From price crisis to ESG: the balancing act of critical mineral mining

Production of critical minerals has ramped up in response to demand for electric vehicles (EVs) and other energy transition technology, but how will a recent slump in demand and concerns over environmental and social footprint impact critical mineral miners? Annabel Cossins-Smith reports.

Lithium fields in the Atacama desert in Chile.

Global demand for critical minerals – metals considered essential to energy transition technologies – has recently begun to plateau. Price wars in the electric vehicle (EV) market and an oversupply of certain minerals threaten international production even as the energy transition ramps up in line with global climate targets.  

Mining majors have begun to pull out of nickel projects across the world as profits continue to free fall. Chinese dominance in critical mineral supply chains also remains a concern for the West, with nations scrambling to secure independence from the East Asian power. 

But beyond price and demand crises within the market lies a separate moral dilemma. The social and environmental impacts of mining critical minerals can be significant. Local communities unfortunate enough to sit on lithium deposits in South America are finding their rivers running dry and their lands barren. The exploitation of natural resources that inevitably comes with mining for minerals remains, even when those minerals are used for technologies designed to fight climate change.  

So, how can the two things be reconciled, if at all? And how might the critical minerals industry move forward?

The great plateau: EV demand declines in Europe and around the world

While demand for EVs has been gradually flatlining across the world, the decline in demand in Europe has been particularly sharp over the last few years. Battery component production lines have started to idle across the continent as over-ambitious sales targets from manufactures crash into the reality of consumers more wary now, after an international energy and inflation crisis, of parting with their cash. 

In Germany, Europe’s biggest automaker, the slump is particularly bad. This year, EV sales in the country are forecast to decline for the first time in eight years, falling by up to 14% as subsidy cuts, high inflation and insufficient charging infrastructure impact consumer demand. However, many companies have said they are willing to compensate for Germany’s incentives depletion.  

Sales in the UK have also stagnated as the cost-of-living crisis in the country spirals and government policy and incentives for clean energy technologies remain lagging

Fears from the EU of a brewing price war with China, triggered by cheap, heavily subsidised electric cars hitting the market, prompted European Commission President Ursula von der Leyen to launch an anti-subsidy investigation into EVs manufactured in China. The EU is looking to avoid a repeat of a decade-old trade war with China that decimated its domestic solar power industry. 

Chinese dominance in the critical minerals supply chain, from mining to production, has also forced many countries to strengthen their domestic supplies to stay independent. But even in countries with strong domestic markets, the threat of declining demand looms.

Chinese dominance in the critical minerals supply chain, from mining to production, has also forced many countries to strengthen their domestic supplies to stay independent.

The US, which has managed to attract serious investment since the passing of President Joe Biden’s subsidies-rich Inflation Reduction Act (IRA) in 2022, is also feeling the strain of weakened consumer demand.  

Matthew Lucki, senior analyst at GlobalData Automotive, said that there is an “inherent risk” that the US EV market will stagnate this year, although sales of hybrid models will continue to surge.  Inventories in the country also continue to pile up, with major automakers like Ford pulling back on production plans for fear of oversupply. 

However, it is likely that the plateau won’t last forever, or even for that long. The energy transition is powering on, with global renewables capacity hitting a record high last year and forecast to continue upwards as the world moves away from fossil fuels. EVs also remain a key part of global decarbonisation plans, and, despite a demand slump, electric transport has become the biggest recipient of private and public spending within the energy transition and remains central to national net zero plans.  

Data from the International Energy Agency (IEA) forecasts overall demand for core critical minerals, such as lithium, nickel, cobalt, and copper, to increase drastically by the end of the decade, most of which will come from a recovered EV market. 

“Car demand overall is predicted to increase only modestly [in 2024] by about 3%, but BEV [battery electric vehicle] growth has consistently outperformed car market growth for several years and we expect the same in 2024,” said Al Bedwell, director of global powertrain at GlobalData Automotive. He sees a drop in average prices for EVs, driven down by competition from China, and a fall in battery prices as fears of lithium shortages ease aiding demand recovery. “We remain cautiously optimistic for 2024, though we do expect lower BEV sales growth than seen in 2023.

Low demand and oversupply: how price crises are rocking mining operations

This blip in EV demand has had an immediate effect on mining operations, with global production of certain core critical minerals, including lithium and nickel, taking hits as the industry looks to realign output current demand. 

Price crises in the global markets have, in recent months, also rocked the sector to its core. A heavy oversupply of cheap, low-grade ore called nickel pig iron (NPI) from Indonesia has caused a drawn-out slump in global prices of the metal, rendering some mining projects financially unviable.  

Output cuts this year from China and Indonesia, which together produce 70% of the world’s nickel, have so far removed more than 230,000t, or approximately 6%, of supply, but this has not been enough to boost prices. Major miners have begun to scale back production at some mines or closed projects altogether as profits plummet. 

Last month, Australian giant BHP announced plans to shut down its nickel operations in Western Australia, citing doubts that prices will recover sufficiently in the short and medium term so see profits recoup. In January, First Quantum announced plans to cut production at its Australian nickel mine and slash its workforce amid plummeting profits. Glencore also announced last month that it will sell its entire stake in the Koniambo Nickel SAS joint venture in New Caledonia, which has never turned a profit despite funding interventions from the French Government.  

Western miners have called for a green price premium to be introduced for sustainably produced, high-quality nickel traded on the London Metals Exchange (LME) to differentiate their ore from Indonesian and Chinese NPI, though this might not go through. This month, for the first time ever, a Chinese-Indonesian nickel producer, PT CNGR Ding Xing New Energy, applied to have its metal supply listed as a ‘good delivery brand’ – meaning high-quality and sustainable – on the LME, sparking renewed discomfort among western producers. 

“Indonesia has adopted quite an aggressive approach of protectionism to try and build up its capabilities in critical mineral supply, processing, and the industries associated with their end-uses,” says GlobalData analyst Thomas Pothalingam.  

“For the battery industry, Indonesia’s ban on exporting critical minerals to encourage its domestic downstream industry has put additional pressure on nickel resources. Manufacturers based outside of Indonesia may face difficulties acquiring sufficient nickel supplies.”  

He says that some of the largest battery incumbents – such as CATL, LG Energy Solution, Tsingshan, BASF, Zhejiang Huayou Cobalt, and Posco – are already moving factories and facilities to Indonesia as a result, and this will “likely cement” the country’s long-term stance as a major player in the global industry.

Indonesia has adopted quite an aggressive approach of protectionism to try and build up its capabilities in critical mineral supply, processing, and the industries associated with their end-uses.

Unstable lithium prices are putting further pressure on miners hoping to expand their critical mineral operations. The price of the metal tumbled in January to $13,200 per tonne, its lowest level since 2020. Over the last twelve months alone, prices have plummeted more than 80% as Chinese EV demand flatlines.  

The fallout has forced miners – mostly in Australia, which produces nearly half of global supply – to reduce production. Several mining majors have adjusted their production forecasts in the last few months. Glencore has reduced its 2024 guidance on nickel to 80-90 kilotons (kt), compared with 98kt in 2022. Others have kept estimates flat compared with last year, but few are predicting an uptick.  

Analysts have also reduced forecasts for nickel in response to poor market conditions. GlobalData recently dropped its medium-term nickel estimates for the period 2023-2030 by 1-3%. For 2024, it sees global production ending on 3,563.02kt, down from 3,665.25kt in its previous forecast. 

Pothalingam thinks the decline in global demand could go one of two ways for the critical minerals sector. “A slump in demand could prevent [supply] shortages by creating an opportunity for planned mines to open up during this period and expand the overall global base of production,” he says. “It could also potentially limit the attractiveness of future investment into new mines, facilities, and sites in the short term, meaning that supply issues could materialise in the future if demand grows again.”

Balancing the environmental and social costs of mining energy transition minerals

Despite current problems with demand and supply, the long-term outlook for the industry is strong. According to the UN’s five-yearly Global Resource Outlook report, published earlier this month, the worldwide extraction of all raw materials, including critical minerals increasingly, is expected to balloon 60% by 2060.  

Since 1970, resource extraction has boomed 400% along with industrialisation, urbanisation, and population growth. But this could come with devastating environmental impacts even as those materials are increasingly used in technologies designed to fight climate change.  

The UN’s report finds that the extraction of natural resources, spurred on in part by the energy transition, is responsible for 60% of global heating activity, including the harmful impacts of land use change, and 40% of air pollution. It also finds more than 90% of global water shortages and land-related biodiversity loss is caused by activity from the mining sector. 

Take lithium, perhaps the most important of all critical minerals due to its role in battery production. Extraction of the metal is linked to environmental destruction, biodiversity loss from changing land use, and social crises stemming from extensive water shortages.  

In Chile, lithium mining has decimated fresh water supplies for local communities. The country has the biggest reserves of the metal in the world by some margin, with miners flocking to the region in recent years to take advantage of the booming market.

Lithium extraction is linked to environmental destruction, biodiversity loss from changing land use, and social crises stemming from extensive water shortages.

But the traditional extraction processes – lithium brine extraction, which sees brine water pumped to the earth’s surface, where it sits in huge evaporation ponds – are extremely water-intensive. The far south of Chile has been experiencing increasingly severe droughts for more than a decade, with mining operations in the lithium-rich Atacama region exacerbating an already deadly water crisis.  

“Communities are suffering a slow violence that’s creating conditions of ecological exhaustion,” James J.A. Blair, assistant professor at California State Polytechnic University, told the Natural Resources Defense Council in 2022. Since then, the country has experienced its worst drought for more than five decades.  

“We used to have a river before that now doesn’t exist. There isn’t a drop of water,” Elena Rivera Cardoso, president of the Indigenous Colla community in northern Chile, told the council. “And not only here in Copiapó but in all of Chile, there are rivers and lakes that have disappeared, all because a company has a lot more right to water than we do as human beings or citizens of Chile.” 

Isabel Al-Dhahir, principal analyst at GlobalData, thinks direct lithium extraction (DLE) could be the next big alternative to the brine evaporation method. “DLE is a more environmentally friendly technique to extract lithium from brine,” she says. “The Chilean Government is encouraging the use of DLE in future projects to reduce water stress and minimise the damage to local ecosystems… It could become the primary method of lithium brine extraction.”  

Al-Dhahir says several companies, including oil majors looking to enter the lithium game such as ExxonMobil, are exploring options to upscale and deploy the new technology, although a lack of commercial success has so far left question marks over its viability. 

Problems also lay within critical minerals mines. In the Democratic Republic of Congo (DRC), artisanal mining makes up a large portion of its cobalt extraction industry. The country produces around 70% of the world’s total copper demand, but unregulated, dangerous conditions have plagued its minerals sector for years.  

The DRC is an environmental and social “headache” for automakers and battery suppliers, explains Pothalingam. Demand in the country is suffering, hit two-fold as governments and private companies look to move away from the DRC’s poor reputation, a problem that is exacerbated by the global slump. 

Economically, the industry is set for recovery. Current price woes will likely dissipate as energy transition technologies continue to become more affordable, but the environmental and social costs of the business are more difficult to reconcile. Some moves have been made by Western powers to tackle this, such as the EU’s 2021 Conflict Mineral Regulation act, which looks to tackle exploitative business practices, or the US’s IRA, which incentivises local production, but progress remains slow.  

A constant balancing act remains at play, a Machiavellian narrative that the ends must justify the means, but for many communities the reality of this is already too harsh. Without enforced global and domestic legislation, little is likely to change, Al-Dhahir explains. But something will have to give.  

As scrutiny over the environmental and social impacts of mining increases, investment will inevitably shift towards operations most in line with international sentiment and be at the heart of a just energy transition.