Green tech is driving the next commodities supercycle

With China making a push to dominate the trading of lithium carbonate futures and other Rare Earth elements, how should one characterise the new commodities supercycle, and what are the attendant issues concerning supply chain resilience?

London Business School’s Adjunct Professor of Economics Dr Linda Yueh, speaking on her latest Sirius XM Business Channel podcast with journalist Janet Alvarez, said that the next commodities cycle has begun in earnest and this time it was the battery metals.

Last month the Guangzhou Futures Exchange became the fourth global commodities exchange to launch contracts tracking the price of lithium carbonate, used in the manufacture of electric-vehicle (EV) batteries.

And in July the COMEX division of the New York Mercantile Exchange launched a Lithium Carbonate futures contract based on a benchmark from commodity index firm FastMarkets. Meanwhile, the London Metals Exchange has introduced new futures contracts to provide further hedging and trading opportunities for battery materials.

Lithium, nickel, cobalt, manganese and graphite are crucial to battery performance, longevity and energy density. These metals are essential for use in lithium-ion batteries, so necessary for energy storage, while other uses include permanent magnets used in wind turbines and electric vehicle motors, while copper underpins electricity-related technologies.

With the global community and automakers agreeing at COP26 to go all-electric by 2040, and countries such as the UK targeting a ban on petrol and diesel cars and vans that will come into effect by 2030, we are seeing powerful milestones emerge in the transition to a fully electric future.

Batteries are crucial to meeting these aims and for a myriad of wider applications as well, including renewable energy power plant systems such as wind and solar and, eventually, for planned wide scale use in commercial and military aircraft.

As Dr Yueh observes, “The sun does not always shine and the wind does not always blow” so batteries are crucial for the green transition. Thus, the mining and processing of metals, such lithium and nickel, are driving a potential supercycle and raises attendant resilience concerns about supply chains as well as environmental concerns.

“China controls about 80 percent of the world’s battery production capacity,” says Yueh.

The leading lithium producers are countries such as China, Australia and Chile, accounting for around 90 percent of the global market.

Other countries are beginning to ramp up production of, for example, cobalt, and with regards to nickel, the top three producers are Indonesia, Philippines and Russia, countries that account for two thirds of the market.

A new term to describe these countries has been coined says Yueh. “They’re called ‘commodity super powers’”.

Dr Yueh believes that the focus of this present supercycle increasingly falls on supply chain resilience, noting that China has had such a head start and that it will continue to be a major player for years to come.

A key area of focus will need to be in the processing of battery metals, thereby helping to diversify and add resilience to supply chains while contributing to the important value added benefits to those countries that make such investments in processing and finishing plants.

Dr Yueh points to the continued innovation in battery technology and new geographical sources for mining endeavours as possible means to challenge what is presently the super power status quo in the supercycle market.

Deep sea mining in, for example, the Clipperton Fracture Zone, is one area of potential, holding an estimated 21 billion tons (Bt) of metals, specifically about 5.95 Bt of manganese, 0.27 Bt of nickel, 0.23 Bt of copper and 0.05 Bt of cobalt.

“This is why trading futures in metals is so promising because this area is important and set to grow ever more,” says Yueh.