What are the Main Factors Shaping Base Metals Demand?Mon, 10/22/2018 - 13:23
When it comes to the trendiest base metals, lithium is king. But the extensive availability of this mineral opens up questions about continued demand and steady prices. In the meantime, other base metals are on the rising. Cobalt and zinc are rising stars and Mexican producers such as Peñoles and Grupo México are capitalizing on their zinc supplies. The electric vehicle revolution, other technological developments and the increasing awareness for a responsible supply chain are the factors shaping this trend the most. Industry leaders explain some of the supply-demand fundamentals of base metals, forecasting how they might behave in the future.
Lithium is the flavor of the month at the moment for several reasons, the most important being that people have not yet lost money on it in a prior market downcycle. This means investors are generally unburdened by caution when it comes to this metal and there are no bad expectations. Another factor is that the world is not short of lithium. The reason for the upsurge is that demand for lithium increased so quickly that the producers of the metal could not increase their productive capacity fast enough to meet demand, and the speculators conflated the price increase in lithium with a shortage of lithium. There is no shortage of lithium, rather a shortage of lithium processing capability, and the industry is working very hard to increase productive capacity, which will fix this problem.
José Antonio Berlanga
Bolivia has the largest lithium deposits in the world but it is also a country with social and political issues that make it difficult to open a new mine. Its permitting process is also slow. Mexico on the other hand has identified deposits that do not compare to those in Bolivia but are still quite large. Other metals such as cobalt are also competing with lithium. Cobalt has a few deposits around the world. Ultimately, the development of technology needs a more defined course before we can justify speculation on prices in the market. Mexico has some interesting projects in terms of lithium but these are still in the exploration or early development phases. These types of projects are subject to trends in the market and we will have to see how demand grows over the years. It ultimately depends on how the development of technology advances.
The Mexican mining industry is meaningfully growing in gold and copper production, and silver is slowly decreasing. A NASA report on mining revealed that there are rare earth elements to be explored in Sonora and Chihuahua, so we will most likely work there in the near future. Lithium, mainly used in batteries, will continue to enjoy steady demand. Also, the biggest electric car producer in the world, Tesla, has announced it will focus on Mexico and the country’s lithium supply.
Lithium does not compete with metals such as cobalt and nickel as they are complementary components in batteries. As demand for batteries increases, so will demand for all battery metals but lithium and nickel sulphate are the most demanded component in this product. These metals will benefit the most from a rise of consumption in the market. We understand that the government of Sonora has a longer-term strategy to turn the state into a fully integrated lithium hub that carries out lithium production and downstream lithium battery manufacturing for both the automotive and renewable energy storage industries. Sonora is definitely laying the groundwork for future growth.
I have been in the mining industry since 1994. In this time, there have been many trendy metals, like rhodium, rare earth elements, molybdenum and now lithium. We do not feel the hype is sustainable over the long term as prior experience has taught us. Right now, lithium and cobalt are doing well, but molybdenum is not. We understand the supply-demand fundamentals of the metals we are involved in. That being said, we are very bullish on zinc, lead and copper and we will be a very fast follower, increasing our brownfield and shutdown silver production when prices go up.
We are convinced that cobalt is going to be in demand over the next couple of years. The price has risen from US$30,000/t in early 2017 to more than US$90,000/t in early 2018, an indicator of the expectations for this metal, w hich has many different sources. For example, there is a mineral belt in Australia with low-grade cobalt concentrations, but it is very difficult and expensive to extract. Another major source is in the Democratic Republic of Congo (DRC), but the jurisdiction raises concerns about the way cobalt is extracted and its human cost. Having another source of high-grade cobalt is important, so we are really excited about the advantages of mining cobalt in Mexico.
In general, I believe base metals demand will rise significantly. This is based on well-known optimistic expectations for growth in the global economy. More specifically, there will be an increased demand for many base metals related to the electric vehicle (EV) revolution being forecast in the next few decades. In conjunction with EV technology, which will require huge quantities of base metals, there will also be a boom in electricity storage batteries. Again, that will lead to increased demand for base metals and several minor metals.
Lithium and cobalt will do well as electric vehicles (EVs) become more common. However, simpler metals such as copper and nickel will remain important for those same technologies. Lithium and cobalt are not as widely produced. This is why they experience a price appreciation. Mexico will fare well in this segment because copper is still the bedrock of EVs.