Metals, Mining Faces Diverse Impact from Energy Transition

Metals and mining companies will face varying impacts from the transition to a low-carbon economy, including diverging demand trends and the need to transform production processes and switch to greener energy sources and cleaner feedstock, Fitch Ratings says in a sector-specific Climate Vulnerability Scores (Climate.VS) report. Climate.VS vary depending on companies’ demand and supply outlooks, role in the energy transition, carbon intensity of value chains, access to technologies and substitution risks.

Nickel and copper have the brightest demand outlooks due to their use in green economy infrastructure, such as solar panels, wind turbines, electric vehicles and grids, although producers will need to reduce the carbon footprint of their operations. Aluminium is also required for the green transition, although Fitch expects it to have moderate demand growth, with producers facing pressure from rising carbon costs. Fitch expects demand for zinc to be supported by its wide use in construction and steel galvanisation (the latter used for wind turbines).

We do not expect the energy transition to materially change demand for gold as it is viewed as a financial asset and used in jewellery. Mining of non-ferrous metals is responsible for almost 1% of global greenhouse gas emissions, much lower than steelmaking (7%).

The key challenge for steelmakers’ decarbonisation will relate to the technological shift, with multiple options being developed. At the same time, steel is an essential material for building the green economy. We expect that steelmakers will transit to the electric arc furnace route, which does not require coking coal but will continue to use iron ore. Producers relying on the blast furnace-basic oxygen furnace route will be subject to the highest risks. Thermal coal will be gradually phased out and faces a long-term existential threat.
Source: Fitch Ratings