Ferrous, coal most exposed to climate risk in metals & mining
Thermal coal, blast furnace-basic oxygen furnace (BF-BOF) steelmaking and its raw materials are the segments of the metals and mining sector that are most vulnerable to long-term climate risks due to their large direct emissions, Fitch Ratings says.
Demand for many non-ferrous metals will remain high in the long term due to their role in the low-carbon transition, even though producers will need to decarbonise their mining and processing. The vulnerability of gold to climate risk will remain unchanged due to its limited industrial use and expected reductions in production-related emissions.
Thermal coal mining faces a long-term existential threat as coal-powered energy generation is the single largest source of greenhouse gas (GHG) emissions (42% in 2019, according to the IEA), and cleaner sources of energy are already available.
Steelmaking is highly carbon-intensive, particularly if using the BF-BOF route, which relies on metallurgical coal for iron ore reduction. Electric arc furnaces (EAFs) are easier to decarbonise as their emissions are much lower and largely depend on power supply.
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Steel demand will grow in the long term, but major changes in technology will be required to achieve carbon-neutral primary steelmaking. EAFs that are based on direct-reduced iron (DRI) and powered by renewables or, when feasible, hydrogen, are currently viewed as the key way to achieve carbon-neutrality.
Carbon capture and storage (CCS) is another option but the UN PRI expects this technology to be used less often. BF-BOF steelmaking faces greater long-term climate risks than EAF steelmaking as it will become less competitive due to the growing pressure of carbon costs and significant capex needs.
Metallurgical coal faces similar climate vulnerability because demand will decline as less steel is made using the BF-BOF route, of which it is an input.
Iron ore is required in all steelmaking processes except for EAF facilities that only use scrap. This reduces its long-term climate risks compared to metallurgical coal.
Mining of non-ferrous metals is responsible for just under 1% of global GHG emissions. The use of such metals in the energy transition supports long-term demand, leading to significantly lower climate vulnerability compared to steelmaking and its inputs.
Copper is used in a broad range of electronic and industrial applications including electricity networks, charging infrastructure, solar and wind power, and electric vehicles, so demand for it should more than double by 2050. This leads to lower climate risk vulnerability, although it can be replaced with aluminium in some applications.
Nickel is the least vulnerable non-ferrous metal. It has been predominantly used in stainless steel production and other corrosion-resistant alloys, but we expect demand to surge fivefold in the next 30 years due to its application in rechargeable batteries and electricity storage.
Nickel mining and refining emits a high level of GHG, but the carbon costs of nickel are a fraction of its price. Still, rising nickel prices that can lead to the metal’s substitution and the need to develop low-carbon production processes increase its long-term vulnerability.
Aluminium is another critical mineral for the energy transition. However, its production is energy-intensive, with almost 60% currently powered by thermal coal, leading to a large carbon footprint. Aluminium demand fundamentals are weaker than those of copper and nickel, but comparable to that of steel. Electricity price volatility and rising carbon costs can change market dynamics.
We expect greater demand for zinc from wind turbine manufacturing and hydro and solar power. Zinc is primarily used for steel galvanisation. Like aluminium, zinc refining is energy-intensive, suggesting increasing long-term decarbonisation requirements and rising carbon and electricity costs.
