Critical minerals threaten a decades-long trend of cost declines for clean energy technologies – Analysis – IEA
Russia is a major producer of many minerals and metals that are vital for the clean energy transition, and the country’s increasing international isolation puts additional pressure on already tight markets. The first impacts were felt in aluminium markets where Russia in 2020 accounted for 6% of global aluminium production (the second largest producer worldwide) and 8% of imports to the European Union. As aluminium production is highly energy intensive, high natural gas and electricity prices had already affected nearly half of the European Union’s production capacity by early this year, according to an industry association. With supply also being cut in China, aluminium prices rose to record highs after Russia’s invasion, adding stress to many end-use industries such as the automotive sector.
Tensions are also visible in the battery metals market. Russia produces around 10% of the nickel that is mined worldwide, but it accounts for almost 20% of the supply of Class 1 nickel, which is the grade needed for batteries. It is also the second largest producer of cobalt and the fourth largest producer of graphite.
The frenzy in nickel prices in early March brought the potential perils into sharp relief. Prices skyrocketed from USD 25,000 a tonne to over USD 100,000 a tonne in a single day, and the London Metal Exchange suspended nickel trading for around a week. This event was not driven by market fundamentals but rather by a short squeeze involving a major Chinese company that had anticipated a price drop. However, the event was a wake-up call regarding the importance of diversified supply sources. The recent episode also risks undermining investor interest in new projects and reducing trading liquidity at a time when both increased investment and liquidity are sorely needed.
Russia also provides 43% of global supplies of palladium, a precious material used for catalytic converter in cars. Europe accounts for over half of Russia’s palladium exports. As with aluminium, stock levels were already low before Russia’s invasion of Ukraine. Automakers can switch to platinum, but Russia is also a major producer of that, with a 14% share, the second largest in the world.