From WoodMac, July 15:
China’s dominance of renewables value chains will be key
Another commodities supercycle is on the horizon, but it will be different from any that have come before. Fossil fuels won’t be in the vanguard and the winners will be the industrial metals needed to electrify society - cobalt, lithium, copper, nickel, and aluminium.
While post-pandemic government stimulus packages have provided a sugar rush for commodities and prices of base metals have surged, this in itself is not supercycle material. But the markets have also sensed that the energy transition is now gathering serious momentum and is likely to fuel a sustained increase in demand over the next two decades, supporting a new supercycle narrative.
US$50 trillion of investment will be needed over the next two decades to achieve a 1.5˚C global warming trajectory. This will electrify societies’ infrastructure and engineer out the aspects of economic activity that most significantly contribute to carbon emissions. Metals supply will play a vital role in achieving this.
As noted in the Wood Mackenzie, a Verisk business (Nasdaq:VRSK), report ‘Champagne supercycle: Taking the fizz out of the commodities price boom’, three potential developments could challenge how this commodities supercycle unfolds and who, ultimately, benefits from it:
- The concentrating control of metals’ supply chains is likely to exclude many from the party.
- Systemic supply uncertainty and ensuing price volatility, encouraging disruptive new technologies such as next generation electrofuels, polymeric energy storage, and cobalt free batteries - thereby forcing ‘traditional’ commodities into obsolescence.
- The rise of ‘consumption consciousness’, undermining the long-term reliance on primary metal.
Simon Morris, Wood Mackenzie Head of Metals, said: "While China's move to secure battery raw materials is well documented, less well-known is its increasing self-sufficiency extending downstream. 75% of global lithium-ion batteries, 70% of all solar panels, and 60% of electric vehicles are made in China. But its aspirations have not yet been satisfied and we expect its control to continue to grow.
"With China dominant in its control of energy transition value chains, non-Chinese entities face an ever-diminishing share of any commodity windfall. With greater cash comes greater investment capability, enabling China to realise a strategy of supply security at any cost. Those who choose to participate too late in the cycle – be they nations seeking to secure supply for themselves, customers wanting to protect their production lines, or investors wanting to cash in on supernormal profits – are likely to find that they either can’t afford to participate or are precluded altogether.
"Price fluctuations could also throw a spanner in the works. With electric vehicles (EV) emerging as a critical source of demand, metals producers will have to consider how they supply a new type of consumer - one with an acute focus on price and supply predictability. If EV manufacturers cannot guarantee access to critical metals at an affordable and predictable price, they will look to innovate or thrift them out to the greatest extent possible. As the supply challenge materialises, the inexorable rise in prices will surely incentivise alternatives.
"As we saw with the increasing rejection of plastic usage, a greater focus on sustainability may see society react against the very considerable rise in the use of primary metals used in cars, mobile phones, telecoms, and infrastructure. Either buying less or demanding greater re-use presents a considerable downside risk for the producers of tomorrow."
According to the Wood Mackenzie report, the forces that are shaping up to drive this boom are unique. But even for those commodities stepping into the limelight, decarbonisation creates as many risks as it does opportunities....
....MUCH MORE
Some of our links on the topic:
February 2018
"There’s a Global Race to Control Batteries—and China Is Winning"
June 2018
"Tesla leads electric vehicle race to cut cobalt dependency" (TSLA)
June 2019
China Controls the Lithium Ion Battery Supply Chain and Electric Vehicle Dominance Is In Sight
May 2020
"Exclusive: Tesla's secret batteries aim to rework the math for electric cars and the grid" (TSLA)
July 2020
"Tesla offers “giant contract” to responsible nickel miners" (TSLA; GLN)
January 2021
"Electric Cars’ Looming Recycling Problem"
March 2021
Batteries: Swedish Lithium Ion Specialist Northvolt Buys Silicon Valley Lithium Metal Startup Cuberg
April 2021
"Caught between rare earths and Chinese dominance — Part 1: The story behind everything no one is telling you"
Please don't say "no one"
May 2021
Electric Vehicles Will Drive A Lithium Supply Crunch
May 2021
"Lithium prices diverge and defy expectations as new EV trends unfold"
April 2021
"Western Europe claims 43% of global investments in battery manufacturing projects — report"
And China is the world's largest producer of batteries and has the lion's (Li ion?) share of the battery materials supply chain.
June 2021
"The Deep Sea Is Filled with Treasure, but It Comes at a Price"
June 2021
"Can Northvolt solve Europe’s impending electric car battery problem?"
July 2021
Wood Mackenzie: "Could China lead the global energy storage market by 2030?"
July 2021
Tesla Strikes Deal With Top Miner BHP Over Nickel Supplies (TSLA; BHP)
July 2021
"What Tesla’s bet on iron-based batteries means for manufacturers" (TSLA)
ICYMI: "The king of nickel is betting big on a green future in batteries"
- "10 charts show China’s grip on battery supply chain to last decades"
- Going Green: "The battle over raw materials will decide who rules the world"
- "Western Europe claims 43% of global investments in battery manufacturing projects — report"
And then there's solar....
