The global metals and mining industry is entering a new era. Historically, the industry has been driven by economic growth and the development of the middle class, resulting in major demand growth for materials such as steel, aluminum, and coal. While 80 percent of the industry today primarily consists of five materials—steel, coal, gold, copper, and aluminum—the landscape is rapidly changing as a result of the energy transition.
Indeed, the energy transition is first and foremost a physical transformation and the key challenges are therefore mostly physical, including the timely availability of materials embedded in low-carbon technologies (as detailed in McKinsey Global Institute’s 2024 report, The hard stuff: Navigating the physical realities of the energy transition). The energy transition is changing the materials landscape in three ways:
- It accelerates demand growth for materials that are embedded in low-carbon technologies as these technologies typically require more embedded materials than their conventional counterparts. For example, battery electric vehicles (BEVs) are typically 15 to 20 percent heavier than comparable internal combustion engine (ICE) vehicles.
- It triggers a long-term shift of the materials demand profile as low-carbon technologies require a different set of energy transition materials, which is gradually increasing the relative importance of these materials in the overall metals and mining portfolio.
- It drives a long-term reduction of thermal coal in the energy system, currently the second largest material in metals and mining measured by revenue (2023).
Key materials for the energy transition are crucial to achieve decarbonization in the global energy system—and a lack of sufficient and affordable supply would therefore risk hindering the at-speed deployment of crucial low-carbon technologies. This report aims to provide a fact base and perspective on the need to scale these materials sustainably and affordably. We present a view of the possible road ahead, based on data from approved, publicly available sources, checking this view against three energy transition scenarios differentiated by the speed of the transition as well as two supply scenarios modeled by McKinsey Metal&MineSpans and based on asset level insights.
The road ahead will inevitably bring challenges, including how to accelerate the scaling of supply to meet new demand patterns, how to keep materials affordable so they can continue to support the energy transition and fuel economic growth, and how to improve the sustainability of the industry. This is not simple, especially in the context of an evolving global policy landscape that further increases uncertainty for investors.
However, we are hopeful that the industry’s response to the energy transition also presents substantial business opportunities for incumbents and new entrants alike, whether from conscious portfolio shifts, disruptive innovation, new business models, or the next wave of operational and capital expenditure (capex) advances, in some cases enabled by AI.
Despite a turbulent environment, finances were healthy until 2023—yet 2024 has a gloomier outlook
The materials industry has grown revenue by 6 percent per annum since 2000
The past two to three years have posed some challenges for the materials industry, with high price volatility driven by increased supply chain disruptions and volatility in energy prices, among other factors. While the industry has experienced previous cycles of boom and bust, these recent fluctuations are unprecedented in scale.
Despite the challenges, the materials industry has shown strong financial results over the past few years when compared with historical averages. Revenues grew by approximately $2.4 trillion (more than 40 percent) from 2020 to 2023, primarily driven by metals and mining, which grew by $1.7 trillion (an increase of approximately 75 percent). During the same period, EBITDA in metals and mining nearly doubled, increasing from $500 billion to $900 billion.
Overall, balance sheets are healthy, with net debt over EBITDA ratios of 1.3 times—well below the through-cycle average of 1.8 times—providing companies with more investment capacity.
However, 2024 is projected to be a more challenging year for the industry as overall economic growth slows down and the shift toward low-carbon technologies unfolds more slowly than expected, both of which are putting downward pressure on price levels, especially for battery materials such as nickel and lithium.
In metals and mining, around 80 percent of revenues stem from just five materials
Steel, thermal coal, copper, gold, and aluminum dominate the sector
The $4 trillion metals and mining industry is largely composed of just five materials: steel (including iron ore and metallurgical coal), thermal coal, copper, gold, and aluminum. Of these, thermal coal and steel account for approximately 60 to 70 percent of revenues, with production volumes more than 30 times higher than all other materials combined. Gold, copper, and aluminum make up another 15 to 20 percent.1
Other materials often associated with the energy transition, such as battery and magnet materials, remain small in terms of revenue but are growing in sync with the shift toward low-carbon technologies.
Supply is scaling faster than expected for several materials key to the transition
Lithium and nickel are ramping up faster, while copper lags behind
Comparing Metal&MineSpans’ first quarter 2020 projection for announced supply with actual production in 2023 shows that production for lithium and nickel was underestimated by nearly 20 percent.
For lithium, the difference is driven by assets funded by Australian and US investors coming online faster than expected, as well as an unanticipated scale-up of lepidolite assets in China in response to elevated lithium prices. And for nickel, the ramp-up stems almost solely from integrated high-pressure acid leach (HPAL) laterite assets in Indonesia. This accelerated supply buildup—in combination with a slowdown in electric vehicle (EV) sales—partly explains recent downward price corrections and why some projects have been called back.
By contrast, copper supply lags projections not only because of expected projects not coming online but also because several assets decreased production faster than anticipated.
Accelerated technological innovation is creating increasing uncertainty for demand outlooks
OEMs in automotive are rapidly shifting toward alternative technologies
As supply has scaled up faster than expected for some materials, demand patterns have adjusted in response to anticipated supply shortages.
For example, the chemistry mix for batteries used in EVs is increasingly moving away from nickel-manganese-cobalt (NMC) to lithium-iron-phosphate (LFP). As another example, the share of leading OEMs stating they would shift toward electric motors that are less reliant on REEs increased from 30 percent in 2022 to 40 percent in 2023.
These trends, however, are not consistent across materials. For instance, the move from iridium-intensive electrolyzers in anticipation of a potential iridium shortage is not yet apparent. This could be partially explained by the fact that hydrogen developers may still have flexibility to change electrolyzer designs at a later stage in the project development cycle.
Demand projections remain strong, with the majority of materials outpacing absolute historical growth
The highest relative growth will come from copper and lithium
Demand projections remain strong from now until 2035. In fact, except for steel and thermal coal, demand is expected to outpace absolute historical growth in the coming decade compared with the previous decade for all materials considered in this report, with lithium and copper in particular standing out.
Nickel and rare earth elements (REEs) are also projected to grow faster than in the previous decade, yet outlooks for both have been adjusted downward over the past nine months as demand from the automotive sector is shifting away from high-nickel batteries and REE-intensive electric-vehicle motors.
Expected supply-demand in 2035 is more balanced compared with our 2023 perspective, but shortages are still anticipated for several materials
REEs, lithium, sulfur, uranium, iridium, and copper may face shortages
Recent changes in supply and demand have altered the projected supply–demand gap, especially after 2030. In the past 24 months, both nickel and cobalt have moved from expected undersupply to oversupply, as an example.
That said, shortages are still anticipated for several materials key to the energy transition, in particular REEs, lithium, sulfur, uranium, iridium, and copper.
For materials where timelines for project development are fairly limited (in some cases less than five years), the supply–demand gap is likely to close by further scaling up supply once demand signals become strong enough. This is the case for uranium, for which scaling challenges depend mainly on the uncertain future of nuclear power as opposed to the scarcity of reserves or a sufficient number of potential projects. A similar example is seen in lithium, where reserves are abundant and mines have relatively short development timelines.
For other materials, the supply–demand gap is less likely to close through the accelerated scale-up of supply because of long project timelines or limited high-quality reserves and projects. In such cases, given that supply and demand must match, demand adaptation or reduction is expected to take place to balance the market. The most notable example in this category is copper.
As much as $5.4 trillion in capex and 270 gigawatts of power is needed by 2035 to scale up supply to meet expected demand
A third of a million new jobs may also be needed, as well as infrastructure build-out
Scaling up will be challenging. Meeting projected demand will require an efficient and timely deployment of investments, energy, and logistics infrastructure and equipment, as well as the proper capabilities and steady freshwater availability.
- Capex: On a global level, $5.4 trillion1 is needed for supply to match current demand outlooks by 2035, an approximate 10 percent increase compared with the previous decade.
- Energy: As much as 270 GW power is needed (with another 1,100 GW needed to decarbonize) by 2035. That said, the power required, although significant, does not constitute more than 3 percent of projected demand for renewables in 2035.
- Labor: 340,000 new jobs globally could be needed in the industry to scale supply, while 1.25 million jobs are at risk in the thermal coal industry.
Local challenges regarding skilled labor, steady energy supply, water availability, logistics infrastructure, and equipment supply may hinder deployment, alongside project affordability.
Price increases will likely be required to incentivize sufficient supply to come online
Current copper prices will need to increase by 20 percent to drive sufficient supply
Since 2022, lithium prices have dropped by approximately 80 percent to $14,500 per ton lithium carbonate equivalent (LCE) and prices for nickel have dropped by approximately 20 percent to $20,000 per ton.1 These decreases represent a “normalization” rather than a drastic shift in industry dynamics, as prices moved closer to typical production costs.
To incentivize sufficient supply, nickel prices would need to increase by around $1,000 per ton, a 5 percent increase, assuming that the most economical projects would be prioritized and delivered on time. For lithium and copper, the pipeline of announced projects is smaller, and the demand increase is higher. Therefore, a higher price increase would be needed to incentivize sufficient supply to meet demand. For copper, an approximate 20 percent increase from current prices would be needed, and for lithium, the approximate required price increase is 30 percent, provided all announced projects come online.
However, history has shown that the most economical projects are not always the first to be realized, given the range of barriers aside from profitability that can impact project execution, such as permitting delays. Moreover, individual projects may also have different required rates of return to be approved by owners and investors, which would in turn mean different levels of required incentive prices.
All in all, if some of the more profitable projects were not to advance—whether due to barriers or higher return rates required—a further price increase would be needed to bring new supply online.
Over the next decade, total metal and mining emissions are estimated to decrease by a modest 15 percent
The metals and mining industry could contribute 13 percent of global emissions in 2035
In 2023, total production emissions from the metals and mining industry accounted for approximately 15 percent of global emissions. Assuming no external shifts, the share is estimated to decrease to approximately 13 percent by 2035—a 15 percent decline.
This decrease in emissions is driven by the net effect of several factors:
- Changes in demand: Net impact from decreasing emissions from thermal coal production, offset by increasing emissions from other materials that will see demand growth.
- Grid decarbonization: The global grid is projected to decarbonize by close to 50 percent as the share of renewable energy increases, reducing emissions for those assets that are reliant on grid power for their operations.1
- Improved circularity: The share of recycled materials, which have a lower carbon footprint, will increase, driven by the higher availability of scrap and improved collection and recovery rates.
- Efficiency improvements: Continued efficiency improvements estimated at 0.5 percentage point per annum.
- Announced net-zero production: In addition to incremental decarbonization, there have been several announcements of asset-level transitions toward new technologies. In steel alone, approximately 40 Mt capacity of such transitions have already been announced by 2035, which would lower global emissions by as much as 60 MtCO2.
Research shows less than 15 percent of customers indicate a willingness to pay premiums of around 10 percent for low-carbon materials
However, regulatory measures could change the outlook
Our recent survey with leading industry players shows a limited willingness to pay for greener materials. In fact, less than 15 percent of surveyed decision makers indicate they would be willing to pay a premium of around 10 percent if there was a scarcity of green materials by 2030.
However, increasing publicly announced measures, such as the EU Emissions Trading System (EU ETS) and Carbon Border Adjustment Mechanism (CBAM), could significantly change this outlook by imposing higher costs on companies based on their carbon emissions. In response, companies might seek to either switch to sourcing low carbon footprint materials or invest in innovative solutions to reduce process emissions.
