The dynamics of the commodity world are changing

Driven by increasing concerns about environmental issues like global warming and sustainability, the world is looking for a more eco-friendly future. This demand has fuelled the quest to develop better, cleaner technologies like electric cars and renewable energy. Which in turn is driving up demand for the raw materials needed for these technologies. This demand will eventually drive up the prices of these commodities and make it more attractive for new players to enter the market.

The demand for electric cars for example is expected to really start to take off during the next decade. By 2025 analysts predict that there will be some 14 million of them driving along the world's road. That's going to cause a 12-fold increase in battery power that will in turn drive up demand for cobalt, an important component in the batteries that run electric vehicles. Figures of around 20% per annum are currently being touted.

Lithium, another important component in batteries, will also experience increased demand. Prices for this mineral have already seen some amazing increases over the past 3 years on the back of rising demand for products that use lithium batteries, notably electric cars and off-grid battery storage. This has encouraged more players into the arena. However, as supplies of battery-grade lithium increase, the prices will be driven down again, which is already beginning to happen. Experts believe that once more suppliers come into production there will be sufficient battery-grade lithium available to meet rising demand for the next few years at least and that should hold prices reasonably steady.

Nickel is another commodity that is predicted to take off as battery manufacturers look for ways of improving energy storage. Nickel sulphate provides the required energy density to do this but the problem is that fewer than half the world's current nickel mines can supply this type of nickel. It's also more expensive to mine so prices, and demand, would need to improve significantly if more suppliers are to be attracted into the market. Currently over half of the world's nickel is used in stainless steel production, which uses lower grade nickel. And because that's where the demand, and the money, is that's what companies are mining.

The demand for copper, another important component in many new technologies, looks set to remain steady too which should be encouraging news for copper miners.

For mining companies, keeping track of the rapidly changing world of new technologies and the minerals they require, is complex. Companies already sitting on assets that contain these commodities will need to decide whether or not it's worth freeing up the funds to push these projects into production so as to take advantage of the demand and higher prices. Ultimately there's always the risk that by the time they are ready to go into production, supply will have already improved and prices will have steadied or even begun to drop. Companies who don't already hold assets in these commodities will have to look at the viability of entering the market and also the availability of the resources themselves.

Along with keeping their eye on the next 'big thing', companies also should be monitoring commodities that are tipped to lose traction in the market. Amongst other things, they need to figure out how they're going to manage the resulting devaluation of their portfolio when or if demand for these commodities reduces. Platinum producers will be going through this at the moment – the current major demand for this metal is for use in manufacturing the catalytic converters that reduce diesel pollution. However, with electric vehicles set to start dominating the car market over the next decade, it will cause a drop in the demand for diesel vehicles with a flow on drop in the demand for catalytic converters and thus platinum. If pundits are right, it could be as much as 7 ½ % by 2025. That is going to wipe quite a bit of value off the portfolios of platinum producers. Should they be looking at diversifying into other commodities tipped to increase in demand and if so, how quickly? If they're a small miner do they have the infrastructure and expertise already in place to diversify or will it require major capital expenditure to do so?

Indeed, the impact of 'new world commodities', understanding the impacts that new technologies will have on the commodities market, and the importance of keeping portfolios balanced in light of these impacts is rated as one of the top 10 business risks currently facing mining companies.*

*https://www.ey.com/Publication/vwLUAssets/ey-top-10-business-risks-facing-mining-and-metals-2017-2018/$FILE/ey-top-10-business-risks-facing-mining-and-metals-2017-2018.pdf

Eleven Tips On How To Prepare For 'That' Panel Int...
Mining And Its Impact On Local Communities
 

Comments

No comments made yet. Be the first to submit a comment
Already Registered? Login Here
Guest
Monday, 13 July 2020
If you'd like to register, please fill in the username, password and name fields.