Rising Metal And Mineral Prices Could Derail The Energy Transition

Metals and minerals prices have soared over the last year, a trend that is likely to continue as the global demand for these resources continues to increase in line with the green transition. The price of lithium, cobalt, nickel, aluminum, and copper have all risen as renewable energy projects and battery manufacturing operations expand worldwide. While the scarcity of these resources is a major concern, many energy companies are also worried about the rising cost of metals and minerals as they plan for large-scale green energy operations.

Between January 2021 and March 2022, the price of lithium increased by over 700 percent. Meanwhile, cobalt prices rose by over 150 percent, and nickel by almost 100 percent. And while lithium production increased by 36 percent in 2022, demand is quickly outpacing supply, driving prices up. The demand for lithium for electric vehicle (EV) usage alone rose by around 76 percent last year.

Copper, which has always been a good indicator of economic health, is expected to have a good year in 2023, after experiencing an increase in demand following the reopening of the Chinese economy from its zero-Covid restrictions. Copper prices rose significantly from late December to late January, from $3.81 to $4.24 per pound. And many expect both copper demand and prices to continue to rise, due to the versatility of its use worldwide. The manager of the BNY Mellon Natural Resources fund, Al Chu, explained: “Copper typically is used as a construction metal for wiring for building, wiring for machinery and whatnot, but if we look at the decarbonization net zero energy transition trend, copper is the new oil.”

Copper experienced a relatively small price increase – of less than 50 percent – from 2021 to 2022, due mainly to the global economic crisis, as well as the higher availability of copper thanks to the opening of new mining projects around the world. However, short-term supply tightness and long-term energy transition-related demand are expected to drive copper prices up this year. Chu went on to state, “Is it solar power, is it wind, is it EVs, is it any form of renewable energy? Every renewable energy pretty much needs copper, because if you’re talking about electrifying something and transmitting electricity, you need copper.”

A huge quantity of copper is expected to be required to achieve net-zero emissions targets in the coming decades. And the metal is not so easily available, with many existing mines having been depleted and the potential for future mining more complicated, due to several copper-rich regions being hard to reach and underdeveloped. People have been understandably more focused on lithium, due to shortages experienced in 2022 and soaring prices. But copper continues to be pivotal to several industries, as well as being key to a green transition, meaning new demand worldwide.

Ole Hansen, the Head of Commodity Strategy at Saxo Bank, believes copper will “settle into a $3.75 to $4.75 range during the coming months before eventually breaking higher to reach a new record sometime during the second half.” The price rise will be mainly due to a shortage of copper as demand rises, which analysts at Wood Mackenzie believe could continue through 2030. In addition to rising demand, supply chain disruptions are also likely to add to the deficit. This has been seen in recent months in the unrest in Peru, which led to the halting of several mining activities.

Peru has seen several protests in the first months of the year since former President Pedro Castillo was ousted in December. With Peru providing around 10 percent of the global copper supply, any disruption in production can be devastating. Glencore announced in January that it was suspending operations in its Antapaccay copper mine after protesters looted and set fire to its premises. And fellow South American copper producer Chile saw its copper output decline in 2022, a trend that is likely to continue until new mines come into operation later in the decade.

But will the shortages of certain metals and minerals and rising prices hurt the green transition? In 2022, the IEA highlighted the imminent need to diversify the commodities supply chain, to reduce reliance on a few specific resource-rich powers. This has been a general sentiment felt by governments and energy firms worldwide since the Russian invasion of Ukraine and subsequent sanctions on Russian energy. The U.S. and Europe in particular have looked to diversify their oil and gas suppliers, strengthen their supply chains, and accelerate the development of renewable energy projects.

However, to achieve greater supply chain diversification and encourage the expansion of green energy projects, governments worldwide will have to pump a huge amount of funds into the metal and minerals sector, to ensure a steady supply as well as lower prices for industries supporting the green transition. The projected increase in the price of metals and minerals appears to be the inevitable cost of the green transition, but if governments hope to decarbonize their economies, it is the necessary cost of the shift.

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