Commodity Price Volatility

The global shift towards more sustainable energy and transportation solutions has dramatically increased the demand for metals like lithium, nickel, copper, and cobalt. These are essential for manufacturing the batteries that power electric vehicles (EVs) and support other renewable energy technologies.  

As a result, the mining industry is dealing with fluctuating commodity prices, which are central to this surging demand. The global battery metals market was valued at USD 13.30 billion in 2022 and is projected to reach USD 27.36 billion by 2031, growing at a compound annual growth rate (CAGR) of 8.35%.

Being the first link in the supply chain, the mining industry is increasingly prioritising the strategic management of this volatility. In this blog, we explore the global role, impact, and actionable outcomes of mining for battery metals in a dynamic market. 

Battery energy storage plays a pivotal role in the energy transition, enhancing renewable energy generation and improving grid reliability for consumers by accounting for intermittency. In this global shift, the importance of battery metals cannot be overstated.

Lithium-ion batteries, the predominant technology powering electric vehicles, rely heavily on lithium, cobalt, copper, and nickel. Australia is a global leader in lithium production, thanks to its rich spodumene deposits, while the Philippines and Indonesia are key players in nickel production.

Meanwhile, North America is increasing its efforts to establish a more localised supply chain for these vital materials, with recent developments in regions like Nevada’s Lithium Valley.  

Market dynamics, including supply and demand fluctuations, geopolitical tensions, and technological advancements significantly impact the commodity prices of these minerals.  

For example, the global surge in demand and positive sentiment for EVs in the late 2010s dramatically increased lithium prices. In contrast, breakthroughs in battery technology which lessen the dependency on cobalt, as well as its recent oversupply, have somewhat moderated its price. Copper prices have been much more stable, rising by a modest 2% throughout this period due to increased demand colliding with a slow increase in mining supply.

Price volatility poses considerable challenges for the mining industry. It impacts operational costs and leads to fluctuations in revenue. Sharp increases in metal prices may temporarily boost profitability but also prompt excessive investment in production capabilities.  

Conversely, significant price drops can compromise operational viability, potentially resulting in mine closures and layoffs, as well as reduced investment in new projects or necessitating revised economic assessments. Addressing commodity price volatility is essential for maintaining profitability, as these fluctuations are expected to continue.  

According to McKinsey, commodity prices have shown annualised volatility ranging from 10 to 20 percent over the past four years. Each year, price variations reach up to 70 percent of the average price, driven by geopolitical and climatological uncertainties.