Critical Minerals: The New Oil

The fight for critical minerals is heating up, and it's not just about who controls the supply—it's about who controls the future. As the world shifts towards clean energy, the demand for minerals like lithium, cobalt, and nickel is skyrocketing. These minerals are the building blocks of electric vehicles, wind turbines, and solar panels, and their importance can't be overstated.



The demand for these minerals is driven by the rapid deployment of clean energy technologies. In 2023, lithium demand rose by 30%, while demand for nickel, cobalt, and graphite expanded by 8-10%. This surge in demand has led to supply chain bottlenecks and geographical concentration of production. For instance, Indonesia's share of mined nickel production increased from 34% to 52% between 2020 and 2023, and its share of refined nickel increased from 23% to 37%. This concentration of production can lead to geopolitical tensions and dependencies.

The volatility in critical mineral prices is influenced by several key factors. The demand for these minerals has been robust, driven by the expansion of clean energy technologies. However, the supply of these minerals has not kept pace with demand, leading to price volatility. The geographical concentration of production, particularly for nickel and cobalt, has also contributed to supply-side constraints. For example, Indonesia's share of mined nickel production increased from 34% to 52% between 2020 and 2023, and its share of refined nickel increased from 23% to 37%.

The price declines in 2023 were partly due to a correction of overly steep price rises in 2021-2022. For example, lithium spot prices plummeted by 75%, and other key materials such as nickel, cobalt, manganese, and graphite saw declines of 30-45%. This correction has contributed to the lower price environment, which is likely to continue in 2024.

The volatility in critical mineral prices can influence investment decisions in the mining sector. For instance, the pullback in prices affected spending on new mineral supply in 2023, but investment in critical mineral mining nonetheless grew by 10% year-over-year. Investment by lithium specialists saw a sharp rise of 60% despite weak prices. Exploration spending also rose by 15%, driven by Canada and Australia. However, the financial performance of producers has been challenged by the low-price environment, with industry revenues declining by 10% in 2023 while operating profits plummeted by 34%. Free cash flow also decreased by over 40%, constraining the industry's ability to allocate significant capital for future growth.

The United States has become import-dependent for its supply of rare earth oxides, which are crucial for national defense and military technologies. This dependency can pose risks to national security and defense capabilities. The Western Hemisphere, particularly Latin America, has emerged as a key source of critical minerals, with countries like Chile and Peru being major exporters. This has attracted significant investment in mining projects, offering opportunities for economic development but also requiring policy adjustments to steward these resources effectively.

The fight for critical minerals is not just about who controls the supply—it's about who controls the future. As the world shifts towards clean energy, the demand for these minerals will only continue to grow. The United States and other countries must take steps to ensure a secure and sustainable supply of critical minerals, or risk falling behind in the global race for clean energy.