Roadblock Looms for Renewable Energy Shift, BCA Warns

A lack of capital spending in mining such ‘transition metals’ as copper, nickel and lithium is linked to chaotic prices, the research firm says.

Chaotic prices in so-called “transition metals,” needed for the planned worldwide transition to renewable energy, have led to flagging capital spending for the minerals, according to BCA Research.

Oversupply of these metals—copper, lithium and nickel, among others—has produced a falloff in capital expenditures to mine them, says Robert Ryan, BCA’s chief commodity and energy strategist, in an interview. “Miners are not investing, but demand will double for them by 2035,” he warns.

Too much of the metals was mined and refined in recent times, and a negative outlook for the world economy has tamped down funds to keep up production, a reaction Ryan finds shortsighted.

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Take copper, a key industrial metal necessary for building out the electric grid to accommodate increased need for power and a component for manufacturing in general. Its price has shot up 27% since its recent low in mid-2022, but that has slowed to merely a 5% increase over the past 12 months.

BCA found, in a report Ryan authored, that traders expect “a weak macroeconomic backdrop” in the near future. This belief has translated into flat capex for copper this year. Mining companies, for their part, are pulling back on capex due to their surge in spending that started 10 years ago to meet what they expected to be an ongoing Chinese expansion. But the pandemic squelched once-booming Chinese economic growth.

Meanwhile, lithium and nickel, used for batteries in electric vehicles, have experienced declining prices, down over the past 12 months by 50% and 18%, respectively. This comes amid a slowdown in growth projections for EVs, with automakers including Ford Motor and General Motors, have been lowered. In China, the EV sales leader, growth in January and February slowed to 18.2%, from 20.8% for all of 2023.

“Massive over-capacity in the lithium and nickel markets, where huge ramp-ups of investment in mining and refining leaves markets with supply overhangs, will take years to roll off,” the BCA report stated. That situation will be even more acute “if current tensions between the EU and China over EV dumping result in tariffs or a trade war,” it added.

The capital certainly exists to back increased deployment in these metals. Commodities make up only a small portion of most allocators’ portfolios, comprising just 2.3% of U.S. public pension holdings. But that likely could increase in the future. The California State Teachers’ Retirement System is embarking on a big commitment to propelling the transition. Although commodities have endured drooping prices in general lately, some institutional investors retain faith in them. For instance, the Indiana Public Retirement System, while not espousing any climate-oriented investing goals, has a 10% stake in commodities, on the theory they have a bright future.

The Energy Transitions Commission, a study group looking for ways to facilitate the energy transition, declares that 6.5 billion tons of these raw materials will be needed to meet transition goals by 2050. Demand for these materials will quadruple by 2040, per a Brookings Institution report.

With that in mind, not everyone is slowing capital spending nowadays for transition metals. Microsoft founder Bill Gates and Amazon founder Jeff Bezos are funding a mining company, KoBold Metals, that just found a huge copper deposit in Zambia. By the time it starts producing—full production is potential as soon as 2032—perhaps the global funding problems will be over.