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Rio Tinto to tackle Scope 3 emissions, eyes decarbonized future as miners’ 2020 profits soar

19 February 2021 Keiron Greenhalgh

Mining giant Rio Tinto plans to tackle its Scope 3 emissions, it announced 17 February, even while unveiling a 22% jump in annual earnings driven by increased shipments of and prices for iron ore, a key raw material for steelmaking.

The company's stance on Scope 3 emissions, downstream emissions created by customers using its products, is an about turn after last year considering such a goal a bridge too far. Rio Tinto is the largest iron ore miner by volume, according to company filings. Much of that heads to China, the world's largest steelmaker. Because steel is produced through an energy-intensive manufacturing process that involves both iron ore and coal, Scope 3 emissions will be a substantial challenge to tackle.

As part of Rio Tinto's efforts to tackle its Scope 3 emissions, the Anglo-Australian firm said it was working with customers in the steel industry, investing in technologies it believes can reduce the carbon intensity of steelmaking by at least 30% from 2030, as well as developing "breakthrough technologies with potential to deliver carbon neutral steelmaking pathways by 2050."

The company also said it had teamed up with partners to enable the production of zero-carbon aluminum, and hopes to reach net-zero emissions from shipping of its products by 2050.

"Our portfolio of high-quality iron ore, copper, [aluminum], and minerals has an essential role in enabling the low-carbon transition," Rio Tinto said in its earnings statement. It said it spent $140 million on "climate-related projects" in 2020, part of a $1 billion budget for such efforts in the 2020-2024 period.

The increase in the company's 2020 earnings was heavily influenced by a 15% rise in the average realized price for its iron ore to $98.90/dry metric ton (mt) and to China's relatively swift industrial recovery from the COVID-19 pandemic.

BHP Billiton, Glencore release earnings

Although Rio Tinto exited the coal business in 2018, two other mining behemoths that reported earnings earlier this week-BHP Billiton and Glencore-remain heavily involved in the metallurgical coal arena, which also benefited from China's pandemic response.

"Even against the backdrop of the decarbonization of the global economy, we believe that metallurgical coal will remain an essential input into the steelmaking process for a long time yet," BHP Billiton said in its own earnings statement.

Glencore, which filed its preliminary 2020 earnings on 16 February, said it was fully aware of the links between coal, carbon emissions, and its customers. "Selling our coal mines does not remove their associated [Scope 3] emissions," it said in the earnings statement.

"While there is demand for coal, and it is economic to do so, we will continue to operate our mines until they reach the end of their lives. Through responsible stewardship of these assets and a commitment to a managed decline of our coal portfolio, including maintaining a focus on our high-quality coal assets in Australia, we will deliver on our ambition to reduce our total emissions in line with the goals of the Paris Agreement," the Baar, Switzerland-headquartered company said.

The company, which merged with coal to copper miner Xstrata in 2012, has pledged to achieve net-zero Scope 1, 2 and 3 emissions by 2050. In the statement, Glencore said its Scope 3 carbon dioxide (CO2) emissions fell to 264,000 mt in 2020 from 347,000 mt in 2019, while its Scope 1 and 2 CO2 emissions fell to 24,300 mt in 2020 from 29,200 mt in 2019.

BHP Billiton is committed to reaching net-zero operational emissions by 2050, and said in its results statement it was "on track to meet our current short-term target to maintain 2022 financial year total operational emissions at or below 2017 levels."

The company said 15 February its operating profit for the six months that ended 31 December 2020 rose 17% year on year on the back of iron ore and metallurgical coal sales. BHP Billiton and Rio Tinto also benefited from copper prices, which the latter said reached a seven-year high of $3.61/lb in December 2020, over 70% above a low earlier in the year. BHP and Rio Tinto own 87.5% of the world's largest copper mine, Chile's Escondida complex, which the former operates.

EV, nickel optimism

While iron ore, metallurgical coal, and copper powered the three mining giants' most recent earnings, the prospects for nickel-a metal key to batteries used for energy storage and electric vehicles (EVs)-have the companies' number crunchers and executives salivating.

Glencore said that after a weak first quarter of 2020, electric and hybrid vehicle markets exceeded even the most optimistic forecasts. "We expect the recent positive trend to support a strong rebound in 2021 nickel demand, as major economies and automakers have committed to aggressively support the transformation to EVs," Glencore said.

BHP added: "We believe that nickel will be a substantial beneficiary of the global electrification mega-trend and that nickel sulfides will be particularly attractive given the relatively lower cost of production of battery-suitable class-1 nickel than for laterites, which are expected to set the long-run nickel price. This view is supported by our assessment of the likely rate of growth in EVs and of the likely battery chemistry that will underpin this."

The company said it had revised "our already aggressive long run EV ranges" to reflect even more supportive policy, such as accelerated bans for internal combustion engine vehicles in Europe, the climate platform of the Biden administration in the US, and net-zero objectives in China, Japan, and South Korea.

Such support and trends are also providing optimism amongst the world's largest miners about another battery metal: cobalt. The metal, of which 70% was mined in the Democratic Republic of the Congo in 2019 according to US Geological Survey data, is also used for batteries as well as in solar and wind generation hardware.

The average cobalt price in 2020 was $15.40/lb, 4% lower than in 2019, according to Glencore, as end-users including the aerospace industry took a beating due to the pandemic. But 2021 has started strongly from "a demand and pricing perspective," especially as Chinese and European EV demand builds, it said. Glencore expects the cobalt market to nearly quadruple to 507,000 mt by 2050 from 129,000 mt in 2019.

The transition to a low-carbon future is overall positive for the company, Glencore said. The company's outgoing CEO, Ivan Glasenberg, noted in a letter to investors released as part of its earnings: "The majority of our earnings comes from the metals and minerals that enable the transition to a low-carbon economy. We are one of the largest global producers of copper, nickel, zinc, vanadium, and cobalt and will continue to prioritize investment into these commodities. In addition, our recycling centers and metallurgical assets play a fundamental role in the circular economy by reducing new metal consumption and waste generation."

Glencore and Rio Tinto also this week signed up for the "Say on Climate" campaign backed by billionaire hedge fund manager Chris Hohn that involves committing to annually disclosing their greenhouse gas emissions, a plan to manage those emissions, and an annual general meeting vote on said plan.

Posted 19 February 2021 by Keiron Greenhalgh, Editor, Energy and Natural Resources Group, IHS Markit

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