Material Matters: Critical Minerals, 25 Copper Companies & Commodity Indices

Commodities | Dec 02 2022

A glance through the latest expert views and predictions about commodities: critical minerals; 25 copper exposures and commodity indices.

-Lithium and other critical minerals
-25 copper exposures for the energy transition 

-Rebalancing projections for commodity indices

By Mark Woodruff

Lithium and other critical minerals

The International Energy Agency estimates that demand for critical minerals will increase by more than 300% by 2030.

Critical minerals are essential metals and non-metals which include lithium, cobalt, copper, nickel, zinc and rare earth minerals.

Nickel and cobalt are important for long range electric vehicles (EVs), zinc is needed to build infrastructure for renewable energy generation and copper is pivotal in the electrification of energy systems, points out ANZ Bank.

As well as their importance for EVs and renewable energy generation, critical minerals are used in energy storage, transport, electronics, defence, agriculture and telecommunications.

ANZ points out Australia has an abundance of critical minerals and currently produces almost half of the world’s lithium supply, is the second largest producer of cobalt and the third largest producer of zinc. 

Industry supply of lithium is limited, notes ANZ, in a demand environment where rechargeable batteries consume about three-quarters of world supply and EV battery demand has been rising sharply. Supply could be at risk not only due to scarcity but also from trade issues and other factors.

Despite a minor fall in lithium prices over the last few weeks on rumours of an EV production downgrade in China, ANZ observes prices are around record highs and should remain elevated, with perhaps some moderation.

By contrast, Morgan Stanley suggests a material lithium price correction is on the cards for 2023, due to decelerating demand growth. However, it’s thought a longer-term supply shortfall may become the bottleneck, which could ultimately slow the transition to EVs.

This broker raises its long-term lithium price forecast by 70%, to a still-below-consensus US$12,000/t, though the range of potential outcomes is wider than for any other commodity under Morgan Stanley’s coverage. Longer-term price risk is considered skewed to the upside, given the broker’s view of constrained supply.

Interestingly, the analysts suggest demand substitution is unlikely in the foreseeable future, as lithium remains the best metal to carry ions. 

For the short term, Morgan Stanley expects a China carbonate price of US$67,500/t in the first half of 2023 and US$47,500/t in the second half, with the latter price suggesting -35% downside to the current spot price. 

Apart from a general over-production of batteries in China, subsidies for battery electric vehicle (BEV) penetration will be partially phased out, which the broker expects will slow growth in 2023. Geopolitical and consumer affordability/inflationary issues are also expected to weigh. 

Prima facie, current and potential projects suggest longer-term supply of lithium shouldn’t be an issue. However, Morgan Stanley points to complexities involved in extracting, and especially, processing lithium. Recent history has shown developing (greenfield) lithium brine/mineral projects is technically challenging and project delays have been quite common.

Apart from difficulties in unlocking supply in some first-time producing countries (notably Africa), the broker suggests headwinds may arise elsewhere from community pushbacks and permitting challenges. In addition, more projects will be run by inexperienced new entrants/junior miners, with sometimes unproven (at scale) extraction techniques.

Adjustments to older project data to incorporate lithium industry cost escalation also contributes to Morgan Stanley’s 70% upward revision to its long-term price forecast.

Underpinning Morgan Stanley’s supply shortfall thesis, its lithium supply forecast model indicates the global BEV market can only sustain a sales penetration rate of 33% versus the broker’s base case penetration estimate of 43%.

25 copper exposures for the energy transition 

Canaccord Genuity sees structural demand growth potential for copper, driven by new energy technologies and the broader energy transition.

The broker highlights 17 emerging explorers/developers with exposure to this growth potential, but as yet do not fall under its research coverage.

For those companies within Canaccord’s coverage, readers may refer to the FNArena website for a summary of the broker’s latest research on producers OZ Minerals ((OZL)), Sandfire Resources ((SFR)) and 29Metals ((29M)). 

Developers and explorers may also be found, and include Develop Global ((DVP)), Eagle Mountain ((EM2)), New World Resources ((NWC)), Peel Mining ((PEX)) and Titan Minerals ((TTM)).

Of the 17 emerging copper prospects identified by Canaccord, a research summary from other brokers may also be garnered via the FNArena website for AIC Mines ((A1M)), Coda Minerals ((COD)), Cyprium Metals ((CYM)), KGL Resources ((KGL)) and Sunstone Metals ((STM)).

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