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Metals sector risk report

Green rush off to a slow start

Strenghts
SENSITIVE risk for enterprises

Strengths & Weaknesses

Strenghts
  • Increasing demand for metals, especially those critical to renewable energy technologies and electric vehicles, which could quadruple by 2040 compared to 2020 in a Net-Zero scenario
  • Despite volatility, many metals still have higher prices than their historical averages, boosting profitability for the sector
  • Government focus on critical materials could increase support for the sector
  • Firms' strong liquidity positions

     

 

Weaknesses
  • High exposure to geopolitical tensions and conflicts
  • Fragmented supply chain at risk of disruptions
  • Mining companies are facing increasing pressure related to ESG (water use, biodiversity, social impacts etc.)
  • High capital intensity
  • Extensive mine lead times  

Sector Overview

What to watch ? 

  • High interest rate environment
  • Green regulation, both an opportunity (through higher demand) and a risk (because of higher regulatory requirements)
  • Public policies on critical materials
  • Policies related to electric vehicles and wind energy
  • Capex in the sector and especially exploration announcements by mining companies
  • Mining lead times
  • Geopolitical developments (war in Ukraine, China-US, Middle East etc.)
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The global base metal market is projected to exceed USD1.1trn by 2030, with the global base mining market expected to reach over USD740bn. Recent growth and expansion in the global metals sector, including mining companies, have been fueled by rising demand in developing economies, the energy transition (from renewable energy to electric mobility) and high metal prices.

In 2023, metal prices remained relatively stable, with base metal prices increasing by +3.6% due to resilient demand, supply constraints in some segments (such as cobalt) and transportation issues. The average EBITDA margin for the metals and mining sector was approximately 13% in 2023, a significant decrease from 2022 but still reflecting strong profitability. Firms in the sector also maintained strong liquidity, with an average current ratio of 1.6 in 2023.

However, the sector faces challenges, including geopolitical tensions, environmental regulations and the need for technological innovation. The ongoing Russia-Ukraine war and high energy and input costs are expected to continue to pressure profitability in 2024. Despite the significant needs for the green transition, many firms have opted to limit their mining development plans. The sector continues to face a growth dilemma as miners need to invest more in exploration to ensure sufficient supply but in the downsteam subsector capital expenditures are set to decrease by about -4% in 2024, while upstream investments should increase by a meagre +4%.

Subsectors

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Steel production: This is a significant segment of the metals sector, with steel being a critical material in construction, automotive and many other industries.
Metal processing and manufacturing: Firms involved in the processing of raw metals into finished products or components used in various industries (other than steel).
Iron-ore mining: Mining of iron ore for steelmaking industries
Base-metal mining: Mining of non-ferrous metals such as aluminum, copper, zinc and lead.
Precious-metals mining: Mining of gold, silver, platinum etc, mostly used for jewelry and as a form of investment.

Contacts

Ano Kuhanathan
Head of Corporate Research
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