Material Matters: New Energy, Lithium & Coal

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A glance through the latest expert views and predictions about commodities. New energy; lithium; coal; and copper.

-Emissions from fuel combustion likely peaked in 2019
-Small deficit may arise in lithium if Pilgangoora ceases production
-Macquarie anticipates coking coal recovery in 2021
-Infrastructure stimulus underpins demand for copper
 

By Eva Brocklehurst

New Energy

Around 2.5 years worth of energy sector emissions are likely to be removed from now to 2050 because of the coronavirus pandemic. This is the assessment from Bloomberg NEF in its latest projections of the evolution of the global energy system over the next 30 years.

The research shows emissions from fuel combustion peaked in 2019 and were down approximately -10% in 2020 as a result of the pandemic. Energy emissions will rise again but not reach 2019 levels. From 2027, these are expected to fall at a rate of -0.7% per year to 2050.

Oil demand is expected to peak in 2035 and then fall -0.7% year-on-year to return to 2018 levels in 2050. Electric vehicles are expected to reach price parity with internal combustion engines in the years leading up to the mid 2020s.

Forecasts are based on the building of wind and solar power, the uptake of electric vehicles and improved energy efficiency across industries. Together wind and solar are expected to account for 56% of global electricity generation by mid century, and together with batteries absorb 80% of the investment in new power capacity.

Coal-fired power is seen peaking in China in 2027 and India in 2030 and will reduce to 12% of global electricity generation in 2050. In contrast gas is considered the only fossil fuel that will keep growing throughout, being used where there are a few economic low-carbon substitutes.

Ultimately, energy use in buildings, industry and some parts of the transport sectors such as aviation and shipping have few cost-competitive low-carbon options and are therefore heavily reliant on gas and oil products.

BNEF chief economist, Seb Henbest, notes projections have become even more bullish for renewables based on the cost dynamics. "What this year's study highlights is a tremendous opportunity for low-carbon power to help de-carbonise transport, buildings and industry – both through direct electrification and via green hydrogen."

Lithium

Altura Mining ((AJM)) has entered administration and its 20,000tpa Pilgangoora lithium operation will be placed on care & maintenance. Morgan Stanley assesses, if the project is not sold and ceases production, it would tip the lithium market into a small 2021 deficit.

A rise in the lithium price in response to the suspension is likely to prompt other spodumene and brine producers to lift output and, the broker suspects, this will counter any near-term shortfall. A re-start of other projects such as Mineral Resources' ((MIN)) Wodgina would require a sustained spodumene price of US$450-500/t and Morgan Stanley forecasts US$444/t for 2021.

Coal

Metallurgical (coking) coal is at the bottom of the cycle, with prices slumping over recent weeks amid the announcement of China's ban on Australian coal.

Despite a decline in Chinese coal production, Macquarie observes Mongolia has emerged as an alternative source which has weakened seaborne demand. Nevertheless, the broker expects a recovery in the metallurgical coal price in 2021, forecasting a seaborne deficit.

Copper

The copper price pipped US$7000/t recently, which Morgan Stanley observes was triggered by speculative inflows. Market fundamentals remain broadly supportive of a higher copper price amid low inventory and a market deficit that is likely to persist through 2021.

While metal imports to China have supported the copper price over 4-5 months, the rise in London Metal Exchange prices has meant the Shanghai equivalent is trading at a wide discount. This could generate potential for material to be re-exported from China.

Risks are building and there are reasons to be cautious, the broker warns, as China's scrap imports are growing. China has enabled quota-free imports of new categories of copper renewable materials from November 1 ahead of the ban on all other scrap imports from January 1.

While increased secondary imports come at a time when demand elsewhere is below pre-pandemic levels the impact is unlikely to be immediate, as Morgan Stanley notes weak industrial activity throughout 2020 has limited the generation of scrap, so there is low likelihood of a flood of material into China.

Meanwhile, renewed outbreaks of coronavirus across Europe have brought forward the potential for a downturn in consumer expenditure, although fabricators report volumes have recovered from lows earlier in the year and construction, power & electronics sectors are performing better.

In both the US and Europe fresh infrastructure stimulus, particularly for copper-intensive renewable energy, continues to underpin optimism for the red metal over coming years.

Morgan Stanley's economists believe the V-shaped recovery is intact and will continue to support buoyant commodity markets through 2021. Copper is also likely to remain in deficit and offset any softening of Chinese demand.

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