Price to incentivize supply shortfalls in key materials, Trafigura CEO says

Prices will eventually come to the rescue of supply constraints in minerals critical to the energy transition, the executive chair and chief executive officer of commodities trader and logistics provider Trafigura said.

But problems surrounding the speed at which new projects can be brought to the market will nonetheless remain, Jeremy Weir said in an interview with Fastmarkets.

“Ultimately, prices incentivize investment. Look at lithium – when prices soared, everyone began chasing lithium projects. There should be a price response to deficiencies,” he said.

Lithium prices rose by tenfold over the past two years peaking in November and slipping lower when Covid lockdowns in China dampened sentiment and Chinese electric vehicle maker BYD said it expected the market to move into surplus next year.

Fastmarkets’ price assessment for lithium carbonate 99.5% Li2CO3 min, battery grade, spot price range exw domestic China was 490,000-520,000 yuan ($72,300-76,700) per tonne on January 5, down from 500,000-540,000 yuan per tonne a week earlier.

“The issue is how quickly new supply can be brought to the marketplace; it takes more than ten years to get projects into operation, from six to seven years previously, largely due to permitting delays. Governments and regulators need to recognize it’s not a case of lowering standards, it’s a case of improving efficiencies,” he added.

Speaking on the sidelines of the Future Minerals Forum in Riyadh, Saudi Arabia, Weir said there is long-term issue in providing an ample supply of metals like copper, lithium, cobalt, and nickel.

This comes amid a backdrop of strong demand, with some analysts forecasting nickel and lithium consumption in batteries to rise by 220% and 400% respectively by 2030, he noted.

“That demand has to be met. Non-ferrous metals like aluminium are essential to decarbonization, while zinc is critical for infrastructure – the future is metals-intensive. Copper is the main metal required for the transition,” he told Fastmarkets.

According to Weir, the shortfall in supply of materials required for the world to meet its net-zero targets will also likely be accompanied by an increase in mergers and acquisitions due to the desire for fast access to production, a process that some of the larger mining companies have already begun.
“You cannot continue to keep paying dividends; you need to sustain growth,” he said.

Regulation is also playing a role, he noted, citing the US Inflation Reduction Act as providing incentives for projects to be developed.

“Again, it’s not lowering standards, it’s just making sure you get the environmental impact assessment right, along with all other conditions for the project,” he added.

It’s not a one-size-fits-all situation, however: Weir noted that work needs to be done to raise the economic prosperity of countries which rely on hydrocarbons and can’t afford to transition immediately.

“Governments adopt different approaches and ones that they can afford. We have a global metal price but not a global carbon price. It’s very challenging,” he said.

To assist in preparations for tracing supply chain emissions, Trafigura developed a carbon calculator tool internally. But Weir said the company soon realized the challenge of calculating carbon “required an industry-level solution.”

“We entered the partnership with Palantir Technologies to provide a platform for industry collaboration and to use their expertise in data security and analytics. Palantir is taking the lead,” Weir told Fastmarkets.

“We want the industry to use it as a tool to calculate and share accurate supply chain emissions data - it’s not about Trafigura trying to get some advantage out of it, the income generated isn’t going to move the needle. It’s about finding a way to provide our customers with the carbon intensity of materials we deliver,” he added.

This article was published by Fastmarkets on the 11 January 2023 - https://www.fastmarkets.com/

Article written by Andrea Hotter, Special Correspondent, Fastmarkets.