The Supply and Demand Dynamics of Energy Transition Metals: Past Performance and Future Requirements

In our last Insight piece, we highlighted the rise in policies related to ‘critical’ metals and minerals. In tandem with this increase in policy development, there has been a corresponding increase in publicly available demand data to facilitate and inform the direction of future legislation.

Forward-looking projections for metal demand and production growth warrant a look at historical performance to understand and benchmark our ability to discover and bring into production new metal supply.

In this article, we will highlight:

• Three sources of metal demand projections

• Three key metals in the energy transition movement—copper, nickel, lithium—and their respective supply/demand dynamics

• Key risks to both supply and demand projections

Data-Backed Decision Making: New Projections for New Policies

On July 11, 2023, the International Energy Agency (IEA), released their inaugural report reviewing the Critical Minerals Market, responding to a request from the G7 nations to forecast long-term supply and demand for critical minerals as part of their Five Point Plan with respect to critical minerals security. On July 31, 2023, the US Department of Energy (DoE) released the Critical Materials Assessment Report, highlighting their own list of critical materials which is notably different from the U.S. Geological Survey’s list of critical minerals in its inclusion of copper. Both these reports provide new projections on metal demand with particular emphasis on energy transition metals.

We cross-reference these two new sources of demand projection with a third governmental source published by the Australian Department of Industry, Science and Resources (AusISR). Their Resources and Energy Quarterly Report—which includes a two-year forecast published quarterly and a five-year forecast published annually—forecasts the value, volume and price of Australia’s major resources and energy commodity exports (with additional forecasts of world demand for those commodities).

With these demand data sets in hand, in addition to the historical supply and metal reserves data made available by the U.S. Geological Survey (USGS) in their annual mineral commodity summaries, (and available in the FactSet Workstation) we’ll aim to hone in on the dynamics impacting three key metals in the energy transition: copper, nickel, and lithium.

Copper Supply Struggles: Meeting the Demand-Supply Gap in a Tight Timeframe

Mined production of copper has grown steadily since the first data point available from the USGS in 1995, starting at global annual mined production of ~10Mt, improving to ~15Mt in 2005, ~20Mt in 2015, and most recently hitting ~22Mt in 2022. Chile, the perennial top supplier of the metal, accounted for 24% of mined supply in 2022, with Peru and the Democratic Republic of the Congo (DRC) rounding out the top three providing for 10% of supply each. With respect to reserves, the USGS highlights a world total of ~885Mt of copper, enough for ~40 years of potential production at present rates, with Chile, Australia, and Peru accounting for 21%,11%, and 9%, respectively (Figure 1).

Figure 1: Growth in Mined Copper Supply and Copper Reserves Since 1995 (Top 3 Highlighted)

Source: United States Geological Survey, FactSet

Used in everything from electrical wiring to plumbing and wind turbines, the ubiquity of copper in our economy provides a base of consumption, with the IEA projecting approximately 22% of 2022 demand being related to clean technologies.

The IEA models their demand using three different policy scenarios (either a ‘Stated Policies,' ‘Announced Pledges,’ or ‘Net Zero Emissions by 2050’ scenario), while accounting for copper demand necessitated by the adoption of solar, wind, other low-emissions power generation, electric vehicles, grid battery storage, electricity networks, and hydrogen technologies under each of these policy regimes. In a similar vein, the DoE models four different demand ‘trajectories’ using a combination of ‘Stated Policies’ and ‘Net-Zero Emissions’ scenarios to model copper demand as it relates to usage within wind turbines, electric vehicles (EV), internal combustion engine (ICE) vehicles, and the electric grid.

Taking the three scenario estimates from the IEA, the four scenario estimates from the DoE, and the single estimate from the AusISR (for 2025), we plot the spread in demand projections against the current production rates (Figure 2).

Figure 2: Copper Future Demand Spread

Source: US Geological Survey, International Energy Agency, US Department of Energy, Australian Department of Industry, Science & Resources

With a deficit against even the most conservative of demand scenarios in 2025, the need to increase mined and refined output of copper is clear—but meeting this expected ramp up in demand will be challenging. The long timescales for deposit discovery, mine permitting and development, in addition to depleting grades and production from existing mines, and supply impacted by climate change and political unrest (such as the blockades that impacted copper mines in Peru) pose real threats to supply meeting this clarion call for projected copper demand.

A New Powerhouse in Nickel Production: The Rise in Indonesian Supply

Turning away from one industrially important metal to another in nickel, we highlight a differing supply/demand dynamic as we see the rapid development in supply from a nation leveraging its mineral reserves to meet metal demand.

Mined production of nickel has grown steadily since 1995, starting at a global annual mined production of~1Mt, improving to ~2.3Mt in 2015, and most recently hitting ~3.2Mt in 2022. Since 2018, Indonesia has been the top supplier of the metal, accounting for ~49% of mined supply in 2022, with the Philippines and Russia rounding out the top three suppliers at ~10% and ~7%, respectively. With reserves, the USGS highlights a world total of ~95Mt of nickel, enough for ~29 years of potential production at present rates, with Indonesia, Australia, and Brazil accounting for 22%, 22%, and 17%, respectively (Figure 3).

Figure 3: Growth in Mined Nickel Supply and Nickel Reserves Since 1995 (Top 3 Highlighted)

Source: United States Geological Survey, FactSet. The large jump in reserves in 2017 is due a change in the reserve grade from 1% to 0.5%.

Indonesia has invested heavily in the commissioning of integrated nickel pig iron and stainless-steel projects that have brought them rapidly to the forefront of world nickel supply, growing nickel production at a CAGR of 21.5% over the last 10 years. With a government committed to developing an integrated EV supply chain with ambitions to become an EV battery producer and exporter, they have leveraged their nickel reserves and are utilizing policy measures to attract foreign investment in local nickel processing and mining to meet future demand.

Looking towards the demand side of the equation, we plot the eight demand scenarios from the IEA, DoE, and AusISR below, where we can see present production rates already meeting the requirements of the lowest demand scenarios projected for 2025 (Figure 4).

Figure 4: Nickel Future Demand Spread

Source: US Geological Survey, International Energy Agency, US Department of Energy, Australian Department of Industry, Science & Resources

The IEA model incorporates nickel’s use in components of solar, wind, other low emissions power generation, EVs, grid battery storage, and hydrogen technologies, while the DoE models usage in lithium-ion batteries, EVs, electrolysers for generating hydrogen and fuel cells for vehicles. The use of nickel isn’t quite as broad as copper, with consumption primarily related to alloying and stainless steel, and with only 16% of 2022 demand related to clean technologies per the IEA.

With present mining rates already meeting some of the projected demand scenarios forecasted for 2025, the feasibility of meeting future nickel needs looks achievable, especially given the example of how the rapid expansion in Indonesian supply was made possible. An additional tailwind in meeting these goals also stems from the potential of battery chemistry shifting to require less nickel and the potential for nickel headed towards steel usage being redirected towards energy transition demand.

Lithium Supply Development: Mobilizing to Meet EV Demand

Lastly, we look at a metal whose primary demand relates directly to the energy transition in lithium; a key player in the batteries needed to minimize our carbon footprints.

Mined production of lithium has grown quickly since 2014, starting at a global annual mined production of ~32kt, improving to reach ~130kt in 2022 (reflecting an impressive CAGR of 19.2%). The key nations involved in this growth of supply are Australia, Chile, and China, accounting for 47%, 30%, and 15%, respectively, in 2022.

With reserves, the USGS highlights a world total of ~26,000kt of lithium, enough for ~200 years of potential production at present rates, with Australia, Chile, and Peru accounting for 24%, 36%, and 8%, respectively—and highlighting the relative abundance of the mineral (Figure 5).

Figure 5: Growth in Mined Lithium Supply and Lithium Reserves Since 2014 (Top 3 Highlighted)

Source: United States Geological Survey, FactSet

The rapid growth in lithium extraction from both brines (primarily in South America) and hard rock sources (primarily in Australia) have responded well to expected demand, particularly for the adoption of EVs over ICE vehicles. Looking to the projected demand spread, we see an exceptionally large divergence with the estimates going into 2035 (Figure 6).

Figure 6: Lithium Future Demand Spread

Source: US Geological Survey, International Energy Agency, US Department of Energy, Australian Department of Industry, Science & Resources

With a narrower scope of use than copper or nickel, lithium primarily reflects demand for the uptake of EVs and grid battery storage for both the IEA and DoE projections, with the IEA highlighting that 56% of lithium demand in 2022 was for clean technologies. Variations in the assumed policy scenarios and presumed mineral intensities are the two main contributors to the large spread in modelled 2035 demand. This also demonstrates how deeply difficult it is to forecast adoption and penetration rates of new technologies in the multitude of policy scenarios—particularly the requirements for a net-zero emissions economy.

Fortunately, the rapid pace of supply development from brine and hard rock sources over the last eight years have shown an ability for lithium supply to be brought to production faster than other commodities. The plentiful reserves available, in addition to the potential from new extraction technologies, provide hope that future supply can meet demand wherever it ends up.

The Best Laid Projections of Mice and Men

While past performance of supply provides a good framework to help shape expectations, keep in mind it is not completely indicative of the present reality and risks of meeting future demand. The long lead times in discovery to extraction are often incongruent with the timelines needed to meet the projected demand. The key jurisdictions that supply these vital resources are also subject to their own climate, political, and technical disruptions—such as declining production from existing mines, declining ore grades, or disrupted supply from climate events (e.g., drought) or local unrest.

Furthermore, new technologies, evolving material requirements, and varying rates of adoption can increase the uncertainty of demand, such as seen in the wide variance in the 2035 projections for these metals.

For example, within the DoE’s report on Critical Materials, over 23 components/sub-technologies were considered, each with their own material considerations and assumptions regarding their expected future usage and adoption (Figure 7). Each technology has its own exposure to various critical commodities and often involve minerals and metals with much narrower supply diversity than the big three metals analyzed above. This can further impact the actual rates of technology adoption and demand.

Figure 7: Technologies and Materials Considered in the DoE’s Critical Materials Assessment

Source: US Department of Energy, “Critical Materials Assessment” (July 2023)

Conclusion

While past supply does not guarantee the ability to meet future demand, it still provides a base framework around which we can shape expectations and model risk—whether it be jurisdictional, technological, or otherwise.

Although the demand of these key metals may vary, each will play a pivotal role in the global energy transition. Their respective market dynamics underscore the importance for stakeholders to leverage the data available and anticipate how they will navigate the evolving commodity landscape.

This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.