Ep 23 IEA Critical minerals outlook with Shobhan Dhir

[00:00:00] Hi everyone, I'm Benjamin Pan and I'm Zhou Yiou. Welcome to Sustainable Energy Asia podcast. So Ben, how was the interview with Shobhan? It was great but we miss you. We discussed about the key insight from the International

[00:00:15] Energy Agency Critical Minerals outlook 2024, the latest development in the EV markets and the different battery cathodes chemistries. We also covered the supply and demand of two critical minerals which are playing an essential role in the energy transition, copper and lithium.

[00:00:32] As always, grateful if you could take the time to rate and comment on the show. It helps listeners to find us. Thank you and on with the show. Welcome to the show Shobhan. Can you introduce yourself and explain

[00:00:46] what was the appeal of joining the IEA after you completed your PhD in battery chemistry? So I actually wanted to work at the IEA for a very long time before my PhD in batteries because I did a masters in energy technologies and energy systems some years ago

[00:01:03] and from then you're learning about the IEA's work and it was fascinating. I was really impressed with the analysis and the depth. I've always been interested in the high-level big picture but I wanted the technical expertise and to do some real deep scientific research and during

[00:01:19] that year some batteries were particularly interesting, important and yeah so that's where I chose my PhD research on but always back in my mind I wanted to work at the IEA and you know I got to try that a couple years ago at Temporary Contract and loved it.

[00:01:36] This is why I'm back here. That's great. You're ready for a few of your dreams. So critical minerals has been quite recent topic that is covered by the IEA. Can you please contextualize a little bit the global critical mineral or QLUQ 2024?

[00:01:51] In the entire IEA framework and explain why this topic now becomes a major focus for the IEA. Sir Teyoon, the person who heads critical minerals at the IEA did a really seminal reports in 2021 which showed how important critical minerals are for the clean energy transition and so many

[00:02:12] of these key clean energy technologies such as batteries, wind, solar and everything they all are highly dependent on these key critical minerals and that's copper, lithium, nickel, cobalt, graphite and these minerals for when you compare clean energy technologies compared to

[00:02:31] conventional technologies are much more highly intensive in terms of these critical minerals. So in a sense the deployment and the success of the deployment of clean energy technologies it all depends on the reliable supply of these critical minerals and that could really damage

[00:02:49] or stop kind of our transition pathways and slow things down if they're interrupted. So security of supply of them is very important and as you dig into it you work out there even

[00:03:00] more concentrated in their supply than oil and gas and the supply of oil and gas and that you can tell how you know oil and gas has defined a lot of historical geopolitics and now we have these

[00:03:12] key minerals which are run the future yet they're even more concentrated in their both supply of mining and refining so it's a very key area where if we take the eye off the ball and

[00:03:26] they could really hinder our transition plans that's why it's such an interest to the IEA and now it's become a real core of the IEA, the member governments. It's extremely important.

[00:03:37] I read the report and I found that there was so much good and interesting insights from this report so as part of the interview we'll focus on some aspects because there's so many fear that you

[00:03:50] cover that we can't cover everything but we'll focus first just generally on critical minerals in relation to EVs and then we spend some time on copper and lithium if you can briefly explain the

[00:04:02] scope of the reports and if you can also share what would be the top three highlights that you want to share about the report. Sure absolutely so the global critical minerals outlook report

[00:04:15] which we did this year I'd kind of split it in two so we did the half is looking at what's happened in this last year like a market update understanding the recent trends and the

[00:04:27] short-term focus and prices etc and what's been driving that and then the second part is the big outlook and this is kind of the long-term outlook it's 24-2050 for the supply and demand of these key energy transition critical minerals and looking at supply diversification trends,

[00:04:48] risks and we also did a risk analysis so that's kind of the main scope of it and kind of looking at the whole picture from both these angles so just to share some I guess some key findings probably

[00:05:01] the number one because this is the first time we have done a DIA supply modeling we've done a lot of demand modeling in the past but as you mentioned these two critical minerals which will go deeper copper and lithium which are fundamental to the success of the energy

[00:05:16] transition when looking at the supply and demand picture in the future there is a significant deficit of supply so for copper in a scenario that meets climate pledges so this isn't even meeting 1.5 degrees this is just government's climate targets in this scenario in 2035 announced projects only

[00:05:37] meet 50% of lithium requirements and 70% of copper requirements and that's a significant shortfall and so this is a real key concern for us and how we can meet that but if we're gonna

[00:05:49] be on track for these climate targets there needs to be a lot more supply so that's one of the main key takeaways others a short-term trend we've seen well 2021 2022 there was significant price increases in a lot of the key critical minerals particularly lithium layers a huge increase over

[00:06:07] sevens old during that time but last year we've seen dramatic price falls and the reason for this has actually been supply outpacing demand so demand is still growing strongly but supply came online very quickly and there's also been some downstream inventory overhang which is also kind of added

[00:06:25] to that price decline and now these price falls are good and bad because they're good for consumers because clean energy technology is getting cheaper batteries get cheaper you know these kind of things make EVs more competitive but at the same time it means there is under-investment

[00:06:42] in new mining supply for the future so like we've seen before when there was the recent price spikes because of time low price environment we're likely to see the same again and the final one

[00:06:56] is the little progress has been made in diversification of mining and refining and this is becoming more concentrated for almost all minerals and which is the opposite of what we hope to see if we want diversified sources of supply and less risk you know less susceptibility of

[00:07:13] vulnerability to geopolitical events or or supply shocks etc so that trend is less encouraging but I'll leave you with those three yeah that's very interesting and you have this chart where you can see red everywhere red for China dominating pretty much all of the refinery capacity

[00:07:30] and also controlling some part of the mining through ownership via different countries and I think the second highlight that you'd share about the price trend of critical mineral and that there were some inventory buildups I think there's one other element which was about EV sales which

[00:07:48] was not as high as expected the slightly lower gross but still quite significant gross to be fair I think on this point would be interesting if you can share some of the key trends that you

[00:08:01] have identified in EV sales globally and maybe a space three in China and I'm thinking about the phase out of some subsidies and the evolution between PHEV, BEV and ER EV so yes the deployment

[00:08:18] in EVs slowed overall globally but it was still a 35% year on year increase which is a dramatic still very fast growth and this is now electric car sales were 14 million in 2023 so it is

[00:08:33] still growing very rapidly and there's yes some key things that happen this year particularly the phase out of the Chinese purchase subsidy and so this is one of the primary reasons for the reduction in growth but sales have remained robust and there's also several other trends

[00:08:52] that are happening the market is just becoming more mature and as it matures that growth rate cannot continue at the kind of exceptionally high rates we've seen before in Germany a lot of

[00:09:03] electric car sales actually failed and that was also due to the sudden end of EV subsidies so these removal of subsidies is a trend we're seeing but the US actually growth had saw the fastest

[00:09:13] growth of all the three key regions and one thing is interesting in other regions such as Thailand and India actually that we saw really rapid growth so actually electric cars grew by 70% in the non

[00:09:27] top three regions and that's been a particularly interesting trend to see that other regions it's really ramping up so I do think we're seeing this market maturing we're seeing yeah these subsidies being removed which have a hit on sales but when we compare it it's still been

[00:09:43] very impressive growth and there's also other aspects with the Chinese economy and a weak consumer sentiment which have also affected sales those sales in first quarter of 2024 were actually up again compared to the same period last year so that's at least encouraging

[00:10:00] science and then you mentioned for example the extended range EVs and plug-in hybrids and one of the interesting trends we've seen is some faster growth rates in plug-in hybrids and that is in

[00:10:14] some regions particularly China and that's I think the concern about driving range which used to be a particularly western consumer focus is now becoming also important in China and this where these extended range EVs which have an electrical train and also combustion engine able to recharge

[00:10:32] the battery and then go much further this these are becoming much more popular in China and that shows maybe a moving sentiment towards range being very important which has not been traditionally primary concern for Chinese consumers. Another trend that I want to cover about cathode chemistry

[00:10:50] was very interesting to see and I think a lot of people missed it at the beginning the huge expansion of LFP in the share of all the EV sold and we start to move towards nickel-intensive

[00:11:04] battery chemistry as well. Moving ahead and you have a forecast up until 2040 what are the mix in the EV battery chemistry that you're expecting in the next coming years? So just to maybe give a little context what was a very interesting development of the last five years

[00:11:21] is before I'd say 2022-2021 LFP shares were reducing considerably and at the expense of these nic high nickel chemistries which the NMC's, NCA's which have the high energy density long range and LFP is a chemistry which has a much lower energy density and so that made

[00:11:41] sense you know everyone wants to further and further ranges but then in 2021 this trend reversed and this was because of these huge price rises in nickel cobalt and this meant that to reduce exposure to these high nickel cobalt prices a lot of these automakers, batch makers were moving

[00:12:01] towards the LFP chemistries because it's just cheaper and lower cost and so that coincided with also a technological innovation known as CeltaPak and this meant removing modules from the battery packs which is basically cutting dead weight from the pack and what this did is increase

[00:12:20] LFP's energy density so the energy density of LFP was more competitive for mid-range and all of this together made a major resurgence of LFP and LFP now globally the share is 40%

[00:12:34] in 2023 so that was a huge change from when it was really being phased out now when you look at the three markets it's predominantly China, China it's over half for sure whereas Europe and US it is

[00:12:48] still predominantly there on the chemistry but LFP share is increasing and we're expecting this trend to continue so looking ahead it seems like LFP is really dead today there are other developments happening LFP, CATLs, 4C fast charging, battery and there's some really impressive

[00:13:05] things happening right now so we do expect to see LFP continue to grow and share and having a large share of the market going forward even through to 2040 and it's variations right now we're seeing LMFP which is going into some vehicles this year and that uses some manganese

[00:13:22] which increases the energy density more so we're seeing this trend, nickel rich chemistries are still going to play a major role particularly in these western markets with the high ranges because they are the highest range but looking further ahead we're going to see more

[00:13:37] manganese rich chemistries because they offer some other benefits they also lower cost using more manganese but then the majority are going to fall into these three categories the manganese rich, nickel rich and the LFP but LFP has definitely been taking market share

[00:13:51] from these nickel rich chemistries and we're expecting that to continue and then also we see the introduction of sodium iron which is a very interesting chemistry is the only one here that doesn't include any lithium and that had a major surge of development during the years

[00:14:05] of high lithium prices but now as the lithium prices have fallen there are some plans have stalled but I expect if there's lithium prices go high again there will be increased development there so this is kind of the picture we see going forward, sodium iron is again a

[00:14:18] low-range dense chemistry so we see it for grid scale storage and low-range EVs as well as it could have its mark and it will eventually take some share but the dominant is

[00:14:29] going to be lithium one. That's fascinating so now I'd like to move to copper copper has a really a premium role in the energy transition and in terms of market size it's much bigger than all

[00:14:39] the other critical mineral combined it's about 200 billion in 2023 and copper is used in EVs of course but not only like it's used in solar wind electricity network and construction etc so I'd

[00:14:55] like to to start just by if you can explain why is copper so critical for the energy transition. Yeah absolutely so copper is so important due to its unique kind of unmatched combination of characteristics so it's electronic conductivity longevity ductility corrosion resistance

[00:15:15] and particularly is that electronic conductivity for its price and so that is where copper it's just in a league of its own and you can say aluminium is actually lower cost and has a competitive electronic conductivity but it's not as good as copper I think it's roughly around 60%

[00:15:32] that of copper and so this is why copper is such an important role in all these key energy technologies that you mentioned this is why yes some can also be displaced but many applications

[00:15:42] also can't and for example one that really can't in lithium iron you have a copper anode current collector and you cannot replace that with aluminium because lithium alloy is with aluminium at low potentials and that is somewhere where you know you can actually replace copper and there's

[00:15:57] other places where copper are much more replaceable so a lot of aspects in networks grid networks but there's also areas there where it cannot be like pre-sample subsea cabling and high voltage cabling are harder to do so all these technologies run on electricity and

[00:16:12] copper is cornerstone of electrical equipment basically yeah and transmission and can you explain and give an overview of how is distributism mining and refining of copper globally so right now Chile is the largest copper miner and that remains the same going forward

[00:16:33] it has about I'd say about a quarter of global supply but then in 2030 the picture is changing Peru has historically been the second largest copper miner but very interesting this year very recently the DRC actually took over Peru as the second largest miner with extremely rapid growth

[00:16:54] and a large trend I'll maybe give a macro trend with copper to give some context is one of the key challenges is declining oil quality so across the world the average oil grade has been dropping dramatically so since 2005 it's dropped almost 30% and so it's dropping

[00:17:12] very rapidly and the average oil grade is around 0.6% globally right now but the DRC has some mines with all grades as high as 5.5% so this shows why DRC is seeing such surge in growth and it very quickly become the second largest producer whereas Peru you know new projects

[00:17:33] are struggling and it doesn't have as much new resources to exploit and then on the refining side like you've touched on previously China is the dominant refiner and in our projections according to announced projects it remains so going forward so it's almost about half of all

[00:17:52] global copper is refined by China and DRC also plays a good role there in Chile they have you know small abstractions but no one is anywhere close to China on the refining side and yet these pictures

[00:18:05] stay broadly similar going forward with Chile being the largest miner and China being the largest refiner and you mentioned it in the intro what is your outlook for copper demand and supply and what are the policy recommendations that you might have so I was saying based on

[00:18:24] announced projects 2035 supply only meets 70% of the demand in a scenario to meet climate pledges and climate targets so that is a serious shortfall and different to lithium where supply is a lot is easier to ramp up copper due to this problem of the declining ore quality and

[00:18:47] there not being any many good new high-grade resources to exploit it's difficult it's going to be very challenging to meet demand and this is going to require a range of policy solutions and actions to kind of close this gap and this includes like supply options like

[00:19:07] incentivizing investment in new supply but then also like demand reduction measures such as substitution material efficiency and also ramping up recycling so these are particularly important areas for policy to focus on and with this declining ore quality capital costs operating costs have been increasing quite considerably

[00:19:30] for copper and this is copper projects and a lot of these actions copper recycling really needs to ramp up but nothing can do this alone it's going to take all of these options there are also new technologies which tend to have potential for taking copper from lower

[00:19:45] grade resources there's also looking at mine waste previous copper mine waste as many of these areas it can but it's going to take a combination of all to kind of close that gap

[00:19:54] and where we are lucky is in term of recycling the recovery rate is really high for copper so if we mine enough copper we can probably get around by recycling so now I'd like to

[00:20:06] move to speak a bit about lithium so lithium of course is central for the batteries and in your forecast you expect that the demand is going to increase threefold in the coming years about lithium who was dominating country in lithium mining are we finding today

[00:20:25] for lithium mining it's Australia's the largest producer like historically it used to be Chile with its brine projects but Australia has rapidly ramped up with the hard rough mining and has become

[00:20:36] the the major supplier of lithium and these are the two kind of key players but China is also rapidly growing and actually in 2030 according to announced projects China overtakes Chile to be the second largest miner of lithium so that's a really big development so a lot is happening

[00:20:56] there on in Chinese mining side the other really interesting place to watch is Argentina which has a very small fraction of the mine supply currently but rapidly ramps up and that's there's many projects in the pipeline with high confidence for lithium mining in Argentina on the refining

[00:21:15] side it is again a Chinese dominated story Chinese is the largest supplier with over half of all refining occurring there right now and it is set to remain the dominant refiner but again Argentina is the fastest growth like really impressive growth even to 2030 on the refining

[00:21:35] side as well so this is kind of the picture there's you know Argentina Zimbabwe are new lithium players which are going to have quite major roles which has not historically been the case so there's a lot more potential for new supply on the lithium side but still

[00:21:50] to spoil this in 2035 there's a supply gap where only half of the lithium requirements are met based on announced projects in a scenario that meets our climate targets this one point we

[00:22:04] touch on a little bit about prices so you mentioned about young prices to be sky high in 2021-22 but now we are a bit in the investment where we are in a low price environment prices are even

[00:22:17] lower than the cost of mining so it's kind of like not really a sustainable and considering this low price environment what are the expected impacts on the lithium industry this is yeah a key question so the challenge with the low price means there's just less investment

[00:22:33] and particularly less investment in the more diversified suppliers and those projects which may offer better ESG performance or outside the incumbent regions and this is where the investment is likely to reduce most and this is going to really affect any diversification

[00:22:55] ambition so this is a key concern of this low price environment and many recent projects which had been planned during the periods of high prices their viability may be reassessed if this

[00:23:07] kind of low price continues so this is what we're expecting to see and this is the key challenge now that we're going to see an increased concentration again under investment in general and that means

[00:23:21] in the years to come because lithium experience is by far the fastest demand growth of any of the key critical minerals that we will likely have a shortage and again a high price environment

[00:23:33] in the future so this kind of cyclic behavior is likely to continue so these low prices good for consumers but not good for supply investment and diversified investment yeah definitely and moving forward what are the additional area of analysis that you think would be interesting

[00:23:51] to add in next year outlook that's a good question so I think one of the areas we want to go deeper on is we've done some analysis on ownership and it's one thing to look at these projects where

[00:24:05] they are based and where they're operating but you can also look in a complete other lens based on who are the company owners where are they based this kind of aspect and this is where you see

[00:24:16] european and u.s companies have a much larger role in the global mining from many of these key minerals and you can see chinese companies are by far the largest operators in the drc and

[00:24:30] indonesia for drc for cobalt and indonesia for nickel so exploring this further on what this can mean and scenarios from from that is important and also getting a better picture of it because there's a

[00:24:42] lot of unknown information in that aspect as well and on the refining side that picture has not been seen so looking at these aspects looking at where innovation can really target and maybe play a greater role technical innovation to kind of support diversification is important

[00:25:02] deepening all of this further is our aim and create a picture on the supply and demand even more policy suggestions but yeah look at this ownership is a particularly interesting picture

[00:25:14] and the ownership aspect is particularly interesting in relation to the i a i can see it in indonesia for example where ever since the i has been announced you know there's tax credit related to critical

[00:25:27] minerals and this important that's it's not provided by what they call the foreign entity of concern and some chinese company now are thinking about maybe listing the asset in indonesia so that they appear not so much chinese but that has more international ownership so i look forward to

[00:25:47] read the report next year yeah to clearly agree exactly it's really really key for the ira that's very good point thank you so much thank you it's been a pleasure