The Low Carbon Economy & The Mining Industry · industry sectors. 22 Industries Fitch Solutions...
Transcript of The Low Carbon Economy & The Mining Industry · industry sectors. 22 Industries Fitch Solutions...
The Low Carbon Economy & The Mining Industry
Monday 10 December 2018
Michelle Karavias, Deputy Head of Industry Research, Fitch Solutions
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Disclaimer
THIS PRESENTATION IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings’ Credit Rating. Any text or data included are solely derived from Fitch Solutions Macro Research and independent sources. Fitch Ratings’ analysts do not share data or information with Fitch Solutions Macro Research.
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1 Intro
2 Low Carbon Economy Impact on Operations
3 Mining Company Sustainability Drive
4 Low Carbon Economy Impact on Commodities Demand
5 EVs and Metals Demand & Power Sector Coal Demand
Agenda
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Fitch Solutions covers 22 different industry sectors.
22 Industries
Fitch Solutions provides analysis on 204 individual country markets, globally.
204 Countries
Fitch Solutions Introduction
13
2CountryRisk• PoliticalCountryRisk• MacroeconomicCountryRisk• BusinessEnvironment
OperationalRisk• EducationRisk• LabourMarketRiskAssessment• LogisticRiskEvaluation• TradeandInvestmentRiskAnalysis• CrimeandSecurityRisk
IndustryResearch• Agribusiness• Automotives• Banking&Financial• Consumer&Retail• CommodityPrices• Defence&Security• Food&Drink• FreightTransport&Shipping• InformationTechnology• Infrastructure• Insurance• MedicalDevices
• Metals• Mining• Oil&Gas• Petrochemicals• Pharmaceuticals&Healthcare• Power• RealEstate• Renewables• Telecommunications• Tourism
Offering insights across the Emerging, Frontier and Developed Markets
Global Insights
Low Carbon Economy & Operations1
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Mining & The Low Carbon Economy
• Integration of renewable electricity to power mining operations.
• Sustainable/reduced water usage.
• Use of energy-efficient equipment during development and extraction at mines, alternative fuels for transportation.
• Technology integration to increase efficiencies throughout the lifecycle of the mine.
• Adjustment of asset portfolios to target low carbon associated commodities and decrease exposure to significant pollutants such as coal and emissions-intense steel production.
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• Cost reduction potential
• Reliability of supply and cost consistency
• Regulatory pressures e.g. carbon taxes
• ESG credentials and shifting client demands
Integrating Renewable EnergyEMEA - LCOE by technology, USD/MWh
50
100
150
200
Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17
Solar PV c-Si Solar PV c-Si (With Tracking)Onshore Wind Offshore WindBiomass & Waste NuclearNatural Gas Coal
Source: BNEF, Fitch Solutions
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Integrating Renewable Energy
Higher score = more attractive market, Source: Fitch Solutions Renewables Risk/Reward Index
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• Sustainable/reduced water usage• Dry processing• Desalination
• Use of energy-efficient equipment during development and extraction at mines, alternative fuels for transportation.
• Technology integration to increase efficiencies throughout the lifecycle of the mine.
Reducing Emissions Through The Cycle
0 100 200 300 400 500 600
Iron ore for steel
Coal for electricity & steel
Third party transport
Rio Tinto Indirect Emissions, 2017
Exploration
Development- Sustainable materials- Water conservation
Extraction- Alternative energy- Efficient equipment
Processing- Reducing water usage- Alternative energy
Transport & Storage- Alternative fuel transportation
Closure- Minimize environmental impact- Reclamation
Sustainability Through The Cycle Of A Mine
Low Carbon Economy & Metals Demand
2
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Low Carbon Commodities Demand
Battery Metals 1
Shifting Power Mix2
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Electric Vehicles Outlook
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
4,500,000
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
China Europe United States Rest of the World
Electric Vehicles Sales, Units
NB: Based on 53 countries. 2018-2027 = forecast, Source: Fitch Solutions
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e/f = Fitch Solutions estimate/forecast. Source: EIA, National Sources, Fitch Solutions
Chemistries Dictate Metals Demand• Globally, NMC cathodes will dominate
among new EV sales moving forward
• Lower cost LFP cathodes will continue to have a significant presence in Chinese market
NMC (Nickel, Manganese, Cobalt)
NCA (Nickel, Cobalt,
Aluminium)
LFP(Lithium, Iron,
Phosphate)
AdvantagesThermal stability Highest energy density Long cycle life
High Energy Density High range Low cost
Low Cost Lower Cobalt content Thermal stability
DisadvantagesEthical and reputational risk Low thermal stability Low energy density
Price volatility High Cost Low range
Elevated self-discharge 0102030405060708090
100
2018e 2019f 2020f 2021f 2022f 2023f 2024f 2025f 2026f 2027f
LFP NMC NCA LMO-NMC LMO
China– BatteryElectricVehicleSalesByCathodeType(%)
Lithium-ion Batteries: Cathodes Factbox – Pros & Cons
e/f = Fitch Solutions estimate/forecast. Source: Fitch Solutions
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Nickel• NMC cathode chemistry of choice:• High energy density, thermal
stability and low cost.• Switch from LFP to NMC expected
in China due to regulatory changes.• 57% of total cathodes in china will
be NMC by 2027.
• Efforts to increase nickel content to reduce reliance on cobalt:
• NMC 811 cathodes to account for 80% of all new NMC battery sales 2027
0
20
40
60
80
100
120
140Lithium Nickel CobaltManganese Aluminium IronPhosphate
Global – Metals Demand From EV Battery Manufacturing (tonnes)
e/f = Fitch Solutions estimate/forecast. Source: EIA, National Sources, Fitch Solutions
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Cobalt & Lithium• Cobalt demand upside limited:• Unpopular due to high/volatile price
and sustainability questions• Shift to NMC 811 underway• Cobalt will see lower cumulative
demand over the next 10 years than lithium and manganese
• Lithium demand will remain strong due to its presence in all battery cathode chemistries.
• Manganese benefit from use in NMC.
0
5
10
15
20
25
30
35 Lithium Cobalt Manganese
Aluminium Iron Phosphate
Global – Metals Demand From EV Battery Manufacturing (tonnes)
e/f = Fitch Solutions estimate/forecast. Source: EIA, National Sources, Fitch Solutions
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Iron• Chinese LFP batteries to support
iron demand - low cost & reliability.• Cumulative iron demand second
only to nickel over ten year horizon.• Upside support to a bearish outlook
for iron ore - offset declining demand from China and steel production.
0
500
1000
1500
2000
2500
0
20
40
60
80
100
120
140
160
2018e 2019f 2020f 2021f 2022f 2023f 2024f 2025f 2026f 2027f
Nickel Lithium Iron Manganese
Cobalt Phosphorus Aluminium Chinese EV Sales 0
5,000
10,000
15,000
20,000
25,000
0.020.040.060.080.0
100.0120.0140.0160.0180.0
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
Iron Ore Price, USD/tonne, ave (LHS)
Nickel Price, USD/tonne, ave (RHS)
China: Direct Metals Demand From EV Battery Manufacturing (tonnes ‘000s) (LHS) & EV Sales (volume 000s) (RHS)
e/f = Fitch Solutions estimate/forecast. Source: EIA, National Sources, Fitch Solutions
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• Coal key to emerging markets, but will lose power mix share due to decarbonisation drive
• Asia to remain primary source of demand for coal.
• BRI driving investment in coal fired power plants.
• Non-Hydro Renewable Energywill increase its share in the global power mix the most, driving additional demand for batteries
Coal: Power Mix Shifts Demand
Coal38%
Natural Gas23%
Oil 3%
Hydropower16%
Non-Hydro Renewables
9%
Nuclear11%
2018f
Coal34%
Natural Gas25%
Oil 2%
Hydropower17%
Non-Hydro Renewables
13%
Nuclear9%
2027f
e/f = Fitch Solutions estimate/forecast. Source: EIA, National Sources, Fitch Solutions
Global Power Generation Mix By Year
Thank You
Monday 10 December 2018
Michelle Karavias, Deputy Head of Industry Research, Fitch Solutions