As the name suggests, critical minerals are vital because of their use in key applications (industrial, defence, space), limited availability and geographic concentration. And that raises supply risks.
And with the world moving towards clean energy technologies, the critical minerals market has witnessed unprecedented growth (doubling in size over the last five years). But their supplies have not kept pace with the surging demand. Critical minerals help power electric vehicles, wind turbines, solar panels and similar devices that help the world transit to clean energy. Today minerals such as lithium, cobalt, nickel and copper enjoy greater demand than at any time in the past.
From 2017 to 2022, the energy sector was the main factor behind the demand for lithium tripling, cobalt rising 70 per cent, and nickel going up by 40 per cent. The market for energy transition minerals reached $320 billion in 2022 and is set for continued rapid growth, the International Energy Agency (IEA) said in its first annual Critical Minerals Market Review. In fact, affordability and speed of energy transitions will be heavily influenced by the availability of critical mineral supplies. Because of uncertain global supply chains, countries are now seeking to diversify mineral supplies with a wave of new policies. The US, Canada, the EU and Australia have introduced regulatory legislation while resource-rich nations including Indonesia, Namibia and Zimbabwe have imposed restrictions on export of unprocessed mineral ores.
So, in order to secure mineral supplies, user industries like automakers, battery cell makers and equipment manufacturers are increasingly getting involved in the critical minerals value chain including mining and refining with long-term offtake agreements.
According to IEA, three layers of supply-side challenges need to be addressed to ensure rapid and secure energy transitions. They are: (i) whether future supplies can keep up with the rapid pace of demand growth in climate-driven scenarios; (ii) whether those supplies can come from diversified sources; and (iii) whether those volumes can be supplied from clean and responsible sources.
This is important because nations are increasingly getting polarised, especially after the US-China trade war and the Russia-Ukraine war that have resulted in sanctions and inflicted distortions in settled trade flows. Resource nationalism too has become the order of the day.
Interestingly, China dominates the supply of some key materials for green transition and that itself is perceived as a supply risk. The curbs China recently imposed on export of key metals gallium and germanium is a case in point.
Another aspect is the importance of sustainable and responsible practices in the critical minerals sector. Environmental and social impacts will have to be assessed. Considering all these aspects, the IEA has called for a strategy that brings together investment, innovation, recycling, rigorous sustainability standards and well-designed safety nets.
There are lessons to be drawn for India. We are talking about rapid de-carbonisation and energy transition, but we may not have all the key minerals and metals for an accelerated move towards our goal. Success of our effort will be subject to the vagaries of the world market.
Prices of many critical industrial metals like copper are sure to rise in the next few years as supplies are unlikely to catch up with rising demand. Rising material price is sure to throw the production costs of devices (solar panel, electric vehicles) out of gear.
A national debate on our energy transition plans and commensurate resource (material, financial, technological) needs is called for.
The writer is a policy commentator and commodities market specialist. Views are personal