Commodities of the future: Predicting tomorrow's disruptors
Miners have always had to have a certain level of skill when it came to fortune-telling. It’s a long planning horizon in this industry so being able to predict the commodities of the future is critical. And while the future may be cloudy for a range of commodities, it’s looking bright for those linked to electric vehicles (EVs).
The EV market is set to grow exponentially in the next 20 years. Government policies in Europe, China, and the Unites States, along with declining battery prices, appear set to encourage automakers to establish competitive prices for EVs—which should spur EV demand and offset downside risks from infrastructure and driving range limitations. And rising EV penetration and technological breakthroughs will result in cost reductions of 10 to 25 percent per component by 2025—further cutting prices and boosting EV appeal.
This boom in EVs promises to have a seismic impact on miners. Lithium, cobalt, graphite—the demand for these essential components in EV cars and batteries is already starting to spike. And let’s not forget the demand growth that is now being forecast for copper and high-grade nickel. Consider the following:
- Most analysts predict that global demand for lithium will double or even triple by 2030.1
- Analysts predict that demand for battery-grade graphite will triple by 2020.2
- Cobalt is facing a global supply deficit that may grow from 885 tons in 2018 to 5,340 tons in 2020.3
- EVs are expected to contain four times as much copper as combustion-powered engines.4
- Demand for battery-grade nickel is expected to increase 50 percent by 2030.5
This is very good news for under-valued miners. But ramping up output to meet this future demand will be daunting. Some key metals are in markets that are considered volatile—for example, nearly 70 percent of cobalt is from the Democratic Republic of Congo (DRC). Add to this the dominance of some markets—such as China—where supply interruption would be critically disruptive.
All this equals a mismatch between supply and demand that may be looming for high-demand minerals. In fact, by some estimates, shortages are already predicted for copper, nickel, lithium, graphite, and cobalt by 2025. And we haven’t factored in that copper supply—even without EV demand—was already forecast to go into deficit as demand driven by infrastructure spending continues to grow in emerging markets.
So if miners were heeding their crystal ball when it comes to EVs, they should have already started preparing and exploring a range of approaches.
Vertical integration is one approach that is very much on the agenda now. As competition for the commodities of the future heats up, end users of these minerals are trying to secure their own sources of supply. Forward thinking mining companies should partner with end users, such as auto companies, to secure development funds or enter direct-to-customer supply contracts.
Some miners are investing in technology upgrades to optimize mineral recovery, eliminate waste, and enhance production facilities. Still others are embracing a future where their smelters become “e-smelters,” that is, re-tooled to recycle mobile phone components and batteries. And who would have considered five years ago that mining companies would be entering partnerships to seek to improve the efficiency of components used in EVs to mitigate potential shortages?
It can’t be stressed enough just how much the world is changing under the feet of the mining (and metals) industry. Perhaps in a few years the concept of asteroid mining will be a reality. This would surely bring environmental and permitting challenges, not to mention the regulatory issues that would of course apply, depending on which country claimed jurisdiction. But with one near-earth asteroid found to be made up almost entirely of iron, nickel, and rare metals like gold, platinum, copper, cobalt, iridium, and rhenium6, the ambition to bypass earthly shortages may already be brewing among some end users.
There’s still one critical point to be considered when it comes to EVs and minerals: where is the power generation for the newly enhanced grids going to come from? It seems fairly likely that nuclear energy will have to be part of that solution—something for uranium miners to think about (but that’s another blog entirely).
In truth, EVs are just one example of the impact coming from disruptive technologies. But disruption can be either a threat or opportunity, depending on how it is managed. For mining companies, turning disruption into opportunity requires a long-term view capable of assessing how emerging market trends may affect the demand for specific commodities.
That means miners need to understand the places where disruption frequently emerges, such as the start-up community, within business incubators and accelerators, and among educational institutions.
To anticipate market moves, miners should also explore scenario design—which combines human intuition with AI to develop future-oriented strategies. By comprehensively evaluating external risks and their implications—and by monitoring market developments—organizations can turn risks into opportunities and devise more robust and flexible business strategies.
With technology changing so rapidly these days, capitalizing on new trends will be a key differentiator in who succeeds in mining over the next few decades. Whether it’s EVs or some other new development, attempting to predict the future—while never easy—will be more important than ever.
1BloombergGadfly, September 27, 2017. “Peak Lithium? Not So Fast,” by David Fickling. Accessed at https://www.bloomberg.com/gadfly/articles/2017-09-27/take-peak-lithium-forecasts-with-a-pinch-of-andean-salt on November 15, 2017.
2Benchmark Mineral Intelligence, May 4, 2016. “Graphite Demand From Lithium Ion Batteries To More Than Treble in 4 Years.” Accessed at http://benchmarkminerals.com/graphite-demand-from-lithium-ion-batteries-to-more-than-treble-in-4-years/ on November 15, 2017.
3Cision PR Newswire, April 25, 2017. “Cobalt Prices to Rocket as Tesla and Apple Scramble for Supplies.” Accessed at https://www.prnewswire.com/news-releases/cobalt-prices-to-rocket-as-tesla-and-apple-scramble-for-supplies-620374383.html on November 15, 2017.
4The Economist, March 11, 2017. “Mining companies have dug themselves out of a hole.” Accessed at https://www.economist.com/news/business/21718532-electric-vehicles-and-batteries-are-expected-create-huge-demand-copper-and-cobalt-mining on November 15, 2017.
5The Globe and Mail, October 31, 2017. “One metal will be transformed by the electric car boom” by Mark Burton and Jack Farchy. Accessed at https://www.theglobeandmail.com/globe-investor/investment-ideas/nickel-forecast-charges-ahead-on-electric-car-battery-demand/article36784954/ on November 15, 2017.
6Futurism, May 28, 2017. “NASA Is Fast-Tracking Plans to Explore a Metal Asteroid Worth $10,000 Quadrillion,” by Karla Lant. Accessed at https://futurism.com/nasa-fast-tracking-plans-explore-metal-asteroid-worth-10000-quadrillion/ on November 15, 2017.