The Rise of the New Commodity Superpowers

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The vast expanse of Tenke-Fungurume, one of the world’s largest copper and cobalt mines located in the Democratic Republic of Congo, is currently adorned with a multitude of dusty sacks. These sacks, neatly stacked along the roadside and haphazardly piled near various structures, conceal a substantial reserve of cobalt hydroxide powder. This concealed treasure represents nearly a tenth of the globe’s annual consumption of this valuable substance, with an estimated value of approximately half a billion dollars.

These disorderly collections of vibrant green powder hold significant implications for the Democratic Republic of Congo (DRC), which happens to be the world’s foremost producer of cobalt. The cobalt hydroxide powder is a pivotal component in the production of electric car batteries, highlighting the DRC’s growing influence in supplying the essential metals required for the global energy transition.

Earlier this year, CMOC, the Chinese company operating the Tenke-Fungurume mine, reached an agreement in April to pay $800 million to the DRC government. This settlement marked the resolution of a contentious tax dispute that had led to a ten-month export ban on the company.

In response to such developments, the DRC government is embarking on a comprehensive evaluation of all its mining joint ventures involving foreign investors. Guy Robert Lukama, the head of DRC’s state-owned mining enterprise, Gécamines, voiced the government’s dissatisfaction with these agreements, stating, “We’re not satisfied. None of these contracts create value for us.” He emphasizes the need for more employment opportunities, increased revenue, and a greater focus on higher-value mineral activities that can benefit the DRC as it leverages its significant mineral resources.

The new energy order

This is the first in a two-part series on how the shift to renewables is transforming the economics and geopolitics of energy.
Read part II: How China came to dominate clean energy technology

At the entrance to his office, a cabinet display of highly mineralised rocks makes his point about the riches on offer. Lukama also advocates government intervention to keep cobalt prices high: “Excess of supply needs to be organised properly. Some export quotas will be useful,” he says.

The DRC is far from alone. As the world moves from an energy system built on fossil fuels to one powered by electricity and renewables, global demand for materials such as copper, cobalt, nickel and lithium is transforming the fortunes of the countries that produce them.

Within the Tenke Fungurume Mine located in southeastern DRC, vast reserves of copper and cobalt are stockpiled. Dusty sacks, meticulously arranged along the roadside and haphazardly stacked near structures, house cobalt hydroxide powder amounting to nearly a tenth of the world’s annual consumption of this essential resource.

The mining industry for certain metals exhibits significant concentration within a handful of nations. For instance, the Democratic Republic of Congo (DRC) dominates 70 percent of global cobalt mining. Likewise, the nickel market relies heavily on the top three producers, namely Indonesia, the Philippines, and Russia, who collectively command two-thirds of the market. Similarly, the lithium sector is largely controlled by the top three producers—Australia, Chile, and China—accounting for over 90 percent of global production.

Anticipated future demand for these vital commodities is poised for growth in the coming years. However, based on existing plans, none of these critical resources is expected to have a sufficient number of operational mines by 2030 to facilitate the construction of essential infrastructure aimed at limiting global warming to a maximum of 1.5 degrees Celsius above preindustrial levels. This insight is according to the International Energy Agency.

As we approach the conclusion of this decade, the emerging lithium market faces the imperative of tripling in size, while the global copper supply is projected to fall short by a staggering 2.4 million tonnes, as indicated by the agency’s assessment.

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The growing demand for these commodities is starting to shake up both the economics and the geopolitics of the energy world.

The supply chains for some of these metals are becoming entangled in the rising tensions between the west and China, which dominates processing capacity for lithium, cobalt and rare earths and is considering restricting exports of some materials. Governments from Washington to Brussels to Tokyo are assessing where they can reliably source critical minerals without going through Beijing’s orbit.

This shift is also transforming some smaller and historically under-developed countries into commodity superpowers. And their governments are now intent on rewriting the rules of mineral extraction.

Many are trying to capture more of the value of their minerals, by doing more processing and value-added manufacturing domestically. Some are also attempting to control the supply, by nationalising mineral resources, introducing export controls, and even proposing cartels.

Lithium carbonate-enriched brine and substantial salt by-products are the focus at a lithium mine in the Salar de Atacama region of Chile. This nation, along with Australia and China, stands as one of the world’s top three lithium producers, commanding a significant share of the global lithium market.

Historically, many of these resource-rich countries were victims of exploitation that can be traced back to colonial eras. However, there is now a notable shift as these nations are increasingly empowered to regain control over their valuable resources and chart their own destinies.

In the past year alone, notable developments have occurred: Zimbabwe and Namibia implemented bans on the export of raw lithium, Chile heightened state involvement in lithium mining, and Mexico introduced uncertainty into its burgeoning lithium industry by initiating a review of mining concessions. Concurrently, Indonesia expanded its export controls, imposing restrictions on bauxite (a critical component in aluminum production) in addition to existing bans on raw nickel ore exports.

Jakob Stausholm, Chief Executive of Rio Tinto, a prominent mining company, emphasizes the pursuit of fair agreements between governments and the mining industry. He acknowledges that while the term “nationalism” may not fully encompass this trend, there has been a discernible shift. Many nations increasingly aspire not only to extract and export resources but also to establish processing facilities that add value to their mineral wealth.

This subtle shift in power towards the producers of coveted battery metals follows patterns seen in past commodity shifts, such as the ascendancy of coal in the 19th century and the prominence of tin in the 20th century. Yet, questions loom about the extent to which producers will capitalize on this opportunity and how long they can sustain this newfound influence.

Indonesia’s opportunity

Indonesia has emerged as a notable example of how to derive value from natural resources, particularly in the realm of nickel production. This Southeast Asian nation, responsible for nearly half of the world’s nickel production—a vital component in electric vehicle batteries—has become a shining illustration of resource utilization.

Years of implementing export controls on raw nickel have yielded impressive results, fostering the growth of a robust domestic smelting industry, battery manufacturing facilities, and even electric vehicle assembly plants. The pivotal move came in 2014 when Indonesia imposed a ban on raw nickel exports, a decision that subsequently attracted over $15 billion in foreign investments for nickel processing, primarily from China. Presently, Indonesia’s export restrictions extend beyond nickel ore to encompass bauxite, with plans for a similar ban on copper concentrate exports slated for the coming year.

However, it’s worth noting that these policies have not been universally embraced. The European Union (EU) has raised objections at the World Trade Organization (WTO) and secured an initial hearing on the matter. Indonesia is currently in the process of appealing the verdict.

Nonetheless, government officials argue that their actions are grounded in a time-tested playbook that developed countries employed a century ago to foster domestic industries and stimulate manufacturing. Investment Minister Bahlil Lahadalia emphasizes that these policies draw from the historical practices of developed nations, emphasizing that they are not arbitrary decisions but rather well-considered strategies.

Indonesian President Joko Widodo with Tesla CEO Elon Musk at the SpaceX launch site in Boca Chica, Texas, in May 2022. The rise of nickel has given Indonesia a higher profile © Laily Rachev/Indonesia’s Presidential Palace/Reuters

He points to the way the UK banned exports of raw wool during the 16th century, to stimulate its domestic textile industry. Or the US, which used high import taxes during the 19th and 20th centuries to encourage more manufacturing to take place domestically.

Lahadalia wants to take things one step further, by creating an Opec-style cartel to keep prices high for nickel and other battery materials. “Indonesia is studying the possibility to form a similar governance structure [to Opec] with regard to the minerals we have,” he says.

Whether or not that happens, the rise of nickel has certainly given Indonesia a higher profile. When President Joko Widodo, or “Jokowi” as he is typically known, visited the US last year, he met both President Joe Biden in Washington and Tesla CEO Elon Musk in an out-of-the way stopover in Boca Chica, Texas.

Jokowi later said he encouraged Musk to build Tesla’s entire supply chain in the country, “from upstream to downstream.”

Window of opportunity

However, it’s important to note that not every country will follow Indonesia’s path in terms of resource utilization and export policies.

According to a recent report by the International Renewable Energy Agency (IREA), metals producers may wield considerable influence in the short term, particularly when production is concentrated, and demand is on the rise. Nevertheless, they are unlikely to achieve the enduring geopolitical influence enjoyed by the oil and gas producers.

One key challenge is that battery metals, such as lithium, are widely distributed across the globe, at least in terms of geological reserves, if not necessarily in actual mining production. The current high prices for lithium have made it economically viable to exploit deposits that were previously considered too expensive to access. This has led to the expansion of hard-rock lithium mining in locations like China and Australia.

An illustrative example of how mineral production dynamics can shift is observed in the lithium mining sector in South America. While Chile currently dominates lithium production in the region, neighboring Argentina, with its more favorable mining policies, could potentially surpass Chile in the future.

In essence, the landscape of mineral production is marked by evolving dynamics, driven by factors such as commodity prices, resource accessibility, and government policies. This fluidity underscores the complexity of the global resource market.

A nickel processing plant operated by PT Vale Indonesia in Sorowako. This summer, Hyundai broke ground on a battery plant, its second manufacturing facility in the country © Hariandi Hafid/Sipa/Reuters

Argentina’s 23 provinces control their own natural resources and have enthusiastically courted mining business. With roughly $9.6bn of lithium investment announced in the past three years, and 38 projects in the pipeline, officials say Argentina’s production should go up six-fold over the next five years.

“Investment in lithium has never stopped and I think that has to do with the fact that we are open to private investment, and with uncertainty about the policies being rolled out in other countries,” says Fernanda Ávila, Argentina’s mining minister.

Argentina’s position as an anomaly among South American lithium-holding countries has helped it attract investment, even as it has dried up in other sectors of the economy amid triple-digit inflation.

While some politicians in South America’s “lithium triangle” — Chile, Argentina and Bolivia — have floated the idea of an Opec-style lithium cartel, Ávila is less than enthusiastic about the idea. Although “we have a very good relationship with our neighbouring countries”, she says, “that’s not a topic that’s on the agenda.”

This is another reason why producing battery metals is different from producing oil: it is very hard to form a successful cartel.

During the 20th century, several key commodities were controlled by cartels. Tin was managed through the International Tin Council from the 1950s to the 1980s — and Indonesia, Bolivia and the then Belgian Congo were all producer members. Likewise coffee producers banded together in a cartel during the 1960s and ‘70s; and natural rubber producers maintained a cartel until the 1990s.

John Baffes, head of the Commodities Unit at the World Bank, who has studied these groups, says successful cartels have three characteristics: a small number of producers, who share a well-defined objective, over a short timetable.

He thinks it will be difficult for battery metals producers to form cartels. “You may have some countries that come together, to create an environment that may be beneficial for them, such as keeping prices high,” says Baffes. “But that will be the seeds of failure, because more entities will come in, from outside of the group.”

The rapid pace of evolution in battery technology, along with the changing composition of battery ingredients, has the potential to undermine efforts aimed at cartelization in the battery metals market.

In contrast to oil, which is notoriously challenging to replace as a fuel source, battery metals face a significantly higher risk of substitution. Research laboratories focused on developing new battery chemistries are in a constant state of innovation, seeking formulations that utilize fewer metals, especially those that are expensive or difficult to obtain.

This shift is already evident in the case of cobalt, a metal that automakers are actively trying to reduce in their batteries due to its high cost and concerns related to human rights issues in the Democratic Republic of Congo (DRC). A notable example of this transformation can be found in China, where the adoption of cobalt-free batteries has surged from 18 percent of the electric vehicle (EV) market in 2020 to a substantial 60 percent this year, according to Rho Motion, an EV consultancy. Additionally, batteries rich in manganese are on the horizon, offering the potential to further reduce cobalt usage.

Andries Gerbens, a trader at Darton Commodities, suggests that the rise of non-cobalt batteries may lead to a divergence from earlier forecasts of cobalt shortages around 2024 and 2025. This, in turn, could imply that cobalt prices will remain at lower levels.

The recent decline in cobalt, nickel, and lithium prices may also temper the ambitions of producer nations seeking to extract higher profits and bolster domestic manufacturing. Following significant price surges in cobalt and lithium in 2021 and 2022, primarily driven by demand for electric vehicle batteries, the market has experienced a more subdued environment this year.

A slowdown in China’s production of electric vehicles, combined with an increase in production of cobalt hydroxide and lithium carbonate, has brought their prices down 30 per cent and 40 per cent, respectively, during the first six months of the year, according to Benchmark Mineral Intelligence.

Veteran miners say this cycle has played out many times before. Resource nationalism tends to increase when commodity prices are high, or when elections are approaching, says Mick Davis, founder of Vision Blue Resources and former chief executive of Xstrata.

During these times, “[politicians] inevitably try to capture more of the rent than they initially envisioned and agreed,” says Davis. “The result always ends in tears. It means that the development of their mineral resources takes longer and longer to happen.”

Carpe diem

Yet while the cycle still allows producer countries to flex their powers, they are intent on seizing the moment however they can.

Earlier this year Chile, the world’s second-largest lithium producer, announced a plan to semi-nationalise the industry: it will give greater control of two giant lithium mines in the Atacama Desert to a state mining company when the current contracts end in 2030 and 2043, with both those projects and all future ones becoming public-private partnerships.

Chilean President Gabriel Boric said the plan to increase state control of lithium is the best chance Chile has to become a “developed economy” and to distribute wealth in a more just way. “No more ‘mining for the few’. We have to find a way to share the benefits of our country among all Chileans,” he said.

And many producers are succeeding in taking steps up the value chain, in a bid to create sustainable economic growth. In the DRC, construction of the country’s second copper smelter is under way near the Kamoa-Kakula copper mine.

Chile, meanwhile, is offering preferential prices on lithium carbonate to companies who set up value-added lithium projects in the country. The first taker is China’s BYD, one of the world’s largest electric vehicle manufacturers, which announced in April that it would build a lithium cathode factory in northern Chile, with 500 jobs expected in the investment phase.

Argentina is set to open a small lithium ion battery factory — Latin America’s first — in September, with a larger plant to follow next year. Owned by state energy research company Y-TEC, the plant in the province of Buenos Aires will use lithium mined in Argentina by US firm Livent to produce the equivalent of 400 EV batteries a year.

Indonesia’s attempts to build out an electric vehicle industry are bearing fruit at an even larger scale. Earlier this year, Ford announced an investment in a multibillion-dollar nickel processing facility. This summer, Hyundai broke ground on a battery plant, its second manufacturing facility in the country.

As the energy transition starts to recast the systems of power and wealth that dominated the 20th century, the new battery metals producers are just getting started. Many see this shift in the power dynamic as a welcome change.

“It is absolutely essential that we rewrite the legacy of the mining industry, so that mineral rich countries can capture more of the economic value,” says Elizabeth Press, director of planning at Irena, and author of the report on critical minerals. “We see a greater awareness from both sides that things cannot continue as they were.”

Data visualisation by Steven Bernard and Liz Faunce

Letters in response to this article:

An archipelago nation the FT too often ignores / From Philip Bowring, Hong Kong

How Indonesia’s commodities boom avoids the Dutch disease / From Willem Thorbecke, Senior Fellow, Research Institute of Economy, Trade and Industry, Tokyo, Japan

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