In the seventh event of our Commodity in Focus series, our experts explore how the rise in clean energy technologies is placing pressure on the metals market.
As many sectors make the transition to using green energy, the metals market is being placed under significant pressure.
Whether it’s expanding wind farms, building new solar panels, or producing electric vehicle (EV) batteries, all these activities will heavily rely on key metals such as lithium, cobalt, nickel, and copper. As a consequence, we expect to see the demand, supply, and prices of these metals fluctuate drastically throughout the rest of the decade.
In the seventh event of our Commodity in Focus series, Anuj Madaan and Nancy Garg – specialists at The Smart Cube – revisited the metals market to offer a revised outlook on the key metals in green energy production and share their recommendations for how those procuring essential metals should respond.
As always, you can catch up on the full conversation on demand. But in the meantime, here are some key takeaways from the session.
The pressures on the lithium, cobalt, nickel, and copper markets
Anuj reported that the demand for clean energy technologies is expected to quadruple by 2040, which is set to have a major impact on lithium, cobalt, nickel and copper. The production of EVs and advanced batteries for reliable energy storage, and the expansion of electricity networks will all contribute to an increase in the demand for these metals, putting them all at high risk for supply disruption.
But in the short term, there are other factors that are placing additional pressure on these metals. As Anuj explained, many resource-rich regions are taking greater control over their resources to increase government revenue and ensure maximum local benefit from resource extractions.
Major producers of lithium, cobalt, nickel and copper – including Chile, Peru, and Indonesia – have already introduced several measures such as regulations, taxations, increased royalties, as well as export restrictions on these metals. And with the top three producing countries for these metals accounting for more than 50% of the global supply, measures like these are inevitably driving prices up.
Ultimately, adapting to fluctuations in supply, demand, and price successfully will involve looking at each metal in isolation to understand its market behaviour.
A closer look at the supply, demand and price of copper and lithium
Both copper and lithium will play huge roles in supporting the clean energy transition, so it’s no surprise to see similarities in their market behaviour.
Anuj reported that the copper market is expected to be in surplus in both 2024 and 2025, thanks to new mine operations in Chile and Peru. Meanwhile, Nancy shared that lithium is predicted to remain in surplus for even longer, until 2027, due to a projected 33% growth in production between 2022 to 2025.
However, these surpluses won’t remain for long. After 2025, supply growth for copper is expected to slow down, and the metal will be in a deficit of 3.5 million tonnes by 2030.
Some of the key drivers for this slowdown in copper supply growth include:
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- Declining copper grades – resulting in lower copper content extracted from mines, and increased energy, resources, costs, and environmental impact
- Limited new copper mine discoveries – placing additional pressure on existing mines to meet growing demand
- Social and regulatory risks – many mines face community opposition and protests which lead to delays, increased costs, and reputational risk
- Inflation and project deferrals – new mining projects require significant investment, meaning projects are delayed amid capital inflation and rising costs
Nancy shared a similar picture for lithium. After experiencing some additional years of surplus in supply compared to copper, there will be a deficit in lithium after 2028.
The key drivers for the slowdown in lithium supply include:
- Fast adoption of EVs – an increase in demand for lithium-ion batteries will tighten supplies significantly
- Geopolitical risks – concentrated lithium resources within just a few countries including Australia, Chile, Argentina, and China create high geopolitical risks
- Possible delays in new lithium projects – like copper, lithium projects require significant investment and environmental assessments which can cause delays
- Competition to secure lithium – due to a mismatch in the metal’s supply-demand profile, there’s fierce competition to secure lithium supply
These factors are all affecting the price of these metals, both in the short term and in forecasts for the end of the decade.
For copper, Anuj reported that the short-term price will remain elevated for the rest of 2023 due to the current production deficit and looming recession. And prices will increase even further, with an expected price of $12,500 per tonne by 2030 as demand outpaces supply growth.
Despite a sharp drop in lithium prices in the first half of 2023 driven by the end of a Chinese government subsidy on electric vehicles, Nancy shared that prices are now expected to increase for the metal throughout the rest of the year. As China’s COVID-19 restrictions continue to ease and new emission standards boost EV sales, demand for lithium is expected to rise significantly in the coming years – and even further from 2028 onwards due to a projected supply deficit.
What you can do to adapt to the market fluctuations
From the protection of national resources to the delays in metal supply chains, there’s a lot to keep an eye on in the metals market over the next few years. But Nancy did share four key recommendations for how you can ensure your organisation is prepared:
- Continuously monitor inflation – enable a proactive, systematic, and data-driven inflation monitoring system that closely monitors policy changes by different economies and broader financial, economic, and business indicators to identify early signals of distress; helps in assessing the overall impact of these external market factors and integrate it with company’s internal data to generate actionable insights to mitigate risks
- Make strategic supply partnerships – boost your suppliers’ manufacturing capabilities to ensure supplies, even in a deficit market situation where competition for supply will be fierce
- Focus on supply chain resilience – redesign your supply chain networks to consider multiple sources and regions, and place a new emphasis on supply management to ensure long-term security
- Consider flexible business planning and execution – use scenario planning and budget for innovation to maintain a strong position in the upcoming challenging market
Watch the full session for the complete metals forecast
We’ve only covered a snapshot of what was covered in the session. You can watch the full webinar on demand to get a more in-depth look at the metals market, including an assessment of both nickel and cobalt, and a more detailed analysis of the pressures impacting the metal prices.