The Global Materials Perspective 2024 by McKinsey’s Global Energy & Materials Practice provides a comprehensive outlook on the changing dynamics of materials demand and supply driven by the global energy transition. The report focuses primarily on the metals and mining industry, which is crucial to enabling a low-carbon future. It explores different scenarios, analyzing how the speed of energy transition and the maturity of specific projects influence the availability, affordability, and sustainability of key materials needed for the energy transition.

Key Categories of Materials Demand:

The report outlines three distinct categories of materials demand trends:

1. Materials with Stable Demand: These materials, like steel and aluminum, see demand growth largely in line with global GDP. They are not significantly influenced by the speed of the energy transition.
2. Materials with Accelerating Demand: These materials, such as copper, lithium, and rare earth elements (REEs), experience increased demand because they are essential for low-carbon technologies like electric vehicles and renewable energy systems. These materials are growing faster than in previous decades due to the transition to cleaner energy.
3. Materials with Declining Demand: Thermal coal, in particular, is seeing a long-term demand decline as its use in conventional energy systems is being phased out in favor of renewable energy sources.

Energy Transition and Its Impact on Material Demand:

The energy transition requires scaling up the supply of materials embedded in low-carbon technologies. For example, battery electric vehicles (BEVs) are 15-20% heavier than their internal combustion engine counterparts, driving up demand for metals like lithium and nickel. The energy transition also creates a long-term shift in material demand profiles, increasing the significance of “energy transition materials,” which are critical for technologies like batteries, solar panels, and electric vehicles.

Supply and Demand Scenarios:

McKinsey’s Metal&MineSpans platform models two supply scenarios: a base case and a high case. The base case includes all operating and under-construction projects, while the high case incorporates more speculative projects still in prefeasibility stages. These supply scenarios aim to understand the potential future availability of key materials and their likelihood of meeting future demand.

The report also considers three different demand scenarios for the energy transition:

• Slow Evolution: Characterized by a fragmented global response to decarbonization, leading to slower adoption of low-carbon technologies.
• Continued Momentum: Assumes a continuation of current trends, with mixed success in accelerating the energy transition.
• Sustainable Transformation: Envisions a coordinated global effort toward decarbonization, resulting in rapid deployment of low-carbon technologies.

Supply Challenges and Investment Needs:

Meeting future demand requires substantial investment in new mining and refining projects. McKinsey estimates a need for $5.4 trillion in capital expenditures by 2035, with most of the funding allocated to sustaining existing assets. The demand for materials like copper, lithium, and nickel is projected to rise substantially, especially as these materials are critical to battery technologies and renewable energy infrastructure.

Despite increased supply from some materials, such as lithium and nickel, the report predicts ongoing supply shortages for key materials like copper, REEs, and uranium by 2035. These shortages could hinder the deployment of low-carbon technologies at scale.

Price Incentives and Supply Chain Constraints:

For adequate supply to come online, prices for materials like copper, lithium, and nickel will need to increase. For instance, copper prices would need to rise by 20%, and lithium prices by 30% from 2024 levels to incentivize sufficient production. In addition to price incentives, challenges in scaling production include building the necessary infrastructure, ensuring water availability, and addressing logistical bottlenecks.

Geographic Concentration of Supply:

The supply of critical materials is concentrated in a few key regions, with China dominating the refining of many materials, including rare earth elements and lithium. This geographic concentration presents risks to supply chain security, as recent geopolitical developments, such as China’s export controls on REEs and other critical materials, demonstrate the vulnerability of global supply chains.

Emissions and Decarbonization:

The metals and mining industry is a significant contributor to global CO₂ emissions, accounting for around 15% of total global emissions in 2023. While some progress is being made, with emissions projected to decline by 15% by 2035, the report highlights the need for further innovation in decarbonizing material production processes. Green electricity and efficiency improvements are seen as key levers, but deeper decarbonization will require new technologies and substantial investment in low-carbon production methods.

Regulatory and Policy Impacts:

Government policies are playing an increasingly important role in shaping the future of the materials industry. The U.S. Inflation Reduction Act, Canada’s Critical Minerals Strategy, and the EU’s Critical Raw Materials Act are examples of policies aimed at boosting domestic supply of critical materials and reducing reliance on foreign sources. These policies are driving investments in mining and processing, but they also create new challenges for global supply chains.

Conclusion:

The Global Materials Perspective 2024 highlights the critical role that materials, particularly metals and mining, will play in enabling the global energy transition. While the demand for energy transition materials is set to surge, supply constraints, geographic concentration, and regulatory hurdles present significant challenges. Meeting future demand sustainably and affordably will require coordinated global efforts, substantial investment, and ongoing innovation in both mining practices and decarbonization technologies.

Full Report: https://www.mckinsey.com/~/media/mckinsey/industries/energy%20and%20materials/our%20insights/global%20materials%20perspective%202024/global-materials-perspective-2024.pdf