The commodities boom ignited by China’s post-Covid recovery, and stoked by the global move to green energy, broke price records last week even as fears about inflation stalked the markets. But it also risks triggering a rush on metals and minerals that could derail climate action.
Iron ore reached the apex of a super-rally that drove prices to $237.57 a tonne in New York on Wednesday. The record followed a surge in demand from China’s steel-making regions, now recovering after the pandemic, which has pushed prices up from less than $94 this time last year.
Copper, which is used in products from smartphones to electric cars, has doubled in price over the past year. The metal hit a fresh record of more than $10,700 a tonne last week as Chinese demand continued to rise.
Market experts believe prices have further to run, as the rebound continues. But if China has sparked the bullish run on commodities, it is the global drive for green innovation that has fanned the flames.
The world’s rising appetite for electric cars, solar panels, batteries and energy infrastructure to reduce reliance on fossil fuels requires metals such as copper and nickel, key materials in most electrical products.
This is good news for mining companies, including Rio Tinto and BHP Billiton, whose shares have been propelled to multi-year highs by investors eager to claim a stake in a prolonged commodities boom. However, the same economic trend could create a “looming mismatch” between the world’s appetite for green infrastructure investment “and the availability of critical minerals that are essential to realising those ambitions“, according to the International Energy Agency.
In a recent report, the energy watchdog found that the global demand for critical and rare minerals would rise to six times higher than today by 2040 if the world were to achieve net zero emissions in 2050. An electric car requires six times the mineral inputs of a conventional vehicle, and an onshore windfarm requires nine times more mineral resources than a gas-fired plant. Electric cars and batteries, which are expected to increase dramatically in number over the years ahead, require large amount of cobalt, nickel and lithium, as well as rare earth elements. Wind power investment will also need high levels of rare earths, as well as zinc.
If the world hopes to keep pace with the trajectory set out in the Paris climate agreement – to keep the global rise in temperature lower than 2C – this could mean demand for lithium alone would climb 40 times higher in the next 20 years because of its use in batteries, according to the IEA.
But forecasts vary widely. At its most demanding, the pace of the “green rush” could outstrip the output of all existing mines and projects under construction, which would be able to meet only half of projected lithium and cobalt requirements and 80% of the world’s copper needs.
There are also concerns about the production of these raw materials, which is highly concentrated in a handful of countries. The IEA warns that the world’s top three producers account for more than three-quarters of global supplies. The Democratic Republic of the Congo produced 70% of cobalt and rare earth elements in 2019, according to IEA data, and China was responsible for refining nearly 90% of rare earths used globally.
Fatih Birol, executive director of the IEA, said: “Left unaddressed, these potential vulnerabilities could make global progress towards a clean energy future slower and more costly, and therefore hamper international efforts to tackle climate change.”
Others are less pessimistic. Kingsmill Bond, an analyst at the thinktank Carbon Tracker, said: “There is no denying that there will be production bottlenecks as demand for critical minerals rises, but this is nothing new for the mining sector. The fossil system requires over 300 times more material than the renewable system. The disparity is enormous, and no amount of fancy footwork by apologists for the fossil fuel system should deflect us from the central point that we have the resources to make the energy transition a reality and to usher in a new age of growth and prosperity.”