McKinsey : Copper, Nickel, and Lithium Prices Must Rise to Drive Supply

McKinsey

McKinsey Warns Copper, Nickel, and Lithium Prices Must Rise to Meet Energy Transition Demand

Copper, nickel, and lithium prices will need to increase significantly from current levels to drive the investment needed to meet the demands of the energy transition, according to US consultancy McKinsey's Global Material Perspectives 2024 report, published yesterday. To bring sufficient supply online to meet expected global demand by 2035, copper prices will need to increase to $12,000/t, nickel prices to $21,000/t, and lithium carbonate prices to $19,000/t, assuming that all currently announced projects enter production. For copper, this represents an increase of 27% over today's official London Metal Exchange (LME) three-month price, while the nickel price is a 29% jump on today's LME price.

Prices for all three metals would need to increase even more dramatically if some of the announced projects do not progress to commercial operation, McKinsey said. Supply shortages are expected for several materials by 2035 or earlier, particularly for copper, which has longer development timelines than other materials such as lithium. Demand for lithium and nickel has increased since 2022, but lithium prices have fallen by approximately 80% and nickel prices by about 20% over the same timeframe. These drops represent a "normalisation" rather than a drastic shift in industry dynamics, as prices have moved closer to typical production costs, McKinsey said.

Scaling supply to meet demand will require as much as $5.4 trillion in capital expenditure and 270GW of power by 2035. Buyers not willing to pay premiums. There is currently limited appetite to pay a premium for greener material, according to McKinsey's survey of global industry players. Less than 15% of decision-makers are willing to pay a 10% premium for low-carbon metals by 2030, even if there is a scarcity of green material. The two sectors interested in paying a premium are the automotive and energy equipment sectors. This outlook could change as a result of measures such as the EU Emissions Trading System and Carbon Border Adjustment Mechanism, which are likely to impose higher costs on companies based on their carbon emissions.

Decarbonization is unfolding slower than required to support the Paris Agreement's goals, partly owing to this disconnect between decarbonization costs and buyers' willingness to pay for low-carbon material. Metal and mining emissions are expected to decrease by 15% over the next decade, with the industry potentially accounting for 13% of global emissions in 2035, or 6 gigatons of CO2 per year.