Critical Minerals: The "New Gold" In The Renewables Era?

Some of them are not called “rare earths” for nothing. Cerium, dysprosium, neodymium, and the other 14 encompassing this select group, are becoming increasingly precious and difficult to obtain. Why are they so important? Because they are at the very center of the world’s transition to renewable energy. 

Increasing Demand

Critical minerals not only include “rare earths” but also nickel, cadmium, or cobalt, whose extraction, production, and processing are condensed in just a few regions of the planet. 

The plans to decarbonize transportation –through electric cars, aircraft, and trains– are provoking a fierce demand for these minerals, also used in other green initiatives such as onshore/offshore wind farms and photovoltaic panels.

In the case of wind turbines –and to increase efficiency– their rotors use magnets made of neodymium, dysprosium, and praseodymium, in addition to basic materials such as steel, copper, and aluminum. 

Dissecting a photovoltaic panel would show a wide palette of boron and silicon, in addition to silver and –in the cases of thin film– cadmium and tellurium. 

But predictably, electric vehicles are the ones that demand critical minerals the most. Using the same magnet technology as wind turbines, EV batteries and motors require lithium, cobalt, manganese, nickel, and graphite, not to mention iron, copper, or aluminum. 

According to Automotive IQ, the increase in the supply and demand of electric vehicles is opening the door to the use of induction motors to avoid the use of scarce materials, sourced from a limited number of suppliers.

What is clear now is that, in the past, the struggle was to extract oil, gas, or coal. Now it is swiftly veering towards the control of the mining basins.

Market Impact

Even basic raw materials are experiencing a strong price increase in international markets due to the soaring demand. 

In recent weeks, materials such as corrugated steel, copper –essential for extending transmission networks– or aluminum have seen their prices soar by 78%, 102%, and 56 %, respectively, compared to the minimums set in 2020.

Given the higher prices of raw materials, the International Energy Agency (IEA) has raised its voice with data and forecasts to remind the world of the climate objectives. 

This is because, since 2010, the average amount of minerals needed to augment the capacity of a power generation has increased by 50%, as investment in renewable energy has swollen. 

According to the report “The Role of Critical Minerals in Clean Energy Transitions,” total demand in the next two decades will not stop growing. 

Copper and “rare earths” will grow by 40%, nickel and cobalt between 60% and 70%, while lithium by 90%. 

“EVs and battery storage have already displaced consumer electronics to become the largest consumer of lithium and are set to take over from stainless steel as the largest end-user of nickel by 2040.”

Faced with these prospects, the door is open to questions about the availability and reliability of supply in the global market.

Shortage and Increased Costs

To quash the prospect of a painful shortage, an IEA report points to several vulnerabilities that need to be addressed to avoid market restrictions and price volatility. 

The first is the high geographical concentration of production, since 75% of lithium, cobalt, and rare earths are controlled by three main producing countries. 

In 2019, the Democratic Republic of the Congo and China accounted for 70% and 60% of the world production of cobalt and rare earths, respectively.

Further, mining assets, in many cases, are located in areas with high exposure to climatic risks –more than 50% of current lithium and copper production is concentrated in areas with high levels of water stress. 

The first steps to tackle shortages and increasing costs are sending political signals to mobilize investments and diversify supply, while speeding up, reinforcing, and reducing the impacts of new national geological studies and projects.

Complementarily, innovation and new emerging technologies for the replacement of these materials are crucial to alleviate tensions in supply chains.