Global Metals and Mining Industry Faces New Challenges Amid Accelerating Energy Transition, McKinsey Report Reveals

In 2024, McKinsey released a report titled “Global Materials Perspective 2024,” highlighting that the global metals and mining industry is entering a new era. As the energy transition accelerates, the global materials supply is quickly adapting to this new reality. In addition, the consulting firm noted that the overall financial health of the industry is currently better than historical averages.

Historically, the growth drivers for metals and mining have primarily stemmed from economic growth and the rise of the middle class, leading to a surge in demand for five key materials—steel, coal, gold, copper, and aluminum—which contribute 80% of the industry’s income. However, the energy transition is altering the demand structure for materials, notably increasing demand for certain materials in the shift towards low-carbon technologies.

Since 2000, the revenue of the materials industry has grown at an annual rate of 6%. From 2000 to 2023, industry revenues increased by approximately $2.4 trillion (over a 40% increase), with revenues from the metals and mining sector growing by $1.7 trillion (about a 75% increase).

During the same period, EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) nearly doubled, growing from $500 billion to $900 billion. Additionally, McKinsey pointed out that mining and metals companies have reduced their debt burden, with a net debt to EBITDA ratio of 1.3 times, much lower than the through-cycle average of 1.8 times.

However, the industry is expected to face more challenges in 2024, such as a slowdown in overall economic growth and the transition to low-carbon technologies happening more slowly than anticipated, putting downward pressure on price levels, especially for battery materials like nickel and lithium.

Moreover, while green energy transition represents the future of mining, the current market scale remains small, with batteries and other decarbonization-related metals—including copper—accounting for only 15% of global metals and mining revenue. For instance, the market size for rare earth mining and the production of metals and alloys is less than $20 billion. In contrast, revenue from thermal and steel accounts for about 60-70%, with production volumes 30 times higher than all other metals and minerals combined.

Mining and metal activities and revenues remain heavily influenced by global economic fluctuations, particularly those in China.

Key points from the report include:

1. Impact of Energy Transition on Material Demand:

• Accelerated demand growth for materials required in low-carbon technologies, such as electric vehicle batteries needing more materials.
• Long-term demand shift towards materials required for low-carbon technologies.
• While coal remains the second-largest revenue source currently, its long-term use is trending downward.

2. Financial and Industry Growth:

• Since 2000, materials industry revenue has grown at a 6% annual rate.
• Despite recent challenges from supply chain and energy price volatility, financial performance remains strong.

3. Supply and Demand of Key Materials:

• Steel, coal, copper, gold, and aluminum occupy 80% of industry revenue.
• Supply of materials like lithium and nickel surpassed expectations, whereas copper supply lags.

4. Future Outlook:

• By 2035, besides steel and thermal, demand for other materials is expected to exceed absolute historical growth, notably lithium and copper.
• Key materials such as rare earth elements, lithium, sulfur, uranium, iridium, and copper may face shortages.

5. Investment and Infrastructure Needs:

• $5.4 trillion in capital expenditure and 270 gigawatts of power are needed by 2035 to meet demand.
• Nearly 340,000 new jobs and related infrastructure development are required.

6. Price Adjustments and Sustainability:

• Price increases are necessary to incentivize sufficient supply, e.g., copper prices might need to rise by 20%.
• Emissions from metals and mining are expected to decrease by 15% over the next decade.

7. Market Acceptance of Green Materials:

• Studies show less than 15% of customers are willing to pay more for low-carbon materials; however, increasingly strict regulatory measures could alter this scenario.

Clean Energy Coal Copper Lithium Steel