While some forecasters are predicting a down year for the mining sector in 2023, the consensus is that critical and battery mineral interest will remain particularly strong.
Fitch Solutions’ recent report “Mining and Metals Key Themes For 2023” suggested that critical minerals remain key focus for markets, with supply security and localization to gain ground.
“Critical minerals required for the energy transition will remain a priority for many countries sourcing for supplies,” the report said.
“In 2023, we expect higher investments into mines and permits for critical minerals. Governments will also work to increase domestic production and critical mineral security, to mitigate the pressures of resource nationalism and higher taxes from exporting countries. Rising geopolitical tensions will ensure mineral security remains in focus in 2023.”
The Fitch report highlighted that there will be investments into critical mineral projects; mining permits in countries; policies and government regulations surrounding local/regional mining.
Furthermore, markets with large resources of green transition minerals, such as Chile and Peru (lithium, copper), Australia (key producer of many strategic materials), and metal refiners for stated metals will also benefit greatly from increased investments and export levels.
However, the report also notes that markets dependent on imports to obtain supplies of these minerals and metals could face higher costs and supply gluts.
“After a tumultuous year for commodities in 2022 from extreme price swings to shifts in production and demand, the outlook for mining and metals is relatively more stable in 2023,” the report states.
“Slowing global growth and still high levels of inflation will continue to threaten profitability in 2023 as the Russia-Ukraine war persists and input costs remain high. Tighter mining margins will lead to a reduction in exploration and new project capex.
“Companies will instead focus on maintaining current operations to ensure output capacity is sustained. We do, however, expect to see upside to critical mineral projects as governments, investors, and miners alike endeavour to meet future green demand.
“The energy crisis will remain in the spotlight for many markets, leading to a slower exit for coal, especially for Mainland China.
“As labour strikes and community opposition grow more prevalent on the back of rising inflationary pressures and environmental awareness, we expect mining companies to focus on the social aspect of miners’ ESG strategies to mitigate mining opposition,” the report noted.
KPMG’s mining outlook
KPMG also forecast critical minerals will be a major focus for miners, electric vehicle (EV) developers, and governments in 2023.
Nick Harridge, national mining and metals leader at KPMG Australia, noted that there will be a challenging but largely positive outlook for Australian mining with the economic shift toward a low-carbon future was being seen by mining executives as an opportunity for metals and mining companies.
“The Australian experience reflects the KPMG report where more than one third of respondents predicted they will significantly change their portfolio of products toward commodities and metals used to accelerate the transition to cleaner energy,” said Mr Harridge.
“Locally, we continue to see critical minerals as the centrepiece for the sector in 2023. Australia has an abundance of the five key critical minerals: lithium, nickel, aluminium, cobalt, and copper, together with a number of rare earths and mineral sands. The key demand story is highlighted with lithium.”
Battery minerals and EVs
KPMG says that given the current transition away from fossil fuels, considerable minerals will be needed, driving demand for mining output. In considering EVs as just one of the key users of lithium for batteries, estimates show there are around 1.4B cars in the world, of which only around 15M, or approximately 1%, are EVs.
KPMG estimates that more than 2B EVs will need to be manufactured to accommodate world demand and fully transition away from internal combustion engine vehicles by 2050.
“The pace of EV sales is increasing with nearly half of the current stock of EVs sold in the last year. But the transition away from fossil fuels will continue to require a rapid increase in the number of EVs manufactured. On that basis the production of critical minerals used in battery technologies will also need to increase substantially.”
Global production of lithium was around 550Kt of lithium carbonate equivalent and that is forecast to rise to 1,000Kt by 2024. At that level it would take around 100 years to produce enough lithium to have 2B lithium-ion EVs in service. This ignores other uses of lithium and does not consider the potential to meet some of this demand through circular minerals, but still highlights lithium mining is in its infancy.
“Lithium investment is really just beginning to meaningfully increase in Australia,” Mr Harridge said.
“Mining investment is increasingly turning towards it and other critical minerals. Given that the price of lithium has surged in the last year, the incentive to invest further in lithium production and circularity remains very high.”
“We estimate lithium production would need to grow by around 12% per year every year until 2050 to produce enough of that mineral to have 2B EVs on the roads. Given that lithium production is expected to grow at nearly double that pace in the near term, and that lithium investment is likely to accelerate, rather than slow, that pace of growth over time is reasonable.
“If we assume that lithium production continues to increase by 20% per year until 2030, then production would need to rise by around 7% per year thereafter to meet EV demand – with other producers coming online, the pace of growth in Australia could slow to this and the world would still be able to meet total demand for lithium.”
In its recent forecast, “The Big Picture – 2023 Metals and Mining Industry Outlook”, S&P Global said lower activity levels in the second half of 2022 and throughout 2023 will reinforce the importance of the metals and mining industry’s role in the global energy transition effort.
“Supply constraints across commodities deemed critical to the effort are forecast to emerge as early as 2024, with demand expanding markedly on rising EV sales, the shift towards renewable energy technologies, and related transmission and distribution requirements.
“As government policies increasingly focus on meeting critical materials requirements through domestic and regional supply chains, the mining sector should see additional support for the development of projects in the near-to-medium term, buoyed by prices that are expected to remain relatively high through 2026, compared with pre-pandemic levels,” the report stated.
S&P Global noted that EV production has recently been one of the affected industries, tempering demand for battery metals nickel, cobalt, and lithium despite the global push for the electrification of the mobility sector.
“Governments have nevertheless been deploying efforts to secure local supply chains for these critical materials through legislation, although the resulting supply and demand trends will not materialize in the short term. Instead, macroeconomic headwinds from energy inflation, raw material costs and parts shortages are expected to impact auto production and battery metals demand.”