As the world eyes a cleaner future of electric vehicles, wind farms and solar plants, so demand for the critical minerals that make up these green technologies is rapidly growing. This creates opportunities for mineral rich countries and challenges for those who need to acquire the raw materials.
This blog is the first part of our in-depth assessment of the critical minerals market. Here we look at the trends in FDI and suggest different strategies for attracting investment or securing supply chains.
The critical minerals FDI boom
Critical minerals can include cobalt, copper, lithium, nickel and rare earths, and while the type of mineral varies by technology, one constant is that they are needed in greater quantities than their fossil-fuel counterparts. For example, a typical electric car requires six times the mineral inputs of a conventional car and an offshore wind plant requires 13 times more mineral resources than a similarly sized gas-fired plant.
Add this to the fact that transition is happening on a global scale, and you start to see why these raw materials are in such demand.
As a result FDI in critical minerals is booming. The sector has expanded from 14 investment projects in 2016 to 107 in 2023, with a Compound Annual Growth Rate for capital investment of 55% (2016-23). As the map below shows this investment is naturally concentrated in areas with mineral reserves, and it is no surprise that six of the top ten destinations for critical minerals FDI are also some of the largest exporters of minerals – Chile, Australia, Canada, China, Indonesia, and the United States.
Countries with the highest capital investment in critical minerals FDI (2003-2024)
Source: Financial Times, fDiMarkets, 2024
Other countries with plentiful reserves but few mines are also actively trying to attract more FDI. For example, Argentina has been the third most popular destination for critical minerals FDI, and their investor friendly policies have attracted big names such as Glencore and Lundin Mining. However, as Franco Mignacco, president of the Argentine Chamber of Entrepreneurs in the Mining Industry has said ‘we already have projects and we need more’.
The critical minerals supply chain dilemma
With the majority of investors looking to meet Western demand from mines in South America, Sub-Saharan Africa, and Southeast Asia, the critical minerals supply chain is one with several issues.
The first is environmental. While critical minerals help reduce pollution at the point of consumption, the extraction and processing stages are far from green. In addition, the geographic distance of the supply chain means an increased carbon footprint from raw material to end user.
The second dilemma is self-interest. The strategic importance of critical minerals means that countries with reserves are often loath to share them – restrictions on global exports of critical minerals have increased from 5% in 2019 to 30% in 2022. On top of that, policies such as the US CHIPS and Science Act and Inflation Reduction Act incentivises companies to use domestically produced minerals or prohibits companies from expanding production to other countries.
Linked to self-interest is the growing trend in international trade for countries to trade within blocs that share a similar worldview. At its most basic this can be broken down into countries more closely aligned with the United States and Western economies in one bloc and the other bloc containing the rest of the world, including China which is home to the majority of critical minerals production and processing.
This can result in increased costs that feed along the supply chain to consumers – an issue that can stall the green transition in a time of high costs of living.
Developing strategies to attract critical mineral investment
Demand for critical minerals is only likely to increase in the future, and how countries deal with this will depend on where they are on the supply chain.
For mineral rich countries, now is the time to leverage the opportunity and attract new investment. However, these countries must convince investors that they have a friendly business climate, with legislation, regulation, planning etc that will allow them to quickly set up and operate in the market. At the same time, they need to convince investors of their environmental and social commitments to ensure investors do not run into trouble with end consumers.
But mineral rich countries are also in a position of strength and should use this wisely to attract investment that benefits the country. For example, potential investment is not just about money, and mining companies should also be required to contribute to the economic and social goals of the country, either through skills, technology transfer, or environmental protection.
For mineral poor countries the obvious answer is to rely on friends through trade agreements, for example, the Canada-EU Strategic Partnership on Raw Materials. Alternatively, governments could support domestic companies to find new resources. Reserves exist elsewhere and are less concentrated than current production suggests (many of these minerals are relatively abundant and the critical nature refers to the economic viability of the mining). Considering the billions in incentives that are paid to giggafactories and other green manufacturers, this may still be an option worth pursuing.
A third option is to bring supply chains closer to home through recycling. While this will not meet all the demand, it can ease supply shortages, and research suggesting it could supply 20% of the total mineral demand between 2022 and 2050. This is a relatively new area for attracting investment and it is noticeable that more than two-thirds of all FDI in critical minerals recycling has gone into Western Europe. As this market becomes more competitive it is the countries that have a strong offer to potential investors that will be able to strengthen their critical mineral supply chains through foreign investment.
Remembering the economics
Ultimately, any strategy in critical minerals needs to be economically viable and that is why we have partnered with SMM – Steel,Aluminum,Nickel,Rare earth,new energy,Copper Prices Charts and news-Shanghai Metals Market, a leading integrated platform in the field of nonferrous and ferrous metals, to explore the economics of these markets in more detail.
SMM organizes China’s largest new energy and battery industry expo – https://clnb.smm.cn/en/home?fromId=108.
You can join 60,000+ registered visitors to China’s International New Energy Industry Expo! Meeting 1,200+ world’s top companies in the entire renewable industry chain, from mineral, material, battery, to ESS, hydrogen and EV. And learn about market trends from industry leaders at our seminars. In upcoming blogs, we will examine trends in production and global pricing to understand how the market is evolving, and what this means for strategies to develop strategic supply chains for critical minerals.
Stay tuned for more information and advice on one of the most important markets for global investment.
