Second Essay: Sustainable Finance
Guiding Premise: Imagine you are an analyst working for a financial research firm (S+P, Fitch, etc). You are tasked with preparing a memo based on the IEA Critical Mineral Market Review about developments in the financial commodities market focusing on critical minerals. Your job is to highlight and explain the fastest growing commodity demands and discuss which minerals may attract speculative investment in the future.
Bottom Line:
The IEA Critical Minerals Dataset demonstrates that Copper demand will remain the highest demanded mineral in kilotons both overall and in clean technology, and Nickel is in a similar position as the second highest in both categories. There will be a period of time between 2030 and 2040 in which Graphite is the second highest above Nickel specifically in demand within clean technology, but Nickel is the second highest demanded mineral in cleantech by 2050.
The absence of some minerals in the “Total Demand” section makes it impossible to come to conclusions regarding those minerals’ pricing in the future, so this piece focuses on Copper and Nickel. This absence and the limitations thereof is demonstrated by a comparison of the data sources’ data on Zinc.
Copper stands out as a worthy mineral to speculate on, and not just because its demand is the highest in terms of kilotons. Copper ore mining is reaching its peak in terms of supply, but demand is projected to increase considerably due to the copper-intensity of renewable power generation. Copper is not easily replaceable either. It is the opinion of this piece that, based on this information, Copper is going to be an area of considerable speculation. Nickel is in a similar position based on future demand increases, though new sources of Nickel are being invested in as we speak.
Introduction: This memo uses the IEA Critical Minerals Dataset to analyze total critical mineral demand as well as critical mineral demand in the clean technology sector. It also projects critical mineral demand based on the stated policies of governments across the world. Finally, it uses the Austrian government’s World Mining Data to generate facts and figures on mineral supply and compares the demand figures with these numbers. The purpose of the memo is to consider the impact that the changes in demand will have on commodities markets in the finance industry, and compare these changes to current and historical supply in order to predict commodity speculation.
Metric Analysis of Total Mineral Demand Now and In Stated Policies (Graph 1 and 2):
The Critical Minerals Dataset has a few core takeaways for those interested in current mineral demand. The present demand for copper far outpaces any other mineral. Graph 1 and 2 show the overall demand for specific minerals as of 2022 and the changes in total demand over time based on the policies that governments have already stated, respectively. Much of the demand for copper is concentrated outside of the clean technologies sector, however its impact within cleantech primarily lies in electricity networks. The second largest overall demand is for nickel, and this demand is primarily in electric vehicles. The demand for nickel in kilotonnes exceeds the demand for lithium, the next most demanded mineral. After this, the highest demand is for cobalt and neodymium, in that order. However, these indicators only cover present demand. Based on the stated government policies, there could hypothetically be changes in the expected future demand for each of these minerals relative to one another. However, the total demand for each remains in their original rankings despite the total demand growing over time. Copper, Nickel, and Lithium make up most of the growth in total demand.
Metric Analysis of CleanTech Mineral Demand Now and In Stated Policies (Graph 3,4, and 5):
Using the IEA dataset, Mineral demand within cleantech specifically can be isolated. Graphs 3, 4, and 5 demonstrate the top 10 minerals in clean technology production today, the top 10 in the future based on the stated policies scenario, and the top 10 in the future without copper in order to get a clear picture of the other variables, respectively. In both the current year and in the stated policies growth scenario, mineral demand in the cleantech industry is dominated by copper. The rest of the top five by 2050, in order, are Nickel, Silicon, Graphite, and Manganese. Since Zinc will play a role in the discussion later, I have also included a brief reference to its role in clean technology. In the present, Graphite has the second highest demand in clean technology, but will be lower in ranking over time, while Manganese starts below the top five and rises in the ranks. Below I will give a brief rundown explaining the relevance of each of these minerals and their changes.
Copper: Copper’s relevance to technology across the board is high due to its common use as an effective conductor, justifying its’ importance now and in the future, however its relevance in clean technology is increased by its’ unique properties. Renewable energy generation requires around five times more copper than non-renewable electricity generation. Household electrical vehicles require around 3 times as much copper as fossil fuel vehicles, and green buses require around 10 times as much copper. Coupling this with the fact that electrification of developing countries will require copper if the generation is meant to be renewable, it makes sense as to why this demand is so high(1, 2).
Nickel: Nickel is a core component of lithium ion batteries, and the promotion of EVs means the amount of nickel in car batteries will likely grow from just 4% in internal combustion to 40% by 2030. Nickel is also required for contemporary high-performance alloys used in wind turbines and solar panels and in green hydrogen production. Nickel’s usefulness is set to expand considerably from its traditional use in coinage and stainless steel(3).
Graphite: Graphite has a large role in EV production due to its use in batteries, with each battery requiring between 110-220 pounds of it, so its usage is projected to expand considerably over time. In order to meet demand, synthetic graphite is beginning to be produced and could make up a large portion of the future electric battery market(4). In terms of raw kilotons demanded, graphite overtakes Nickel until 2040, and is the second most demanded mineral until then.
Manganese: Manganese is a commonly used element to convert iron into steel, large quantities of which will be necessary for the production of solar and wind farms. Like many of the other minerals mentioned here, Manganese is necessary for the production of lithium ion batteries(5).
Silicon: While Silicon has a high demand at the present in semiconductors in general, its demand in clean technology is still high relative to other minerals due to its use in solar panel semiconductors. The DoE estimates that the amount of solar panel modules using silicon semiconductors is around 95%(6).
Zinc: Zinc currently has many uses in terms of the clean energy transition. Zinc-ion batteries are considerably safer than lithium ion batteries, and it is frequently used as a coating for the outside of wind turbines and solar panels to prevent rusting(7).
Actionable Insights for Commodities Speculators (Graphs 6, 7, and 8):
The data on future demand needs, when met with historical data on the supply of specific minerals, can be used to consider what positions speculators may want to take on certain mineral commodities. However, the only source of data that is comparable to total supply is total demand. As such, the main focus of this section will be copper and nickel, and the insights that can be gained from these commodities that may be transferable to other metals that will grow in use in cleantech. The harm of comparing total supply to cleantech-specific demand will be demonstrated through the example of zinc. Because demand for many minerals will rise precipitously, this memo will focus on speculators taking a position in which they purchase futures to sell for a profit if the price of a commodity rises above the futures price. Thus, this paper will consider the instances where current supply in kilotons is dwarfed by future expectations of demand. The data used to determine mineral supply is sourced from World Mining Data, a web page created by the Austrian Government.
Nickel demand is projected to grow consistently between now and 2050. Looking at Figure 6, or rather the two graphs that compose Figure 6, the world demand for Nickel in 2025 based on the stated policy scenario is projected to be around 3264 kilotons, but the mining of nickel in 2021 only supplied around 2812 kilotons, meaning the supply of nickel will have to increase by around 16% from then to 2025. Even if this value is achieved, the total demand is projected to reach around 3901 kilotons by 2030, meaning there needs to be approximately a 39% increase in the supply of nickel between 2021 and 2030 to meet global demand. New sources of Nickel in Indonesia are being explored to meet this demand, using High-Pressure Acid Leech methods to increase Nickel supply. The ability to meet future demand for Nickel is highly reliant on these projects’ success(8).
Copper, in general, has the highest mineral demand per kiloton. This trend is going to continue into the future, and the mineral demand is going to grow sharply over the long term based on the stated policies of governments. Copper in particular should be a mineral of interest to speculators. The mineral has no equally performing substitutes and existing mines are near peak performance(8). In other words, we know that Copper’s demand outpacing supply will drastically increase its price, as the demand for copper is inelastic. By looking at Figure 7, we can see the discrepancy between the need for copper and the amount of copper available. By 2025, global demand for copper will total at around 26,755 kilotons, and by 2030 this number will rise to around 30,848 kilotons. As of 2021, the total global production of copper maxed out at around 21,415 kilotons, so the global production will have to rise by about 25% from the 2021 amount to meet global demand next year, and will have to rise about 44% within 9 years of the 2021 value.
Zinc is a harder mineral to estimate the future pricing of based on the data included in the IEA demand chart, as Zinc is only mentioned in relation to cleantech demand. Look to Figure 8, which compares kilotons of zinc demanded in the clean technology sector going forward against kilotons of zinc currently supplied to the global market. Zinc demand in cleantech is a fraction of the present supply, with the 2025 demand in cleantech at an estimated 625 kilotons despite global supply in 2021 being about 12,929 kilotons. Even though Zinc is in relatively high demand in clean technology, it is hard to come to any conclusions about the future of Zinc prices based on the information available. Similar conclusions can be drawn with other minerals that lack “Total Demand” data, such as Graphite. Thus, Nickel and Copper are the best to analyse with the data available.
Silicon is another mineral that speculators may target, however this information is beyond the scope of the data available in the IEA report. The IEA targets energy technologies, and silicon doesn’t play an extremely large role here. Overall silicon demand may increase considerably due to its presence in the semiconductor industry. Further data exploration will be required to determine whether or not this is the case.
Conclusion:
Based on the IEA data and accompanying report, it may be worthwhile to keep a close eye on the futures market for copper, with a secondary focus on nickel (particularly in later years). The demand for zinc, graphite, silicon, and other minerals worth targetting is poorly represented by this data, so a secondary memo may be necessary to predict commodities futures for these minerals.
Data Cited:
International Energy Association. Critical Minerals Demand Dataset. IEA, 2023.
Austrian Federal Ministry of Finance. “6.2. World Production of Mineral Raw Materials by Mineral Raw Materials” in World Mining Data. AFMF, 2023.
Additional Sources Consulted:
(1) Le Dain, Mark. Pay Attention To Copper Before It Derails The Energy Transition. Forbes, 2024.
(2) Lawson, Kierissa. Conducting change: Why copper is key to a renewable future. CSIRO, 2023.
(3) International Energy Forum. Nickel - a mineral with a challenging role in clean tech. IEF, 2024.
(4) Lienert, Paul and Carey, Nick. Focus: Synthetic graphite for EV batteries: Can the West crack China’s code?. Reuters, 2023.
(5) Edelman Global Advisory: Insights. How Critical Minerals Factor into the Green Transition. EGA, 2023.
(6) Department of Energy. Solar Photovoltaic Cell Basics. DoE, Unknown Date.
(7) Venditti, Bruno. Zinc is critical for the low-carbon economy. Here’s why. World Economic Forum, 2022.
(8) IEA. The Role of Critical World Energy Outlook Special Report Minerals in Clean Energy Transitions. IEA, Last Updated 2021. Pp 133
Appendix of Graphs:
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