Geopolitics of Metals: A Strategic Chessboard

The ecological and digital transition requires high metal consumption. In this respect, the economic and geopolitical reshaping of the markets for metallic raw materials bears witness to the strategic interest of these resources for the major powers, notably China, the United States and Russia, but also Saudi Arabia, which is keen to develop its mining power. What explains the recent rise in metal prices? What are the European Union’s ambitions in this area? What are the future developments on the metal commodities markets? Emmanuel Hache, Senior Research Fellow at IRIS and a specialist in energy forecasting and the economics of natural resources (energy and metals), provides some answers.

Metal prices soared a few days ago. What are the reasons for this sudden rise?

Metal prices have had mixed fortunes since the economic recovery from Covid-19. Overall, as measured by the World Bank index, they had risen sharply between 2020 and 2021 (+30% on average), before stabilising in 2022 and falling back slightly on annual average in 2023 (-10% compared with 2022). However, tensions began to emerge in the final quarter of 2023, causing prices to rise further in the first quarter of 2024. Behind these short- and medium-term price trends lies the spectre of an ecological and digital transition that is extremely metal-intensive. The recent rise in prices recorded in mid-April, particularly for aluminium, nickel and copper – three essential metals for the transitions underway – stems from the new sanctions decided by the United States and the United Kingdom to ban imports of aluminium, copper and nickel of Russian origin. The main Western trading exchanges, the London Metal Exchange (LME) and the Chicago Mercantile Exchange (CME), will no longer be allowed to buy metals from Moscow and store them in their warehouses. Aluminium prices reacted sharply at the start of last week, falling from $2,400 a week earlier to $2,600, as did nickel (from $17,500 to $19,000 a tonne) and copper (from $9,200 to $9,750 a tonne). These new sanctions have been introduced to limit Russia’s financial resources in the context of the war in Ukraine. Moscow is a major player in the oil and gas markets, but also in metals, of which it is a major producer and exporter. According to Les Echos, Russian metal exports have brought in almost $40 billion in two years of war. Russia will produce 5.5% of the world’s aluminium by 2023, around 4% of its refined copper and 5.5% of its nickel. It should be remembered that the European Commission has never imposed sanctions on Russian metal trade since 24 February 2022. Only oil and coal and their derivatives are currently subject to sanctions.

Is there a particular fear on the part of the European Union in not considering sanctions on metals?

The European Union is extremely dependent on the outside world for its supplies of metals and minerals (over 90% for low-carbon and digital technologies). It published its European Regulation on Critical Materials (CRMA) in March 2023, which sets very ambitious targets centred on the development of production within Europe (producing at least 10% of Europe’s annual consumption); processing within Europe (at least 40% of its annual consumption); and recycling (producing at least 25% of its annual consumption). There is also a geopolitical clause stipulating that the EU must not be more than 65% dependent on a single third country. Ambitious for 2030, these objectives in no way protect the EU today from erratic market trends and the current geopolitical consequences, which explains its moderate stance on sanctions linked to Russian metal production. It remains to be seen what impact the US and UK sanctions will have on the markets. A parallel can be drawn with the sanctions on Russian hydrocarbons. The main consequences of the new sanctions will undoubtedly be the redirection of metal flows towards Asia, the use of phantom fleets to export metals or the use of a third country to launder cargoes. The Shanghai Metal Exchange, Asia’s leading stock exchange and now one of the world’s largest commodities exchanges, has already announced that it will continue to accept Russian metals for trading and in its warehouses, which should further strengthen ties between Russia and China. For China, it may also be an opportunity to benefit from Russian metals at potentially lower prices – a boon for the world’s leading consumer of metals.

What other developments do you see in the metal commodities markets in the medium term?

Because they are essential to both the ecological and digital transitions, ores and metals are now under particular scrutiny from all players and have regained the strategic importance they lost in the 1980s and 1990s. Today, many questions are being asked about the future organisation of markets. The transformation of the BRICS (Brazil, Russia, India, China and South Africa) into the BRICS+, with the addition of Saudi Arabia, Iran, the United Arab Emirates (UAE), Egypt and Ethiopia, is certainly reflected in a broader economic alliance (from 26% to 29% of world GDP) and demographic alliance (from 41% to 46%), but above all it is the creation of a veritable club of materials. The BRICS+ alliance accounts for 43% of global oil production (41% of global reserves) and 35% of global gas production (and around 50% of global gas reserves). In the food sector, the BRICS+ are also major producers and exporters of cereals (more than 40% of world production in the wheat, rice and soya markets). In the metals markets, the presence of China, Brazil and South Africa alone makes the BRICS a reservoir of ores and refined metals. The new BRICS+ alliance adds a number of countries with significant mining potential, including Saudi Arabia. At the last Future Minerals Forum, held in Riyadh in January 2024, Saudi Arabia said: « Saudi Arabia has the vision, the mineral resources, a large market, regional relationships and the right geography to become a hub in the minerals value chain ». Metals and minerals are now at the heart of the « Vision 2030 » plan drawn up by the Kingdom to prepare the Saudi economy for far-reaching diversification and to manage the post-oil era. Riyadh is aware of the need for metals generated by low-carbon technologies (batteries, wind, solar, hydrogen, etc.) and digital technologies, and intends to position itself to become a key player in these markets. Its strategy is multi-faceted, combining the desire to develop a national mining industry, a system of incentives for foreign direct investment (FDI) on its territory, particularly from China, and the desire to become a regional hub for energy and metal trade, notably with the creation of a metals exchange on its territory.

 

Translated by Deepl.