ការផ្លាស់ប្តូរថាមពលនឹងផ្លាស់ប្តូរឧស្សាហកម្មរ៉ែ។

But how might transition metals markets cope?

^{Authored by Robin Griffin, Anthony Knutson and Oliver Heathman in Wood Mackenzie’s metals & mining team.}

By 2050 the energy transition could see nickel (Ni) demand triple, copper (Cu) demand more than double, and demand for Lithium chemicals grow 700%. The burden on miners of transition metals will be immense and the industry will be transformed as investors scramble to deliver the necessary metal.

For battery raw materials in particular there will be a reliance on deposits that are as yet undefined. Lithium is a prime example. There is plenty of uncertainty around the costs of extraction at known Lithium projects, let alone the millions of tonnes of Lithium required from unexplored sources, some of which will rely on untested technologies. Add in the likelihood of global carbon prices and you can understand why long-term pricing for Lithium and other energy transition metals is the subject of fierce debate.

So how should we think about the costs of supply and therefore prices – in a much larger, carbon adverse future market?

Let’s stick with Lithium and start by looking at today’s cost curve. The current marginal C1[1] cash cost of Lithium chemical production (on an LCE refined[2] basis) is about US$5,000/t for brine, US$9,000/t for spodumene, and over US$10,000/t for lepidolite – based upon costs to produce, transport and refine the concentrate.

Given prices are currently sitting at about US$60,000/t LCE refined, it is reasonable to ask whether costs are a good indicator of future prices. But Lithium is one of the more abundant elements on earth, and it is also reasonable to expect that Lithium will eventually behave similarly to all other mined metals. That is, the market will be cyclical with prices falling back to cost curve support levels from time to time. It is likely that cost curve support will become more frequent once the automotive and grid storage sector decarbonisation reaches maturity and demand growth slows.

But what will the cost curve look like then, particularly given our accelerated energy transition scenario forecast where Lithium demand could be 7 million tonnes per annum (Mtpa) by 2050, up from 1 Mtpa in 2022. Our current project pipeline totals approximately 1.5 Mt of annual capacity, with project C3[3] costs ranging up to US$15,000/t LCE refined.

It is highly unlikely that current cost structures will be sustainable, even if markets trend back to balance.

Firstly, grade is declining in mineral deposits as existing higher-grade ore bodies are extracted and new market conditions allow for the evaluation and development of lower-grade deposits.

Secondly, the greater reliance on lepidolite sources in the future means higher concentrating and chemical conversion costs. The structural complexity of lepidolites leads to generally lower lithium content and higher proportions of impurities.

Thirdly, in addition to new mineral sources, a reliance on clay and even seawater sources are likely, meaning the application of nascent technologies from extremely low-grade deposits which will bring with them additional complexity and technical challenges, resulting in greater cost.

In short, the type of deposits that inhabit the fourth quartile of the current cost curve will increase their share of production over time.

Furthermore, competition for labour, equipment and raw materials will see capital and opex costs continue their ascent, particularly while demand growth rates are high. Development and operational risk will also likely increase over time, as lithium is sourced from more complex deposits in higher risk jurisdictions. More expensive debt and equity, and higher disruption rates are to be expected.

Notwithstanding the potential for technology savings in the long term, based on what we know about existing operations, it is difficult to imagine incentive costs staying below US$20,000/t LCE Refined before carbon cost considerations.

Carbon regimes are adding to the uncertainty around future costs

The advent of carbon pricing has the potential to accelerate cost increases for Lithium producers. Lithium mining, concentrating and conversion requires large amounts of energy. Major emission sources are highlighted by ore calcination and acid roasting during refining of mineral concentrates and extraction pumping and harvesting of brines. We calculate 2023 global Scope 1 and 2 emissions intensities averaging 2.5 to 3.0 t CO₂e/t LCE refined for brine deposits and 10 to 12 CO₂e/t LCE refined for typical spodumene sources. Emissions values were derived from Wood Mackenzie’s upcoming Lithium emissions benchmarking tool module, expected to launch in early Q2 of 2023.

Carbon pricing regimes are going to be a fact of life for the foreseeable future. Whether a global scheme ultimately prevails is open to argument, but most miners and processors will have to either decarbonise or pay for the privilege to emit greenhouse gases. To account for its market impact, we can apply various carbon prices to our cost data: in this instance, we have used a global price of US$88/t, reached by 2050 under our base case, US$133/t under our 2.0-degree scenario[4], and US$163/t to meet a 1.5-degree[5].

When we apply these carbon prices to unabated emissions at global Lithium operations and projects in 2025, as an example, the weighted average C1 cash cost of US$5,700/t LCE refined increases by US$600/t, US$900/t and US$1,100/t respectively. Under the same exercise and diving into the lithium deposit types reveals marginal costs rise at different rates, reflecting their varied energy intensities.

What might carbon pricing mean for metals?

Higher marginal costs will typically mean higher prices on average, and this will be true of all commodities until decarbonisation of supply reaches maturity, when the effects of carbon costs will diminish. In the meantime, early movers may enjoy some margin growth as they move down the cost curve.

The energy transition offers a bright future for all transition metals. Suppliers of lithium, nickel and cobalt, copper and aluminium will be under pressure to meet the needs of the transport and power sectors while decarbonising their own operations. Financiers and governments face the same pressure as enablers of change. Some reticence is understandable given the technology and policy uncertainty. But “fortune favours the brave” is an adage perfectly suited to those suppliers willing to accelerate mine development and their decarbonisation targets. As cost curves grow and steepen, those miners and processors should be rewarded through higher margins.

Learn more from our experts by attending Wood Mackenzie’s Future Facing Commodities Forum on 16 March, sign up ឥឡូវ​នេះ.

_{[1] Direct cash costs and excludes royalties, depreciation & amortisation, sustaining capital}

_{[2] Lithium carbonate equivalent. Conversion of 6% Li concentrate to 56.5% Li chemical}

_{[3] Include C1 cash costs plus royalties, depreciation & amortization, sustaining capital, corporate overheard and interest charges}

_{[4] Wood Mackenzie’s Accelerated Energy Transition 2.0-degree scenario illustrates our view of a possible state of the world that limits the rise in global temperatures since pre-industrial times to 2.0 °C by the end of this century.}

_{[5] Wood Mackenzie’s Accelerated Energy Transition 1.5-degree scenario illustrates our view of a possible state of the world that limits the rise in global temperatures since pre-industrial times to 1.5 °C by the end of this century (Global net zero emissions by 2050 under the AET1.5 scenario)}