PwC UK comments on the IEA Critical Minerals Outlook 2024

Source: IEA Global Critical Minerals Outlook 2024

*The IEA bases its projections around three main scenarios: Stated Policies Scenario (SPS) aligned to a 2.4C temperature rise, the prevailing trend; Announced Pledges Scenario (APS) aligned to a 1.7C temperature rise, encompassing all national commitments delivered in full, and Net Zero Emissions (NZE), aligned to a 1.5C temperature rise.

Price Volatility – Investors now more cautious

“Critical mineral prices fell sharply in 2023 after two years of dramatic increases. Battery materials saw large declines, with lithium spot prices plummeting by 75% and cobalt, nickel, and graphite prices dropping by 30-45%. 

“Rapid investment and the resulting ramp-up of new supply outpaced demand growth (Including government driven stockpiling in, for example, China and the USA) over the past two years, significantly contributing to the downward pressure on prices.  This volatility, reflecting the cyclical nature of commodity markets, now impacting levels of investment from their peak in 2022. Investors are reluctant to commit to large projects without sufficient confidence in the long-term business case, a challenge in an environment with capital requirements, high projected growth rates, multiple system bottlenecks, and a dynamic regulatory and geopolitical outlook. Partnerships with governments and new non-traditional players in the mining sector (Such as large, downstream consumers such as battery and automotive OEMs) can play a pivotal role in sharing risk for investments.  For example, national governments or coalitions of governments are putting Critical Minerals strategies in place, aiming to directly support investors by giving them the security they need to make longer term investments or building common infrastructure to support smaller independent miners. Decreasing risk profiles also expands the investor base (such as pension and sovereign wealth funds) and sources of capital funds.

Demand Is Increasing – But supply chains are not balanced.

“Growth in renewable energy and supporting technologies is underpinning sustained and structural demand for critical minerals. Global wind capacity additions grew 60% in 2023, alongside solar PV growing 85% and electric vehicles growing at 35% YoY. Renewable energy deployment necessitates a substantial expansion of transmission and distribution power networks, adding or refurbishing a total of over 80 million km of grids by 2040 (The equivalent of the entire current global grid), pushing up demand for copper and aluminium.

“The increase in electric vehicle (EV) sales globally confirms EV batteries as the largest-consuming segment for lithium with increasing share in the demand for nickel, cobalt, and graphite, this despite market moves towards low-cobalt or cobalt-free cathodes. Lithium demand increased in 2023 by 30%, while demand for nickel, cobalt, graphite, and rare earth elements saw increases ranging from 8% to 15%.  Chinese battery capacity growth and a scramble by other nations for Giga-factory capacity has led to a surge in battery manufacturing capacity, now significantly exceeding projected demand from both EVs and storage applications.  The over-capacity projections imply looming intense price competition among battery producers, with significant implications for global battery supply chains.  Within China, increased capacity of solar PV manufacturing capacity is also leading to overcapacity and resulting price declines impacting global markets, with a key system bottleneck being grid connection, with some 3,000GW of solar power projects waiting in global grid connection queues.

Capital Investment – More required, from more diverse sources.

“To meet the projected mineral demand growth, the IEA estimates that approximately USD $590-800 billion (excluding sustaining capital expenditure) is required in new capital investments between now and 2040. Investment will come from both the private sector, with commercial drivers for both existing actors, new corporate entrants such as downstream OEMs, PE funds, and long-term strategic players such as sovereign wealth funds as well as state actors, with longer term strategic interests, all with different levels of risk tolerance but all looking for supportive government policy frameworks and incentives. Venture Capital investment into the sector has increased from near zero pre 2020 to +USD1.4bn in 2023, with a primary focus on mineral recovery from battery and waste recycling. China’s investment in and acquisition of overseas mines has grown significantly in the past ten years, reaching USD 10 billion in the first half of 2023, with a particular focus on battery metals such as lithium, nickel and cobalt.

"Mining also faces increasing capital intensity requirements, coming from increasingly stringent environmental requirements (e.g. affecting smelter emissions, leading to the closure of some smelters in Chile), declining ore grades and rising project costs (In the case of copper, some copper projects now have a capital intensity of $30,000 per annual tonne produced, up 50% from 2017). 

"The levels of investment required for primary production assume the widespread adoption of policies which significantly increase the recycling and recovery of critical minerals and without which, mining capital requirements would need to be one-third higher."

Recycling - Is essential, at scale.

"Currently 80% of global battery recycling capacity is in China, with the US and Europe having 2% each, the primary feedstock being scrap from the battery manufacturing process rather than post-consumer usage. Globally, around 30 GWh of post-consumer electric car batteries is expected to be available for recycling by 2030, effectively providing a renewable mineral resource for “Urban mining” and fundamentally changing the makeup of metals recycling feedstock, currently dominated by electronic and manufacturing scrap. Global secondary supply of copper, with more established recycling systems, is currently 17% of demand, rising to 30% by 2030, with aluminium at 36%, rising to 42%.  The IEA believes that by 2040, secondary supply share of most major critical minerals would need to reach at least 15% under the NZE Scenario, up from less than 5% for many of the critical minerals.

"There are challenges to urban mining, establishing supply chains for feedstock of different types, environmental permitting and the development of the technologies to recover the minerals economically.  Multiple research and pilot programmes are running to develop sensor-based scrap sorting technologies, such as X-Ray fluorescence and laser-induced breakdown spectroscopy, which, combined with advances in AI control systems, may enable the industry to be cost competitive against primary mined metal. Security of mineral supply through recycling can be far greater for regions with wider deployment of clean energy technologies due to greater economies of scale. 

Supply Chains - Geopolitical factors need to be considered

“There is a broad split in asset ownership profiles between US and European companies, which dominate copper and lithium supplies, mainly from Chile and Australia, while China dominates nickel and cobalt production, mainly from the DRC and Indonesia respectively. China remains the dominant refiner of copper and lithium and is also expected to be the source of over 90% of battery-grade graphite and 77% of refined rare earths by 2030. The opportunity for countries to gain access to the downstream revenues associated with their minerals is driving increased levels of resource nationalism, such as Indonesia’s ban on the export of Nickel ore, leading to significant investment, mainly by Chinese companies, in the development of in-country smelting facilities. This is a long-term strategically important investment, given that Indonesian nickel production is projected to rise c.40% to provide 62% of global metal supply by 2030. An ongoing tug of war between the DRC government and foreign miners over ownership of copper and cobalt resources has led to cobalt supply disruption, while in Bolivia, national demands for downstream mineral beneficiation and usage in-country have delayed the development of its vast lithium reserves (25% of the world’s total).  In 2023, CATL, the world's largest EV battery manufacturer, signed an initial agreement with the Bolivian government, the first company to gain access to Bolivia’s reserves.

Local Communities – Provide the licence to operate, and need to see benefits

“Benefits associated with mineral production such as revenue and jobs must be felt by producer countries and communities and new supplies must not come at the cost of local communities or the environment.  

"Demands from downstream consumers will also drive increased scrutiny in areas with opportunity for improvement in ESG factors, such as waste generation, emissions and water consumption and discharge (Water stewardship being especially important given the presence of some mining operations in water-stressed regions).  Minerals in the public eye, such as cobalt, remain well supplied from DRC and Indonesia, mainly as a by-product of copper and nickel mining.  The IEA report does look at the challenges of artisanal small-scale mining (ASM) of cobalt in the DRC, which effectively acts as a price-sensitive swing producer.  This accounts for 5-15% of supply, the report noting that addressing poverty is essential for a lasting solution to the challenges of associated human rights abuses, including child labour.  Disengaging from the sector is viewed as being irresponsible, since ASM offers socio-economic advantages to local communities, without which they may be more vulnerable to other forms of exploitation.  

"Mining underpins the energy transition: Governments and companies alike have a role in developing sustainable and responsible supply chains. While companies may champion sustainable and responsible practices and transparently monitor progress, governments play a crucial role in incentivising corporate action and creating a regulatory environment conducive to high ESG standards."