Column: Electric dreams turn into a nightmare for battery metals
A sector that was once racing to build new supply has been closing mines and deferring projects as low prices bite into the cost curve.
In 2023, the mining industry experienced a myriad of challenges and developments that significantly impacted its landscape. These included the downturn in lithium prices, intense merger and acquisition (M&A) activities, a challenging period for cobalt and nickel, strategic moves by China in critical mineral markets, and the setting of new records for gold prices.
Now, heading into 2024, what trends can we anticipate in the rare earth industry, and how are global supply chain dynamics evolving outside of China?
Although there has been a downward trend in strategic metals prices carrying over from last year to 2024, it’s important to remember the cyclical nature of the mining industry.
Many factors, including economic conditions, technological advancements, and geopolitical events, can influence the status of rare metals, and this recognition is crucial for making informed investment? decisions and navigating the industry’s dynamics effectively. Not only that, but the way these strategic metals are traded can also have an impact.
Suppose traders or firms active in physical commodities trading stockpiles these metals in large amounts driving metals up or several end users exit the market after fully stockpiled for the year– these are factors that can result in significant swings in metal prices.
So, while the current trend may suggest a temporary decline in strategic metals, understanding the underlying factors and cyclical nature underscores that periods of contraction often pave the way for subsequent phases of growth.
Diving further into the factors that have been impacting rare earth elements, it would be remiss not to mention the effects that the current inflationary environment is having. The impact of rising interest rates, most notably in North America, from a near-zero rate environment to 5% has directly contributed to the slowdown in demand for electric vehicles (EVs).
People are more cautious about buying EVs, in part due to the costs but also because manufacturers like Tesla have decreased their prices significantly over the last quarter. As a result, consumers are holding out, wondering if or when they might see yet another decrease. However, it’s not just EVs that need to be considered. There are also many other uses for these critical metals, rare earths for instance are used in military technologies, agriculture, and medical equipment like MRI machines, showcasing their significance in multiple sectors.
Although there has been a downward trend in strategic metals prices, influenced by a significant slowdown in EV demand, we must also recognize the intricate web of challenges posed by the global supply chain dynamics, especially the substantial influence exerted by China.
While efforts to diversify production outside of China have been making headway, there are still many supply chain complexities to work out, meaning the refining and manufacturing of end products still predominantly revolve around China.
This reliance on China for both rare earth metal production and related technologies remains a pivotal aspect influencing market trends (sometimes for the better, and sometimes not). For example, export restrictions imposed by China led to a support in graphite prices last year, showing their influence even as we move away from their dependence.
Looking ahead, the goal of many rare earths mining companies is to continue developing robust offshore supply chains that can support not only the mining of these strategic metals but also the refining, processing, and manufacturing processes.
Although we are still 5-10 years out from the total realization of this goal, it’s a step in the right direction for building a healthy supply chain so that the rest of the world can benefit from access to sustainable, conflict-free metals.
(Dr. Luisa Moreno is a Physics Engineer, an analyst in rare earths and president of Defense Metals)
