Iron ore supply chains are expected to bear the brunt of the industry’s transition to decarbonisation and will require costly investments to stay relevant, a Fitch Solutions report has revealed.
According to Fitch, the move to a low carbon economy will require new processes to reduce emissions, which will impact low-quality iron ore, coal steel and zinc supply chains.
“The transition will require large investments to reduce miners’ emissions and to increase exposure to new growth markets,” Fitch Solutions stated.
“It will also disrupt industry trends for almost all sub-sectors, dooming the coal industry, reviving copper and green steel, and prompting the emergence of new sectors including lithium. As such, it poses key risks and opportunities to the entire mining and metals sector.”
Iron ore giants Fortescue Metals Group, BHP and Rio Tinto are gearing up for the green shift anticipated by Fitch Solutions.
Fortescue is exploring green steelmaking and iron ore, along with green hydrogen to power its export ships as part of the company’s decarbonisation strategy.
Australian Treasurer Josh Frydenberg encouraged stakeholders to continue supporting the mining industry amid growing environmental, social and governance (ESG) requirements.
“Iconic Australian companies, like BHP, that have been around for more than a century, are investing in renewables to power their mines, as they pursue their own goal of net zero operational emissions by 2050,” he said.
“Another major Australian miner, Fortescue, has committed over $1 billion to produce renewable green hydrogen to fuel future steel-making activities.
“When I talk to these and other large Australian companies about how they are positioning for the future, they not only expect to be around in 2050, but to be bigger and stronger.”
ESG requirements have pushed mining companies to look at clean energy metals as shown by Rio Tinto’s $US2.4 billion ($3.2 billion) to develop the Jadar lithium-borates operation in Serbia, which will make the company the largest lithium supplier in Europe.
Fitch Solutions stated large industry players are set to benefit from the shift to decarbonisation by diversifying their portfolios through commodities including, copper, nickel, aluminium, tin, lithium, cobalt and low-carbon steel.
“Mining and metal players that have reduced significantly their emissions or that have developed new techniques to produce low-carbon products (low-carbon aluminium, steel, ‘zero-carbon lithium, etc) will also likely be able to command a price premium, as their clients strive to reduce their own scope three emissions,” Fitch stated.