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Green Finance / Asia Connect / Treasury & Capital Markets
Energy transition to boost prices of critical minerals
Demand for EVs, renewable power and batteries outpacing supply growth
Peter Starr 30 Apr 2024

The World Bank expects higher prices in the coming years for critical minerals used in energy-transition technologies.

At the same time, heightened geopolitical tensions are “stoking risks of large price spikes”, the bank warns in its annual Global Commodities Outlook.

Released in Washington on April 25, the bank notes that prices for rare earth elements in the first quarter of 2024 tumbled 22% from Q4 2023. Lithium prices dropped 18% in the same period and cobalt prices were down 6%.

“Price declines were driven partly by weak demand, particularly for [electric vehicles], and subdued activity in China, but also by a continued ramp-up of supply anticipating prospective needs for the energy transition,” the bank says.

But prices are expected to rise in the coming years “as demand driven by the expanding use of energy transition technologies — including EVs, renewable power and batteries — outpaces supply growth.”

Supply outlook uncertain

On the supply side, the bank notes “substantial investments” resulting in a notable increase in global production of critical minerals in recent years.

“Several countries have stepped up mining of rare earth elements, including Australia, Myanmar, and the United States, while Australia and Chile have expanded production capacities for lithium.

“Policy makers in major economies have also introduced initiatives to boost domestic production,” it says, citing the US Inflation Reduction Act of 2022 and the European Commission’s Critical Raw Materials Act of last year.

“However, the supply outlook remains uncertain due to several risks.

“These include environmental social and governance concerns around mineral production processes, extended lead times for operationalizing new mines and the significant geographic concentration of current mining and processing capacities for critical minerals.”

‘Inflation remains undefeated’

For overall commodity prices, the bank notes that its index of commodity prices has remained essentially unchanged since mid-2023.

Assuming no further flare-up in geopolitical tensions, global commodity prices are forecast to fall 3% this year and 4% in 2025.

“That pace will do little to subdue inflation that remains above central bank targets in most countries,” the bank says.

Moreover, it will keep commodity prices almost 40% higher than average prices in the five years before the Covid-19 pandemic.

“Global inflation remains undefeated,” World Bank chief economist Indermit Gill says.

“A key force for disinflation — falling commodity prices — has essentially hit a wall. That means interest rates could remain higher than currently expected this year and next.

“The world is at a vulnerable moment,” Gill warns. “A major energy shock could undermine much of the progress in reducing inflation over the past two years.”

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