increased energy demand will mean emissions from fossil fuels continue to rise over the next decade, with a decline starting only in 2050.