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Meeting critical metals demand for a sustainable future

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    Growth in the net-zero digital economy relies on increased production of critical ICT metals and rare earths. How can we green the world and connect it, while limiting the social and environmental impact?

    There is much talk about the scope for a new ‘super-cycle’ for commodities such as the metals needed for the energy transition. Metals are also needed to expand and upgrade ICT infrastructure to enable wider internet access, greater connectivity and the ‘smart’ transformation involving artificial intelligence, the internet of things and smart cities.

    As the UN Conference on Trade and Development notes, next to rare earth elements (which we have explored in more detail here), there are six ICT elements integral to hardware such as circuits and microchips in computers, mobile phones and networks.

    These are gallium, germanium, indium, selenium, tantalum and tellurium. These sit alongside metals such as aluminium and steel used to case these elements, and the metals used in batteries including cobalt, nickel and lithium. Tin is key for the sector as it is used in soldering circuit boards.

    Ethical supply issues

    Aside from rare earth elements, much of the supply of five of the six other elements – gallium, germanium, indium, selenium and tellurium – comes from smelting or refining copper, lead, zinc and bauxite. The absolute supply of these elements is not an issue: While up to 90% of these elements is used in the digital economy, this is only a limited part of what could be extracted.

    Ensuring that supplies come from ethical sources could be a challenge. Metals such as tantalum make up a not-insignificant proportion of income in developing nations in Africa. The Democratic Republic of Congo – with well-known issues around human rights in the supply chain – is a significant supplier of tantalum as well as cobalt, which is used in batteries.

    Efforts have been made to improve traceability from ethical suppliers in the country through technology such as blockchain (ironically, some of the minerals mined in the area underpin this technology).

    Geopolitical risks

    When it comes to processing these ICT elements – via smelting and refining – China has an oversized influence, controlling around 90% of the supply of gallium and germanium and 70% of rare earth elements (see exhibit 1).

    This raises questions around geopolitical risks to supply in what is a largely opaque system that is controlled by a small number of Chinese firms. China has previously been able to boost the prices of rare earth elements – for example, in the early 2010s – by constraining supply.

    Super-cycle ahead?

    According to the German Mineral Resources Agency, to meet the needs of emerging technologies including ICT technologies by 2035, demand for germanium will grow by a massive 111%. For tantalum, growth is forecast at an even larger 416%, with other ICT elements such as yttrium seeing 659% growth.

    Copper is one metal increasingly coming into focus amid forecasts for a long commodity super-cycle resulting from the need to electrify business and society to meet the climate targets. Copper plays a fundamental role in electricity networks and renewables technologies, it is key in ICT and it is the base metal for ICT elements mentioned above.

    Copper prices recently rose to above USD 10 000 per tonne – a price not seen since 2011. Mining players[1]  have indicated that to invest in new supplies to meet clean energy targets, a price of USD 15 000 per tonne is needed.

    Next to growing demand, there are supply pressures. Copper discoveries and reserves have declined, driving up exploration budgets. Producers in Chile, which alongside Peru produces 40% of the world’s supply, worry that government plans to limit mining near glaciers could significantly affect their operations.

    More broadly, Mudd et al suggest that environmental, social and governance (ESG) factors are likely to be the main source of risk in metal and mineral supply over the coming decades, more so than direct reserve depletion. This could increase resource conflict and cause the conversion of resources to reserves and production to drop.

    Despite a number of large new projects due to come on stream next year, supply pressures could have knock-on effects for ICT infrastructure. The rising price of tin, due to increased demand for consumer electronics, could have an impact. On top of this, China’s ambitious environmental goals could increase commodity prices.[2]

    How can we be more sustainable?

    The pressures can be mitigated by increasing efficiencies in production and recycling. Of the 50 million tonnes of e-waste produced every year, only 20% is recycled.

    While battery recycling plants are being developed to target certain metals, less than 1% of ICT elements are recycled at the end of their life because the economics are poor and due to technical challenges.

    Researchers are looking into ways to improve this, particularly as metal grades can actually be higher in e-waste than original ores. Product design can make recycling more feasible, enabling the easier re-use of components.

    For new supplies, it’s critical to limit the impact on biodiversityStudies have found that large deposits of minerals needed to expand ICT and clean energy infrastructure are in biodiversity hotspots.

    A burning question emerges: Which countries will pay the social and environmental costs of meeting global critical metal demand?

    According to Watari et al: “As metal mining countries include various developing and low-income countries with lower environmental awareness and regulations (Natural Resource Governance Institute, 2017), scientific support for formulating a proper framework and establishing mutual relationships between consuming and producing countries [is] clearly needed”.

    Finally, governance around our digital infrastructure needs a re-think. Is it wise for us to continue to develop next-generation infrastructure that requires a complete replacement of what came before?

    If service profitability was switched to not rely on the volume of data provided and instead there were incentives for second life, modularity and lifespan extensions – as recommended by The Shift Project – this would be far better for our future.

    We believe it is key that the rollout of digital infrastructure is undertaken with the goals of the Paris Agreement and the biodiversity agenda in mind.

    [1] Copper must rally 50% for supply to meet demand, Glencore chief says

    [2] China’s environmental goals fire up metals prices

    Please note that articles may contain technical language. For this reason, they may not be suitable for readers without professional investment experience. Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns. Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

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