Why are critical mineral prices dropping?

The treasure underfoot in central Idaho will, for the time being, remain underfoot. 

The state’s Lemhi County was poised to host the United States’ first operational cobalt mine in decades. It would have been the jewel of a Biden Administration effort to bolster domestic production of materials deemed critical for U.S. clean energy and defense manufacturing. But the dream of domestically-produced cobalt is now on hold. 

“Idaho is suspended,” Bryce Crocker, the CEO of Australia-based mining company Jervois Global, told investors on a call last April. Global cobalt prices, he said, were simply not high enough to make the venture profitable. And nearly one year later, Jervois’ facilities in Idaho — including a water treatment plant, a pile of mine tailings, and 102 beds — remain vacant. 

“The price of cobalt probably needs to be closer to $25 [per pound] for them to restart again,” Nathan Ryan, a representative for Jervois, told Latitude Media. Right now, the price is below $13. 

Jervois’ mine isn’t the only casualty of a price collapse that has racked the global extractive industry. 

Two years after the International Energy Agency warned that surging demand for materials like lithium, nickel, and cobalt could “threaten a decades-long trend of cost declines for clean energy,” their prices have plummeted 82%, 64%, and 65%, respectively. Operations around the world — from a nickel mine in Australia to a lithium conversion facility in South Carolina — have been suspended as mining companies struggle to turn a profit on these materials, considered critical for clean energy production.

Experts attribute the downturn to an overenthusiastic market response in 2021 and 2022. Back then, a robust pandemic recovery and strong growth in the electric vehicle and battery markets caused demand for lithium, nickel, and cobalt to spike. Sensing profits, mining companies ramped up production at existing facilities and broke ground on new ones. All told, global production of lithium, nickel, and cobalt each surged by roughly 20% in 2022. When 2022’s supercharged demand cooled, though, mineral markets found themselves in a glut. 

Kevin Murphy, the director of metals and mining research at S&P Global Commodity Insights, said that the past year’s price crash was significant, even by the standards of an industry used to boom and bust.

“While surpluses were expected, they are larger and will last longer than previously expected,” he said, adding that the specific price drivers vary for each commodity. “Supply continues to increase but demand is lower than expected due to global economies being more sluggish following the period of high inflation." 

Compounding pressures

The extractive industry is no stranger to price fluctuations, says Ian Lange, an associate professor of economics and business at the Colorado School of Mines: “This is what they call the super-cycle of mineral markets.”

But a confluence of economic statecraft and technological innovation have conspired to make the past year’s price declines particularly pronounced.

Over the course of 2023, Chinese companies surged production at cobalt mines in the Democratic Republic of the Congo (which supplies 70% of the world’s cobalt) even as prices fell. Industry insiders suspect this was part of a strategy to price out higher-cost producers, weakening China’s market competition. 

A similar situation is unfolding in Indonesia, where nickel production surged 250% between 2020 and 2023, allowing the country to elbow its way to 55% of the global market. 

“Indonesia wants nickel out of the ground and it wants to process it in-country,” says Lange. “So the market for nickel is oversupplied.” The strategy seems to be having its intended effect, with the Australian nickel industry on the verge of collapse. 

Chinese and Indonesian dominance in both markets come with serious labor and environmental implications. Chinese mines in the DRC have attracted intense scrutiny for reported human rights abuses, while Indonesia’s nickel industry is associated with widespread deforestation and water pollution. 

Technological innovation could, at least in the case of nickel and cobalt, turn a temporary price drop into a structural reorientation. 

Driven in part by past concerns over the availability of cobalt and nickel, EV manufacturers have increasingly been shunning nickel-manganese-cobalt (NMC) batteries — which accounted for 60% of the lithium-ion battery market in 2022 — in favor of lithium-iron-phosphate (LFP) batteries. That is driving down demand for NMC components. 

“Even if battery demand was the same as we expected,” Lange said, “we switched from one battery chemistry to another and that other battery chemistry does not need nickel or cobalt.”

The uncertain future

The repercussions in the mining industry have been stark. 

In addition to companies like Jervois suspending their mining activities, lithium producers Albemarle and Piedmont Lithium have announced sizable layoffs as they struggle to contain the fallout from low commodity prices. Meanwhile, shares in major mining concerns like Vale, Glencore, and Anglo American have all lost more than a quarter of their value since 2022. 

In the clean energy industry, the impacts are more muted. While lithium, nickel, and cobalt have historically been major cost drivers for technologies like batteries and EVs, the past year’s price crash may not immediately translate into cost reductions. The price of metals, said Murphy, is “one of many variables.”

This echoes the view from the EV industry. According to Jim Cain, GM’s executive director for finance, sales, and corporate development communications, the company expects lower commodity prices to be among the factors that will make its EV portfolio profitable. “The largest factor, however, will be scaling production,” he added.

In fact, the biggest impacts of today’s low prices may not be felt for years. Globally, it takes new mining projects an average of 15.7 years to go from initial discovery to production. That means decisions made today to curtail investment into new production could result in less available supply several years in the future. 

“Mining is a long-lag industry,” said Murphy, adding that — because mining is notoriously cyclical — stopping or slowing investments in light of market down-turns “will only poorly position companies for the inevitable market upturn.”

That could spell trouble for a clean energy industry that is increasingly hungry for raw materials. Given current policies, the IEA expects lithium demand to triple by 2030, driven primarily by clean energy deployment. 

Both Lange and Murphy see prices remaining depressed through much of 2024 but expect lithium prices, at least, to stabilize by 2025. 

But the outlook for nickel and cobalt may be murkier. Indonesia has shown no signs of relenting in its pursuit of market share, effectively imposing, in Lange’s words, “a ceiling on the price of nickel.” And continued innovations in battery chemistry could see the clean energy industry needing less nickel and cobalt further down the line. 

In any case, it’s unlikely that concerns over critical minerals will dissipate any time soon. 

“Shortfalls continue to be a concern for some critical minerals,” says Murphy. “The past couple of years has simply given us a little reprieve from that.”