Metals super-cycle to clash with ‘gloomy’ global economy: Wood Mackenzie

Copper scrap metal at a recycling facility (Sirisak Boakaew via Getty Images)

The metals super-cycle driven by the shift to cleaner energy could come to a halt if geopolitical tensions escalate and the global economy weakens, caution analysts from Wood Mackenzie. They predict that miners will experience declining profits in 2024.

According to Nick Pickens, the global mining research director at Wood Mackenzie, an investment of $200 billion in new mining projects will be required by 2030 to meet the global demand for copper and other metals used in electrification.

“The lead time for new mining projects, which is typically seven to ten years, poses challenges in meeting supply and demand requirements,” stated Pickens in a news release on Tuesday. “Coupled with uncertainties in mid-term demand and metal prices, this situation presents significant obstacles to the metals super-cycle.”

The ongoing conflict between Israel and Hamas has further worsened the global economic outlook. This adds to existing concerns such as Russia’s war in Ukraine and rising borrowing costs.

Last week, JPMorgan Chase CEO Jamie Dimon emphasized the potential “far-reaching impacts” of the Israel-Hamas conflict on energy, food markets, global trade, and geopolitical relationships. IMF managing director Kristalina Georgieva also referred to the conflict as a “new cloud” looming over the world economy. Wood Mackenzie described the global macroeconomic environment as “gloomy” in their analysis.

Prices of battery materials, including lithium, cobalt, and nickel, have declined this year due to a decrease in electric vehicle (EV) demand in China. Wood Mackenzie predicts that the weakness in bulk commodity prices will lead to lower profits for miners in 2024, as many companies prioritize debt repayment over growth-focused investments.

James Whiteside, the head of corporate metals and mining at Wood Mackenzie, added that the focus on meeting shareholder payout expectations often takes precedence over initiatives related to growth and decarbonization. He highlighted that most companies allocate less than 10% of their capital expenditure (capex) to decarbonization, renewables, exploration, and evaluation.

Looking ahead, an executive from global cable supplier Nexans recently warned that a global copper shortage is likely to occur within two years. This presents a challenge for utility grid operators as they adapt to increased demand from EVs.

Jeff Lagerquist, a senior reporter at Yahoo Finance Canada, contributed to this article.

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