Energy Transition Could Compromise Global Demand for Minerals

As efforts aiming to reduce the countries’ dependency on fossil fuels advance, countries are now facing a major challenge: disruption in the supply chain of key minerals, which are essentially required in the production of batteries to store energy. Experts point out that the most impacted minerals will be cobalt, dysprosium, nickel and rare earth minerals. 

According to a McKinsey & Company report, minerals associated with the energy transition could face shortages by 2030. The report mentions that the shortage rate will highly depend on the mineral. For instance, nickel could experience a modest shortage from 10% to 20%, while dysprosium, a magnetic material used in most electric motors, could experience shortages of over 70%. The report mentions that such shortages are likely to hinder the global speed of decarbonization as customers would be unable to shift to greener solutions. “These shortages would lead to price spikes and volatility across materials, which in turn would make the technologies in which they are embedded more expensive and further slow adoption rates,” reads the report. 

Another barrier that will lead to shortages is the concentration of the production of certain minerals in a few countries. For instance, China, in 2022, produced more than 210,000t of rare earths, which represents over 80% of the world's total supply. Additionally, approximately 60% of global cobalt production is centered in the Democratic Republic of Congo, whileIndonesia contributes to over 37% of the world's nickel supply. This concentration, combined with the growing trend of regional-focused regulations, such as the US Inflation Reduction Act (IRA) and the EU Green Deal Industrial Plan, could potentially disrupt regional access to these vital materials, even in scenarios where the global market remains balanced.

The report mentioned the need to ensure the timely scale-up of projects that have already been announced, which will require companies to accelerate beyond historical growth rates while simultaneously doubling down on exploration efforts to ensure further scale-up of supply beyond 2030. Consequently, mining-related investments will need to increase over US$4 trillion by 2030, which is over US$400 billion per year. 

In this sense, countries and companies must invest in innovation, especially focused on recycling methods for minerals like rare earths or methods to increase the throughput of existing assets, as well as pushing for alternative minerals, like zinc, which has proven to be a potential substitute for lithium in the manufacturing of batteries, as reported by MBN.