The idea that fossil fuels can be easily swapped with renewable energy sources is far from being the truth. Unless we solve the metals and minerals challenge, we will not successfully transition to renewables and electrify the economy.
- The transition to renewables requires substantial amounts of metals and minerals – a fact which is often ignored
- Meeting the insatiable and growing demand for these finite resources is a substantial challenge given insufficient known reserves, declining ore grades, geographical concentration and risk, and the time/cost of mine exploration and development.
- As we pursue the path to net-zero, data management tools and analytics can help the commodity trading industry and institutional investors gain transparency and insight into metals and minerals markets.
For more data-driven insights in your Inbox, subscribe to the Refinitiv Perspectives weekly newsletter.
When discussing the tectonic shift needed to achieve carbon neutrality, I prefer the expression “path to net-zero” to the commonly used “energy transition”.
The reason is that the latter skews the discussion towards the energy complex, and it creates a false perception that fossil fuels can be easily swapped with renewable energy sources.
This is far from being the truth.
For example, the transition to renewables requires substantial amounts of metals and minerals. But they are often omitted from the discussion.
Copper, nickel, cobalt and lithium are just a few examples.
Metals and minerals are instrumental to the electrification of the economy because they are needed to expand the grid, and build the batteries, cables, wiring and a large part of the infrastructure.
Solving the challenge is essential for energy transition
We will not successfully transition to renewables and electrify the economy if we do not solve the metals and minerals challenge.
The scale of the problem is massive, and the list of obstacles that require immediate reflection and action is long.
Simply put, we do not have enough supply of metals and minerals to meet the insatiable and growing demand needed to achieve the transition targets specified by the Paris Agreement and COP26.
To start, we have insufficient known reserves, and additional supply will not be available any time soon. The time required to explore, develop, and deliver new mines takes several decades.
Increasingly stringent environmental policies on mining activities do not ease this long process and reveal a certain level of phasing misalignment with regulations aimed at urgently reducing emissions.
Declining quality of ore grades and fractious geopolitics
Another significant challenge is the declining quality of ore grades.
Metals and minerals are non-renewable resources, and there are fewer high-quality ore deposits left to develop.
According to the World Economic Forum, the average cost of producing copper has risen by over 300 percent in recent years, while grade has dropped by 30 percent.
Geopolitics present another problem as the supply of metals and minerals is characterised by a significant geographical concentration risk.
The current geopolitical turmoil and the war in Ukraine will likely accelerate a new equilibrium in trade flows with the regionalisation of supply chains and the emergence of trading blocks, or “friend-shoring” of supply chains, as recently described by the U.S. Secretary of the Treasury Janet Yellen.
How can data help commodity trading?
In this context, what could assist the commodity trading industry in addressing these challenges?
Historically, the metals and minerals markets have been opaque. But an increased number of data sources, driven by big data analytics and new technologies including geospatial analytics, is bringing much-needed transparency.
This data-driven transparency is helping companies that trade metals and minerals to have a granular view of the market without the need to vertically integrate production.
Data could also assist investors.
With institutional investors reallocating capital flows from companies with negative environmental impact to companies that contribute to climate change mitigation and adaptation, data on emissions and ESG will offer an opportunity to identify the mining companies that are attempting to decarbonise and have a better scoring than their peers.
But where to start?
With data becoming widely available and commoditised, access to a mere collection of different data points no longer provides a significant competitive advantage. The whole process of drawing insight out of data starts from data management.
Data management allows data scientists, analysts, traders, and risk managers to focus on generating insights instead of spending time in blending market data with the proprietary data they create.
For those commodities companies that do not have the necessary expertise to develop data management in-house, the subscription of cloud-based solutions removes this barrier and enables the C-level to make decisions with confidence and to position their firm for substantial growth.