Prepared for Free Article on 26/04/2024 at 15:23. Authorized users may download, save, and print articles for their own use, but may not further disseminate these articles in their electronic form without express written permission from Africa Confidential / Asempa Limited. Contact subscriptions@africa-confidential.com.
PREVIEW
Strategic minerals on the continent will power the electric vehicle revolution and a restructured energy industry
More than any other continent, Africa has copious reserves of the vital minerals central to the transition to sustainable energy in the leading industrial economies.
.png)
As European countries plan to ban petrol and diesel vehicles starting in 2030 and switch to green energy, demand is growing rapidly for the metals used in electric vehicle batteries, solar power and wind turbines.
Chinese state subsidies on electric cars and hefty penalties for manufacturers of petrol and diesel vehicles in Europe are changing the commodity markets and the energy industry. Bloomberg News's energy research unit forecasts that by 2050 about quarter of the world's electricity will be needed for electric cars and almost half of all electricity will come from renewable sources, such as solar and wind.
Already these changes are stoking demand for the raw materials needed for a new generation of vehicles and appliances, especially their batteries (AC Vol 60 No 18, The China price). Electric vehicle batteries are made mostly of nickel, lithium, cobalt and manganese. Congo-Kinshasa produces about 70% of the world's cobalt; its government calls itself 'the OPEC of cobalt'.
The United States government frets about the security of supply of rare earth minerals, buying about 80% of its requirements from Chinese companies. Yet a US company, Freeport-MacMoRan, has ceded the market in Congo-K, which produces at least half the world's cobalt, to China Molybdenum, with its fast-growing production and trading capacity.
The US's Energy Research Governance Initiative, under the auspices of the government's Energy Department, names 17 rare earth elements and strategic minerals, such as cobalt, lithium and uranium, as vital to the energy transition. As US officials look for ways to secure supplies of these minerals, African producers see opportunities.
.png)
Cobalt price flux
In 2018, world prices for cobalt spiked at over US$94,000 per tonne. Hoping to reap untold riches, the Kinshasa government imposed a 'strategic mineral' tax of 10% on cobalt exports that year (AC Vol 59 No 4, Kabila squeezes the miners). Then the price plummeted to under $30,000 a tonne in 2019, recovering to reach $37,000 a tonne by mid-February 2020 (AC Vol 61 No 2, More trickle-down please).
The cobalt price collapsed due to faltering demand in China in 2019, after Beijing cut subsidies on electric vehicles. Speculators, who had built up stocks of cobalt in 2017-18, rushed for the exit. Then came the global cobalt glut.
Commodity trading giant Glencore mothballed its Mutanda plant in Congo-K in August 2019. This cut cobalt supplies by about 15% and stabilised the price. In the longer term, demand for cobalt and other battery metals is certain to rise – to the point where mining companies will have to invest massively to meet it.
According to Benchmark, a London-based analyst, tech companies invested over $60 billion in lithium-ion battery production between the end of 2018 and December 2019. That pattern could change the market again. For now, Tesla, the US company run by the eccentric South African billionaire Elon Musk, built the world's largest battery factory producing cells with a combined storage capacity of 37GWh of electricity each year.
The next biggest is China's LG Chem factory in Nanjing, which has a 28GWh capacity. Benchmark reckons that manufacturers have committed another $170bn in new battery production over the next eight years. Without any fresh commitments, battery production will more than triple by 2030:
Tesla's biggest factory will produce 100GWh;
China's Contemporary Amperex Technology Co Ltd (CATL) – whose factories combined currently produce 72GWh, making it the world's biggest manufacturer – will produce 100GWh;
The LG Chem plant in Nanjing will produce another 92GWh.
As technology advances, batteries will need less cobalt to generate the same power. Yet demand for cobalt will rise in line with the spread of electric cars and the batteries needed to power them. Cobalt production today could meet demand for another year.
After that, there will have to be heavy investment in new mines. The is true of lithium, which is in more plentiful supply than cobalt, but will also have to be mined on a bigger scale.
Who will finance this investment? Banks are unwilling to take the risks. That means that battery and vehicle manufacturers will undertake their own large-scale direct investments to produce the cobalt and lithium they need. That will be a pioneering move circumventing the established mining companies (AC Vol 60 No 5, Contradictions in the contracts).
South Africa's Bushveld Minerals wants to cash in on global demand for vanadium, for use in electric vehicles and for electricity in general. Bushveld says Vanadium will become one of the most important components in electricity generation over the next 30 years. Vanadium redox-flow batteries are an alternative technology to lithium ion. They have a 20-year lifespan, making them ideal for energy storage in stationary facilities.
Platinum bounce
The coming dominance of electric vehicles over their petrol and diesel predecessors is bad news for platinum and palladium producers. The main use for those metals is in catalytic converters in petrol and diesel engines to reduce CO2 emissions. Due to fear about that shift, South Africa's platinum and palladium producers hit a slump in demand from 2008 until late last year. That prompted sharp cuts in exploration as production stagnated.
For now, oil companies and traditional vehicle manufacturers are looking for ways to navigate the transition, maximising their investments to date. Millions of new petrol and diesel vehicles hit the road every year. All those sold in Europe need catalytic converters for the manufacturers to keep their emissions fines to a minimum. Current platinum and palladium supply cannot meet the demand; so prices for both metals are soaring. Platinum is selling at about $965 per ounce and palladium is a staggering $2,435/oz.
Producers' share prices are surging. The Johannesburg Stock Exchange Platinum Metals Group (PMG) index has risen 400% over the past year and is set to rise further. Market analysts say that PMG supply will not meet demand for another four years. In the short-term that's a much-needed boost to South Africa's exports, but in the longer term it will be a brief detour on the route to a new energy and transport industry.
Correction: This article could have been read as implying that lithium, cobalt and uranium are rare earths. We are happy to clarify that they are not. Thanks to the reader who pointed this out.
Copyright © Africa Confidential 2024
https://www.africa-confidential.com
