Commodities of the future to boom over 20-year horizon

A significant number of commodities are set to experience strong demand growth over the next 20 years, while “conventional” commodities will receive an added boost as they take a central stage in the green and digital transitions, says financial risk management, solutions and insights company Fitch Solutions Country Risk and Industry Research (Fitch Solutions).

The firm reveals that it expects oil, iron-ore, conventional steel, zinc, sugar and beef to broadly stagnate, demand-wise, in the next 20 years.

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However, the “commodities of the future”, including copper, nickel, aluminium, lithium, cobalt, tin, rare earths, metal scraps and green steel, are likely to experience a boom in demand over a two-decade horizon.

In terms of agricultural commodities set to boom, these include poultry, dairy, fish and crustaceans, soybean, corn, cocoa, fruits and vegetables and new agribusiness areas such as marijuana.

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Out of the energy sector, only low-carbon hydrogen, a relatively new commodity, is making the cut, states Fitch Solutions.

Although not a traditional commodity, the firm has also included carbon credits in the commodities of the future category.

CRITICAL MINERALS

As the green and digital transitions accelerate in the coming years, Fitch Solutions says the so-called critical minerals will support demand for a number of commodities, including in the case of metals copper (green transition), nickel/ lithium/cobalt (green transition for batteries), tin (digitalisation and consumer demand) and aluminium (green transition).

While the mining and refining sectors for traditional base metals such as copper, nickel, tin and aluminium are well established, the firm notes that the lithium and cobalt mining sectors will develop quickly in the coming years and these markets will mature.

Extensive research and development to improve the efficiency, cost and sustainability of batteries will lead to fast-moving developments in the types of battery chemistries, leaving some materials at risk of a fall in demand.

Cobalt in particular is a case in point, says Fitch Solutions, because many players along the battery supply chain are aiming to reduce or entirely phase out cobalt from batteries given the elevated sustainability and environmental, social and corporate governance risk associated with the commodity.

Although demand will hold up “very well” in the near term, the firm forecasts that consumption of thermal coal, coking coal and nitrogen fertiliser will experience a significant decline in the longer term, the firm reports.

HYDROGEN

While fossil fuel-derived hydrogen (grey hydrogen) as a fuel is not new, blue hydrogen (natural gas-derived and with carbon capture and storage) and green hydrogen (renewable energy-derived) are entering commercialisation and are only just becoming established in energy commodity markets, states Fitch Solutions.

In this regard, the firm highlights that the “hydrogen as a commodity” narrative has just started to unfold, with a notable rise in interest since 2020. As such, the firm suggests the hydrogen sector will evolve at a fast pace in the coming years amid an ever-expanding project pipeline.

Fitch Solutions expects green hydrogen production will rapidly accelerate and gain increasing market share at the expense of traditional grey hydrogen, rising from less than 1% of current global market supply to a forecasted 10% by 2030.

This rapid acceleration has been brought forward by declining renewable costs, wide geographical scope, short development times and its zero-carbon footprint.

In contrast, however, the firm expects blue hydrogen production growth will remain highly focused in several key markets and will be slower to gain market share owing to long development times, resource dependency and high levels of capital investment.

Overall, Fitch Solutions expects that all types of low-carbon hydrogen will most likely grow in the coming years as the energy sector accelerates its transition towards lower emissions.

Hydrogen product demand will be most concentrated in large, highly developed markets; and Fitch Solutions’ new Green Hydrogen Suitability Index indicates the US, China, Western Europe and Canada as prime markets globally for the development of green hydrogen.