Low diversity in critical mineral markets could hurt industry, IEA says

The IEA reports that critical mineral markets face increasing supply shock risks due to high concentration in refining and processing, particularly with China's dominance and the rise of export restrictions. Despite increasing demand from energy transition projects, the top three refined material suppliers are projected to control 82% of the market by 2035, mirroring 2020 levels. Copper faces a potential 30% supply shortfall by 2035, while lithium's market is expected to be in deficit by the 2030s, highlighting vulnerabilities in the supply chain for key energy transition materials.

Analysis

The International Energy Agency (IEA) reports increasing vulnerability in critical mineral markets to supply disruptions, stemming from heightened concentration in refining and processing, alongside a rise in export restrictions. Despite surging demand driven by energy transition projects such as electric vehicles and renewables, the top three refined material suppliers are projected to maintain a dominant 82% market share by 2035, a level consistent with 2020. China's significant role in the industry is expected to expand, with its refining capabilities forecasted to grow faster than the global average through 2035, and having accounted for two-thirds of new global battery recycling capacity since 2020. This concentration, coupled with expanding export controls, elevates the risk of supply shocks which could lead to higher consumer prices and reduced industrial competitiveness. Specifically, the IEA forecasts a potential 30% supply shortfall for copper by 2035, citing declining ore grades, increased capital costs, and long project lead times. The lithium market is also anticipated to face a deficit by the 2030s due to its integral role in the energy transition, although prospects for new lithium project development are considered more favorable than for copper. The report also indicates expectations of lower diversification in the mining sector for key minerals like copper, nickel, and cobalt.

Key Decisions for Investors

• Investors should closely monitor geopolitical developments and trade policies, particularly concerning China's dominance in refining and the increasing use of export restrictions, as these factors pose significant risks to critical mineral supply stability and pricing.
• Given the projected supply deficits for copper by 2035 and lithium by the 2030s, consideration should be given to companies with strong, economically viable mining and processing assets in these specific minerals, or those developing advanced recycling technologies.
• Evaluate portfolio companies reliant on these critical minerals for potential input cost inflation and supply chain vulnerabilities; diversification of sourcing or investment in companies with substitution capabilities may be prudent.