With the 2024 United Nations Climate Change Conference or Conference of the Parties of the UNFCCC (United Nations Framework Convention on Climate Change), more commonly known as COP29, taking place from November 11 to November 22 at Azerbaijan's capital Baku, the global focus has once again shifted to energy transition, among other climate-related issues.

The future path of this transition will be charted by the demand and supply of minerals like lithium, cobalt, nickel and copper. These are essential ingredients for clean energy technologies, including solar, wind and green hydrogen. If the world wishes to transport people and goods on EVs (electric vehicles), then there should be an uninterrupted supply of these critical minerals.

The critical minerals market may expand to US$ 400 billion by 2050. Under climate-driven scenarios, the International Energy Agency (IEA) estimates demand to grow 4-6 times by 2040. Therefore, the global energy hierarchy is likely to shift from the present oil-rich pivot towards a critical mineral-rich pivot in the future.

In rare earth elements, for example, China’s dominance is almost absolute at 62 per cent of global mined production. This also implies that any disruption in China can jeopardise global value chain of rare earth elements.

The good thing about critical minerals is that all of them can be recycled. The rapidly growing demand though implies that production from mines needs to be in tandem with recycling.

Although the critical minerals market continued to grow fast, it remained turbulent in 2023, with prices falling sharply after two consecutive years of dramatic rise. The main reason for this price crash has been a strong increase in supply and ample inventories of technologies made with critical minerals.

From Africa to Indonesia and China, the jump in new supply outpaced demand growth over the past two years. Along with an existing inventory in the downstream sector (like, battery cells and cathodes) and a correction of overly steep price rises in 2021-2022, this oversupply produced downward pressure on prices.

The Secretariat takes a deep dive into the details of supply, demand, prices and future projections of four critical minerals — copper, lithium, nickel and cobalt.

Copper: Cornerstone Of Green Energy

Exceptional conductivity already makes copper an important industrial input in anything related to electricity. It is also used in shipbuilding, railways, aircraft manufacturing and other industrial machineries and equipment.

However, the catch is, renewable energy technologies typically require 4-6 times more copper than traditional fossil fuel-based systems. Apart from usage in grid infrastructure, copper is an important element for power storage batteries.

Global copper production from mines increased to 22,364 thousand tonnes (kt) in 2023 from 20,746 kt in 2020, a 7.8 per cent growth over this period. India also has copper reserves, but they are comparatively much smaller than other big producers. India’s copper production fell slightly, to 114 kt in 2022 from 125 kt in 2020.

Meanwhile, the international price of copper soared to US$ 10,166 per metric tonne in May 2021 from US$ 6,031 per tonne in January 2020. It remained around that high level throughout the pandemic, before falling since mid-2022.

Unlike other critical minerals, copper prices did not fall in recent times. It breached US$ 10,000 per tonne again in May 2024. Copper’s heavy usage in traditional manufacturing is possibly the reason behind this price stability.

India’s domestic price of copper also shows a similar trend. In 2023, it remained well above Rs 700 per kg, before reaching a high of Rs 870.50 per kg in May 2024. In July 2024, the price was a little below Rs 800 per kg.

Lithium: Fastest Demand Growth In Clean Energy

Traditionally, lithium is used in different production processes, including ceramics, lubricants and pharmaceuticals (in small volumes). However, the demand structure has deeply transformed in the last 10 years.

Lithium-ion batteries are a key technology for energy storage. These batteries are essential for integrating renewable energy sources into the electrical grid.

The recent growth in global lithium demand is mainly being driven by the production of batteries. Lithium is one of the lightest metals in the periodic table and therefore the natural candidate for high energy density in batteries due to its superior electrochemical characteristics.

Global lithium production skyrocketed in the last 10 years, growing more than six times to 198 kt in 2023, from 30 kt in 2013. The production has more than doubled in the last three years.

However, after 2022, the prices of lithium crashed. The quantum jump in supply in the last few years has possibly played a significant role in this crash. Lithium carbonate is an important ingredient in electric batteries. The price index of this compound is taken as a proxy.

The January 2017 price is treated as 100 in this index, which zoomed up to 422 in October 2022, riding a demand wave. But thereafter it kept on falling. The value of the price index was 73 in January 2024.

Nickel: Trudging Through A Low-Price Environment

The recent low nickel price environment prompted several nickel producers to implement cost-cutting measures at existing mining operations. The measures ranged from production cuts to workforce downsizing.

The continuing low nickel prices indeed support the growth of the EV market by keeping battery prices low. However, there is a potential downside — it may lead to further closures of nickel mines or halt ongoing developments.

Global mine production of nickel jumped from 2.6 million tonnes in pre-pandemic 2019 to 3.3 million tonnes in 2022.

No wonder, the prices were sky-high in 2022. For nickel, the price index of nickel sulphate, which is used in battery making, is also considered.

As with lithium, the January 2017 price is treated as 100 in this index. The price index was 220 in April 2022, but fell to 136 in January 2024. It resulted in downsizing operations in mines worldwide.

Cobalt: Another Oversupplied Metal

Cobalt is an essential component in lithium-ion batteries. Cobalt-containing batteries, particularly lithium-nickel-manganese-cobalt-oxide (NMC) batteries, are widely used in electric vehicles. These batteries provide the range and durability needed by consumers, with cathodes containing 10-20 per cent cobalt.

The cobalt market is oversupplied now. In the short term, the current oversupply may continue with supplies from new mines and previously stockpiled volumes coming online in the Democratic Republic of the Congo (DRC).

Global mine production of cobalt increased from 144 thousand tonnes (kt) in 2019 to 230 kt in 2023. Similar to other critical minerals, this led to a fall in prices.

Once again, price indices of cobalt sulphate — another important element of batteries — are considered to track the price trend. The index rose to a high point of 197 in April 2022 (the same time when other critical minerals were observing high prices) but started falling after that.

In January 2024, the cobalt sulphate price index was 51, much lower than 84 in January 2020. So, the price of cobalt has fallen below the 2020 level.

Though the future expectation of energy transition is driving the supply of critical minerals, there is a downward pressure on prices in the aftermath. There are certain positive outcomes of this low-price environment. Production of batteries and EVs will get a boost, and the per-unit cost of renewable energy generation will also come down.

However, there is a potential downside, at least in the short term. There will be a cutback in production, and the global supply will then have to depend on fewer countries. In that way, the global production of critical minerals is at a crossroads.