Critical metals price drop scares green energy investors

Violent price movements of critical metals are thwarting the global energy transition. It causes uncertainty, causing investors to slam on the brakes. This delay is bad news for Europe because it is precisely in the area of critical metals extraction that Brussels wants to catch up, in order to reduce dependence on countries like China. The opposite is happening. So says an analysis by credit insurer Allianz Trade.

Mining critical metals such as lithium, cobalt and nickel are essential for the production of batteries, energy storage, electric vehicles, wind turbines, solar panels and other green technologies. Critical metals are crucial for a successful energy transition. Given many climate measures, these metals should be a goldmine, but the current market picture is different.

Johan Geeroms, Director Risk Underwriting Benelux at Allianz Trade: "It is a paradoxical situation. What is clear is that the demand for these metals is increasing enormously. Global climate targets are unachievable without critical metals. As a result, you expect prices to rise. But instead we are seeing violent declines. In the past 18 months, lithium prices have fallen by -85%. A major cause is supply, which has risen sharply. By +70% since 2021." Besides additional supply, Geeroms says speculation also plays an important role in price movements. 

"Price movements have a crippling effect. Mining involves long-term investments. And it is taking longer and longer to recoup them. The so-called mining lead time has increased. That is the time between discovery of the metal and commercial exploitation. That is now 18 years compared to 13 years in the 2005-2009 period. It demands quite a lot from investors. The violent price movement makes them reluctant. Waiting longer with mining projects increases the gap between countries with metals and countries without metals."

For Europe, this is working out badly. "As with oil, you see dependency increasing. That makes the EU vulnerable to manipulation and trade wars. You then get a kind of OMEC alongside OPEC. Countries with metals determine the price and supply. Europe does try to get out from under this, but with the current market developments, this will only become more difficult."  Geeroms is referring to plans from Brussels such as the CRM (Critical Raw Materials) bill. This states, among other things, that Europe wants to extract 10% of 18 selected raw materials from its own mines. "Our research department has shown before that this is going to be a very difficult story. In our view, it is too little too late."

Research by Allianz Trade shows that exploration budgets for rare metals mining worldwide fell by -3% last year from a nine-year high in 2022 ($12.8 billion). The credit insurer does not expect these budgets to increase significantly in the short term.

What should Europe do? "To close supply gaps, Brussels should build alliances and partnerships with mineral-rich countries. In the field of mining, you could think of measures that would partially offset the risk for investors." According to Allianz Trade, recycling should also be high on the agenda for both governments and companies.

The International Energy Associations (IEA) predicts that demand for critical metals will rise significantly in the coming years, possibly even doubling or tripling. Johan Geeroms: "Higher demand and prices would drive mining activity. But everything is about timing. And for many investors, now is not the right time."