A Closer Look at Mineral Supply and Security

by | Mar 2, 2024 | United States, China, Demand, Energy, Europe, International Energy Agency (IEA), Investors, Production, Supply

Staying informed about market dynamics, geopolitical considerations, sustainability trends, and government policies is crucial for making well-informed investment decisions in the dynamic field of mineral resources.

Examining Mineral Supply and Ensuring Security

The Growing Demand and Lasting Price Increase

In the pursuit of a cleaner energy future, the surge in demand for minerals vital to renewable power installations and electric vehicles is triggering concerns about a lasting price increase. Evy Hambro of BlackRock warns about the resource-intensive nature of the energy transition and questions whether the global supply can balance the rising demand, potentially leading to a super cycle of lasting price rises.

Geopolitical Considerations and Dependence on Single Suppliers

Hambro highlights the geopolitical implications of depending on single suppliers, particularly China, for critical raw materials. While Western governments challenge China’s dominance by investing in their processing capacities, securing long-term access becomes questionable. The interview underscores the need for strategic diversification to avoid potential supply disruptions.

Carbon Footprint and Environmental Impacts of Resource Extraction

The use of oil or gas in resource extraction poses an additional challenge to the already significant carbon footprint of mining activities. As the energy transition progresses, addressing the environmental impacts of mineral extraction becomes crucial. Balancing the environmental goals of the transition with the need for essential resources requires careful consideration and innovative solutions.

The International Energy Agency’s Critical Minerals Security Program

As a response to the challenges posed by the rising demand and concentrated manufacturing, the International Energy Agency (IEA) is launching a critical minerals security program. Inspired by the IEA’s oil security mechanism, the program aims to ensure a steady supply of minerals crucial to energy security. This initiative reflects a strategic move to address both the inability to keep up with demand and the concentration of manufacturing in a few key countries.

The Role of Western Governments and the Shift Towards Self-Reliance

Western governments, particularly in the European Union and the U.S., are taking steps to challenge the dominance of single suppliers. Investments in domestic processing capacities and state-controlled joint purchases are part of a broader strategy to enhance self-reliance and secure access to critical raw materials. This shift reflects a proactive approach to mitigating potential vulnerabilities in the supply chain.

Fostering a Sustainable Supply Chain: Better Recycling and Coordination

Recognizing the need for a sustainable supply chain, major EU economies are coordinating their critical raw material supply. This includes measures such as improved recycling methods for materials already in the economic cycle. The emphasis is on fostering a circular economy to minimize waste, enhance resource efficiency, and contribute to the long-term sustainability of the energy transition.

For mineral investors, the current landscape offers a compelling set of opportunities and considerations.

The surge in demand for minerals driven by the global energy transition, particularly in renewable power installations and electric vehicles, indicates a promising market with long-term growth potential. However, the warning of a potential lasting price increase in critical minerals like cobalt, copper, and nickel underscores the importance of strategic investment planning.

Geopolitical risks associated with dependence on single suppliers, such as China, highlight the need for diversified supply chains to mitigate potential disruptions. Investors should also consider the environmental impact of resource extraction and explore opportunities in companies contributing to sustainable practices, recycling, and the circular economy. Government initiatives, such as the International Energy Agency’s critical minerals security program and Western countries’ investments in processing capacities, present additional factors to consider for those seeking strategic and resilient mineral investments.

Overall, staying informed about market dynamics, geopolitical considerations, sustainability trends, and government policies is crucial for making well-informed investment decisions in the dynamic field of mineral resources.

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