Future supply strains for key minerals could hamper the pace of energy transition

While prices for critical minerals used in clean energy technologies declined in 2023 analysis by the International Energy Agency has shown a need for greater and more diversified investment to avoid supply headaches.

Supply outpaced surging demand last year to ease the pressure on the market for minerals required for electric vehicles, wind turbines, solar panels and other clean energy technologies,. 

But new IEA report Global Critical Minerals Outlook 2024, published Friday, found that major additional investments are still needed to meet the world’s energy and climate objectives.

Significant findings

The analysis updates the agency’s inaugural review of the market last year, while also offering new medium- and long-term outlooks for the supply and demand of important energy transition minerals, such as lithium, copper, nickel, cobalt, graphite and rare earth elements.

Critical mineral prices dropped sharply in 2023 following two years of dramatic increases and returned to levels last seen before the pandemic. 

Knock-on effects

Battery-bound materials experienced particularly significant decreases; the price of lithium dropped by 75% and cobalt, nickel and graphite prices fell by between 30% and 45%. That helped drive battery prices 14% lower. 

As demand growth remained robust, those declines were mostly driven by a strong increase in global supply, and helped to offset steep price rises witnessed in 2021 and 2022.

These lower prices have been good news for consumers and affordability, says the report, but they have also created a headwind for new investment. 

Evolving market

Today’s combined market size of key energy transition minerals is set to more than double to $770 billion by 2040 in a pathway to net-zero emissions by mid-century.

Last year, investment in mining for them grew by 10% and exploration spending rose by 15%. That is viewed as healthy, but was slower than in 2022.

The current well-supplied market may not be a good guide for the future, however; the IEA report noted demand for critical minerals continues to grow strongly in all of its scenarios, driven by deployment of clean energy technologies.

Yet, detailed project-by-project analysis suggests that announced projects are sufficient to meet only 70% of copper and 50% of lithium requirements in 2035 in a scenario in which countries worldwide meet their national climate goals. Markets for other minerals appear more balanced, provided that projects come through as scheduled. 

Commodities warning

IEA Executive Director Fatih Birol underlined that “secure and sustainable” access to critical minerals remains essential for smooth and affordable clean energy transitions. 

“The world’s appetite for technologies such as solar panels, electric cars and batteries is growing fast, but we cannot satisfy it without reliable and expanding supplies of critical minerals,” he said. 

“The recent critical mineral investment boom has been encouraging, and the world is in a better position now than it was a few years ago, when we first flagged this issue…but this new IEA analysis highlights there is still much to do to ensure resilient and diversified supply.”

Areas in focus

The report scrutinised four key dimensions, namely supply risks, geopolitical risks, barriers to responding to supply disruptions, and exposure to environmental, social and governance and climate risks.

It also cited stepping up efforts to recycle, innovate and encourage behavioural change as vital to ease potential strains on supply. 

About $800 billion of investment in mining is required between now and 2040 to get on track for a 1.5 °C scenario; without strong uptake in recycling and reuse, mining capital requirements would need to rise by one third.