Full transcript episode

Andrea Hotter [AH]: Welcome back to Fast Forward, a podcast by Fastmarkets. I’m Andrea Hotter, special correspondent at Fastmarkets, and I can’t quite believe it, but this is the sixth episode of our series focused on the critical minerals essential for the world’s energy transition.

If you missed episodes one to five, do not worry. They are available to download on Apple Podcasts, Spotify, or wherever else you get your podcasts.

Now, today’s guest is the person who runs the company at the heart of the trade of global metals, many of which are deemed to be critical. I’m referring to the London Metal Exchange and to its chief executive officer, Matthew Chamberlain.

Matt got involved with the LME when he was heading European financial technology coverage at UBS. He worked as an advisor on the acquisition of the LME by Hong Kong Exchanges and Clearing, and was persuaded to move to the LME once it’s acquisition was announced in 2012.

Once there, he rose rapidly through the ranks, running LME business development, becoming chief operating officer at the end of 2016, and then interim CEO in January 2017, before taking over permanently in April that year. He was just 35 when he became CEO. And fun fact it was the first time in the LME’s history that the job had been given as an internal promotion. So Matt, thank you for joining us today.

Matthew Chamberlain [MC]: Thanks for inviting me.

AH: Okay. So this, as you know, is a podcast about the energy transition. So far during the series, we’ve heard about government policy; we’ve talked with the head of a major commodities trading company; and we’ve assessed the outlook for various markets, including lithium, battery raw materials like nickel and cobalt, and also copper.

So, it seems fitting now to turn to the LME and see where the exchange fits in with the energy transition. And I think that’s probably where we should start, Matt. The LME is an-147-year-old forwards and futures Exchange in London. What does it have to do with the energy transition?

MC: It’s a really interesting question, and in the 147-year history, I haven’t been there for all of it, the LME’s core products have facilitated a number of transitions. So actually, if you go back to the whole reason that the LME started in a formal way back in 1877, was because you had the industrial revolution here in the UK.

Initially, the UK was reasonably self-sufficient in what we might now call critical minerals and obviously critical minerals depend on the time and the country, but two critical minerals back then were copper and tin, which were absolutely fundamental for the industrial revolution, for the first stages in the first electrification revolution.

And, what happened at some point during the 19th century is that the UK’s demand for those metals began to outstrip its supply. The mines down in Cornwall, if you watch Poldark, they were not able to keep up with demand in the UK and so there was more of a need for organized importation of copper from Chile, tin from what is now Malaysia and you started to see this global trade, which over time formalized into what we now have on the LME. So, I think in many ways the LME has always been about critical minerals. Perhaps what’s changed is which minerals are critical and the particular ways in which they’re critical. But the metals that we now trade on the exchange, those six major ones, copper, aluminium, tin, nickel, zinc, and lead, are all in our view, and I think in the view of the market, absolutely crucial, whether you define them as critical or not, and whether you have legislation that defines them as critical or not, they are all absolutely crucial for the next stage of that, electrical revolution, which, I know you’ve spoken about on, previous podcasts.

AH: Yeah, that’s absolutely right, obviously with that criticality comes the desire to be sustainable as well. The LME has been very active in terms of sustainability, arguably more so than most exchanges. You’ve introduced all kinds of things that we’re going to talk a little bit about today, responsible sourcing, you’ve created a platform for sustainability disclosures, and you’ve introduced various new contracts based around the energy transition.

You weren’t mandated to do that by governors or regulators. That was a choice. It’s actually a huge amount of work. So, I’d like to start by asking, what do you see as the LME’s role when it comes to the energy transition? I mean, why did you bother? Whose job is it to make the industry more sustainable?

MC: I think you raised some really important points there, and maybe the first one  that I’d start with is the, I think, very genuine debate, and I don’t claim to have a  conclusive answer on it, about what I call the input and output sustainability of these metals.

So, we know that we’re going to need a huge amount of copper to go and electrify the grids, in order to allow everyone to charge electric vehicles. We know we need a huge amount of nickel, for the batteries that are going to go into those electric vehicles. And so, you could make an argument, and I think some people do make an argument that says, the imperative to electrify and to decarbonize is so significant that actually you should give people a pass on how they get the input materials, right? That actually, what you want to do is just encourage that transition to happen as quickly as possible.

I think the broad consensus, though, is not there. The broad consensus is that, as well as these materials having an output benefit, they themselves have to have a sustainable input. They have to be sourced in a sustainable way. It’s not good enough to say I’m going to use this copper for a good purpose, and hence I can turn a blind eye to the conditions in which it was extracted and refined. That I think is where most of the world is, and it’s certainly where the LME is.

So, you then come to this question of, okay, what’s the LME’s role? Because we operate as part of a free market. And so you could have a model where you say, actually, the LME doesn’t need to have anything to do with the sustainability of metals traded on its market, that the LME’s core function, certainly as it was back in 1877, is achieving and helping people manage a supply of metallurgically appropriate metal, and actually questions around its ethical characteristics are for others to go and deal with through whatever market mechanism, they want. You might say, well, a consumer who wants a metal of a sustainable nature should simply pay a premium above the LME price and if you just pay the LME price, you don’t have any guarantees around sustainability. And again, that’s not an unreasonable position to take.

And indeed, it probably was the position the LME took right up until about 2018. What changed for us in 2018 was a real sense from our stakeholders, and that’s a very broad set of people. It’s the banks who trade, who obviously have sustainability requirements. It’s the customers, the end users who are pricing off the exchange. It’s civil society who obviously have a stake in what’s happening. It’s regulation, with the conflict mineral rules coming out of Dodd Frank and the EU.

All of those things came together to say to the LME, actually, you need to start to take a role in this, and that was the start of our responsible sourcing journey back in 2018 – an almost philosophical discussion and it was absolutely not unanimous within the LME and it was not an easy decision, this philosophical point that we need to be involved in that discussion.

AH: And that makes sense, almost an ethical push as well, but I’m sure to a certain extent, a kind of a commercial one too, if you found that at some point everyone else was selling low-carbon brands you were left with an old specification that wasn’t consistent with what anybody was trading then that makes the exchange less relevant. So I think there’s also a push on that front too.

Let’s run through a few of the initiatives briefly, if you don’t mind. So responsible sourcing, I’m going to try and summarize it in just a couple of sentences, because it’s obviously very complex. In summary, producers of metal listed on the LME need to demonstrate their alignment with OECD guidance for responsible supply chains. They do that through a combination of disclosures and standards. And the goal is to ensure that supply chains of metal traded on the exchange respect human rights and don’t contribute to conflict financing or corruption.

Doing that through an entire supply chain sounds incredibly complicated. How’s that going?

MC: The practical reality is, as you say, breathtakingly complex. I think we are extremely fortunate that at around the time that we had made that determination about playing a role within this sphere, a lot of work had been done by others. And so an absolutely key antecedent for our initiatives was the work that had been done by the OECD.

It provided, I think, the first multinational multilateral basis for one to differentiate between using very broad inverted comma terms, “good” and “bad” metal, right? And this is only certain dimensions because it’s about conflict finance, about corruptions, about worst forms of child labor.

But importantly, it is the set of ethical dimensions where there is global buy-in. The OECD is obviously an incredibly respected organization, incredible power, but they don’t actually have the ability to impose binding rules on market participants.

And the LME, it’s funny because we’re a pretty small organization in relative terms, but we do have this one huge privilege and this huge advantage, again, going back to when we started in 1877, we’re a physically delivered market and therefore we maintain a list of the brands of metal that you can deliver to satisfy an LME contract.

So, when an LME buyer and seller, when their positions come to delivery, the seller has to give metal to the buyer of a particular brand that we have authorized and over time that brand list has become incredibly valuable because people want to be on that brand list because it is kind of the list of “good” metals in a broader context.

So, where we came to the party as it were, was that we were able to say, okay, we’ll take this great work that’s been done by the OECD. We should absolutely not then overlook the roles of the industry bodies and the standards bodies who then set, more granular rules and audit processes for how the OECD principles are analyzed against a particular metal. And then we finished the puzzle.

We were the last piece in that we then said, okay, it is now, as of 1st of January, this year, a requirement if you want to stay LME listed as a brand, you’ve got to demonstrate your adherence to the OECD principles via, a number of different tracks very much around the work the standards, bodies and industry associations have done. It’s important to emphasize this is only possible because there was this consensus that emerged, in the mid part of the last decade through to say 2020, that this was the right thing to do.

AH: So, Matt, tell me, that makes sense, but what happens where a brand can’t comply with the policy or chooses not to? I know you’ve said, previously that the brands will be delisted or temporarily suspended until they do comply. Is it correct to assume that this has happened in some instances? How much compliance do you actually have?

MC: Anyone who’s subscribed to the LME notices and has the joy of a daily LME notice in their inbox will know that we’re adding and removing brands all the time, and that can be for various reasons. But you will have noticed that a number of brands were delisted at the beginning of the year.

Now, I’m absolutely not going to go and say, this brand was delisted for responsible sourcing, or this one wasn’t, because that wouldn’t be fair. It’s not for us to start talking about entities like that, but in the aggregate, a number of brands were suspended at the beginning of this year, because they didn’t quite get there on the responsible sourcing.

And again, I want to emphasize that that no way suggests that there are bad things happening in their supply chains. It was just that they hadn’t quite been able to get over the line on the documentation and the assessment. And if they’re going through a standard body, getting the sign offs from auditors, et cetera.

We did suspend, around 10 percent of our brands at the beginning of this year as a result of that. So I think it’s very clear that this initiative does have teeth.

You can’t see this kind of thing as a sort of punishment and execution exercise. This only works if people are encouraged to then move towards compliance. And actually, the really pleasing thing for me through this whole process, what we’re seeing now, is some brands who were suspended earlier this year coming back on because they’ve now managed to do the work. That’s just a real sign of the positive feedback loop that this type of initiative can drive.

AH: So, you mentioned compliance there and obviously that’s very important. Tracking and tracing plays a role here, right? I mean, what does compliance look like? Like anything, I’m sure there are shades of grey.

MC: This is a reason why the industry standards are so important, because the specifics of how one tracks and traces, how one goes back to the mine site, how one assesses chain of custody as ores move through the processing system and get to smelters – because remember, for the LME, it’s the smelter, which is effectively our entry point – we’re approving the output of the smelter. It demonstrates the, importance of the standards, in allowing, firms to comply with the underlying OECD requirements.

AH: Well, here’s an idea for you. What about the exchange creating a platform, blockchain or digital, to achieve traceability. You’ve got a master’s degree, if I’m correct, in computer science from Cambridge university. I know you like a challenge, Matt. This sounds like it’s right in your wheelhouse.

MC: So, I think people who know me know I am a big fan of the, blockchain, digital assets world. And I’ve been really interested in the work that’s been going on around traceability on distributed ledgers, both in terms of traceability, from mine site through the processing cycle, but also tracking and allowing tokenized ownership of metal in our warehouses. It’s very interesting. So, I think distributed ledger systems have a role to play here. We haven’t seen, an obvious, player emerge, but there’s a number of firms who have some fantastic innovative technology, and certainly we stay in very close contact with them.

AH: Well, you mentioned warehouses there. This was the impetus for another initiative. LMEpassport, which is an electronic register for sustainability credentials, but it started out as an idea for certificates of analysis, which record metal physically delivered into and out of the LME ecosystem.

If I recall correctly, LMEpassport was originally meant to solve a really long-standing industry problem, which was that those certificates of analysis were paper based and incredibly admin-intensive. Obviously, it’s moved to be a digital register for sustainability credentials starting with aluminium in 2021 and you’ve gradually phased in other metals over the last three years. What are we talking about here? Which sustainability metrics does it include?

MC: LMEpassport is something that we’re very proud of. It’s an example of how a system and initiative can really grow when it gets industry support. So exactly as you say, it started as a digitization of the underlying paper certificates of analysis, with the metallurgy, of the metal.

So now whenever you take metal out of an LME warehouse, you have a digital record of its sampling, its impurity levels, which is a very helpful when you’re working out how to blend that in a downstream application or a rod mill. But there was quite quickly a realization from us and from our users that we could do a whole lot more. And so, we quite quickly extended the system to allow sustainability data to be disclosed. There’s currently on the system about 57 different sustainability metrics that can be tagged onto metal.

The most straightforward one, which many listeners will be familiar with, is carbon content. So what you can now do, as a brand, as a producer, you can upload your audited carbon footprint data. And obviously, as I’m sure the listeners know, there’s a huge science and art around the different measurements and the different standards and the different scopes and the system caters for that. So, it doesn’t try to pretend things are comparable when they’re not. It allows you to disclose under different standards, but then it doesn’t pretend that those are directly comparable numbers.

But then when a user withdraws metal of that brand, their certificate of analysis, their electronic fingerprint effectively is tagged with all of that sustainability data. So, if you are a downstream user, who’s trying to compile your Scope 3 data for the carbon content of your input materials that becomes incredibly valuable information. But again, it’s more than carbon.

It allows you to tag data on water resource stewardship, alignment with various standards. Topics like indigenous rights, are equally important in terms of understanding the overall ESG footprint of the metal. And it’s very much that principle of user choice. Unless there is global alignment as there was on the OECD, we’re not in the business of prescribing other metrics like carbon, but we’re absolutely in the business of making it transparent.

AH: And it’s not just LME brands on the register though, correct? Non-LME brands can also register their credentials?

MC: That’s right. The system does support non-LME brands, because we want this to become, as much as possible, a central hub where users have a one-stop shop for all of the metal they’re taking into their processes. And obviously there are some for example, value add products, alloys that are not LME-deliverable, but are very much aligned with the underlying LME metals, and we want to make that accessible on the system as well, if that’s what producers would like to disclose.

AH: All right, well, and now onto the next thing, the LME said it planned to follow the launch of Passport with a spot trading platform for sustainably sourced metal.

So that means using the data from LMEpassport to determine whether the market for low carbon metal, for example, is big enough to support the launch of new contracts. Am I right to assume that?

MC: As you say, trading is absolutely the next theoretical step. Now, as I’ve already mentioned, I don’t see that it is the LME’s role to set thresholds where there isn’t as close as possible to global support. So, if I take carbon as an example, we’re not going to be to saying that to trade on the core LME market, you must have a carbon footprint of under 20 tonnes of CO2 per tonne of aluminium.

What you want, in my view, is some kind of voluntary platform where people can trade a higher standard on whichever dimension they wanted, if that’s what they chose to do. Now, we know, from bitter experience, that launching a new futures contract, a physically-settled futures contract, is very difficult.

There’s an additional danger here that you could split liquidity away from your main contract if you have an LME normal contract and then an LME plus contract, LME premium contract, whatever you’d like to call it. So, the way that we are approaching this is through spot platforms.

A spot platform, unlike the LME futures platform, doesn’t allow you to trade metal for future delivery, it only allows you to trade metal for delivery normally in two days’ time or something of that nature.

And that tends to concentrate liquidity on that spot market. We think this is a very interesting opportunity. And maybe just to give you an example of where we have done this. Nickel everyone’s probably aware of the challenges we had in the nickel market back in 2022. And a big part of the recovery from that was to make sure that we had a lot of new nickel producers listing on the LME so that we had the underlying physical liquidity to regrow the contract, which thankfully has absolutely happened. But that then led to a lot of criticism of the LME that we were not providing a market for producers, for example, from Australia who felt that their product deserved a premium, because of the environmental or other sustainability characteristics, which they believe attaches to it. And again, we didn’t feel it would be appropriate to go and change the underlying LME contract.

But what we did together with Metals Hub, which is a German spot trading platform who we have a partnership with we launched to use the broad term, a green nickel contract, low-carbon nickel contract, using standards from the Nickel Institute.

And actually that’s been fantastic: started to ramp up in April, 171 tonnes offered, May 216 tonnes offered, July, 264 tonnes offered July, 168 tonnes of low carbon nickel were traded on the platform.

And you might say, well, these don’t sound like big numbers and they’re not, but, this is about growing a market. And that’s why a spot platform is a great way to do it. So, that’s really our approach on trading. I think nickel has provided a fantastic, path forwards we are, continuing, and looking at other opportunities along those lines.

AH: All right, so watch this space, see where we go. Let’s talk a little bit now about the Carbon Border Adjustment Mechanism or CBAM, which sounds very technical and it is to a certain extent. Its goal is to prevent what is called carbon leakage, which happens when carbon emissions increase in your country, because you imported something with higher carbon emissions for another country, simplifying it.

It’s like when a country’s offshoring its emissions. CBAM is relevant here because it applies a carbon related cost to certain imported products into the EU, including aluminium because of those direct emissions that are associated with them. So linked to all of this, the LME is proposing to introduce mandatory emissions reporting for producers of all listed brands on the LME of aluminium. So, you’ve had a consultation, what are next steps?

MC: CBAM is absolutely a key topic here. And as you say, we have got this consultation and we’ll be coming out with our next steps very soon.

So, I don’t want to spoil the surprise, but what I would happily say is that I think there was a good response to our proposals. We don’t want to go around compelling people to provide every single piece of sustainability data. LMEpassport is very much a voluntary platform, but with CBAM, because the EU is such an important part of our market, because we have so much aluminium sitting in places like Rotterdam or Antwerp or Trieste, we think that there is a very strong case to ask for that data to be disclosed because then it helps end users of the LME market in exactly the same way as if you buy an LME warrant and you get your 25 tonnes of aluminium, you expect to see the metallurgical quality because otherwise you’re going to be scared about putting it into your furnace.

If you’re a European player and you don’t get the CBAM data, then you’re going to have to pay a very high adjustment mechanism because the default factors will apply. So, this is an example where it impacts such a large portion of our market that we think it’s fair to ask for that data to be disclosed and so we can give confidence to users that they will get that data when they take LME metal.  I very much support the proposal. I think it’s going to be really helpful for anyone importing LME metal into the EU, but more broadly, it will provide a strong comparability.

AH: You just mentioned there that this exposes EU producers and importers to carbon price risk. That is a very interesting development because I wondered, could we see the LME lead the way on carbon trading, for example?

MC: Yeah, we have discussed it. I think the challenge for us is that although metals obviously do have a carbon footprint, it’s quite a small carbon footprint compared to perhaps some of the other energy markets.

I’m not sure that the LME, simply by virtue of its metals footprint, would have enough market oomph to really be able to crack the carbon market. And it’s therefore not something that we’re proposing to do right now, but I think carbon will be very important. As you say, what you may end up having is a stapled metals and carbon future, so that you are managing your total price risk at the CBAM border. And as more countries go down that route, it’ll become, I think, even more complex. That’s something we can certainly approach on a partnership basis.

AH: Okay. So, well, if we’re not likely potentially to see, carbon trading be the new thing for the exchange, you have launched a number of other new contracts in the last few years, lithium hydroxide and cobalt contracts, which are both based on Fastmarkets assessed prices, and they’re on your website under EV contracts, actually.

You’ve also launched various scrap contracts and US aluminium scrap, regional steel scrap for India and Taiwan. Any more contracts planned?

MC: No, I think again, we have to recognize as the LME, because we’re quite a specialist market, we don’t have quite the same distribution footprint as perhaps some of our peers.

And so, we have to be quite selective about what we do. I think of the cash settled contracts; it’s really been those steel ones that have been most impactful. We’re really pleased with how they are continuing to grow and that’s really because, there’s a strong crossover with, the base metals users.

AH: On the new contracts front, the LME decided not to launch a class two nickel contract. Now that we’re talking about nickel and seeing as you mentioned it a little bit earlier, where do things stand with the court of appeal and the lawsuits, et cetera, against the LME.

MC: We had the appeal hearing in July and people will remember that we were very pleased that we won the 1st instance hearing last year. There was an appeal hearing in July. We continue to wait for a verdict there. But we feel very confident in our position and in the decisions that we took.  I think, more relevantly is what’s happening with the nickel market because our key aim was always to restore the liquidity and nickel, that was so impacted, by the events back in 2022.

And that’d been a huge area of focus. I’ve been really pleased to see the nickel market regain its liquidity. We’re now at levels so far in 2024, obviously above 2022 and 2023, but actually now rivalling 2020 and 2021 in terms of average daily volumes, which to me suggests that the vibrancy of that market is back.

And I think that’s a combination of obviously the steps that we’ve taken as a result of the independent review and significant investment we’ve made, but frankly, also the goodwill of the market. I think we’ve really been grateful for the way that the market has stood by us in this, they’ve encouraged us on that reform journey.

We spent a lot of time talking about Class 2 with our stakeholders and in the end, what they told us is, look, LME, just concentrate on the Class 1, take the steps, to rebuild the liquidity there and we’ll support you

They’ve been true to their word. We’ve taken the steps that we needed to and they have reciprocated by bringing back liquidity to the levels that I mentioned.

AH: You mentioned there a reform journey. So, I’d like to take a bit of a diversion here, Matt. I think it’s probably an appropriate segue. There’s been a big announcement by the LME recently, and it would be wrong to ignore it today. So, I’d like to ask you about it, if you don’t mind.

The LME is very much an industrial exchange with the physical community at its heart. It’s very unique in how you trade its contracts, but it’s been trying for some time to attract more of the financial investment community. Efforts in the past have arguably not been a huge success though, but at the start of September, you issued a white paper laying out a plan that you hope will change all of that. So Matt, over to you. What exactly is the LME planning to do?

MC: Thanks for mentioning because this is an important topic. Maybe for those who are less familiar with the LME, we’re a very differentiated exchange because most exchanges allow you to buy and sell a contract, commodity in this case for a single point every month.

So, you might have a November copper contract, a December copper contract and so on. The LME, again, going back to that history that I mentioned earlier has this incredible date structure where you can buy and sell metal for any day, from one day forward, so tomorrow through to three months, any week from three to six months and any month beyond that.

And that’s a really important feature for our physical users and that’s never going to change. That’s a very bespoke request. But within the daily date structure, there is a monthly date structure embedded at the LME. The third Wednesdays of each month are the established convention for how you trade the LME in a monthly manner if you’re trying to trade it like all of those other exchanges.

And in particular, financial participants like to keep their positions, their open interest, on those monthly dates. Actually, this is really relevant for the broader debate, because we’re in, I think, this incredible position in the metals industry that everybody knows metals are going to be crucial to the transition that we’ve just been discussing.

An increasing number of financial players want exposure to those metals. The LME is the natural place for that to happen, but they look at our market structure and they say, Oh, that’s just a little bit complicated. That’s a little bit difficult. We’re going to go and look elsewhere.

So, all we’ve announced in the white paper is that for those monthly dates, particularly those financial users who want exposure to those monthly dates, we’re going to align with our global peers, with other exchanges, and have what we call a block limit.

And what that means is that if you’re trading a small amount of those third Wednesdays, that needs to be shown on our central, electronic trading system, LME Select, rather than simply being a bilateral trade between a client and a dealer.

It all sounds very market structure-y and technical and geeky, but what it means at heart is that if you log on to LME Select, our electronic system, you’ll see what we already have – which those six contracts, which are crucial for the energy transition – and you’ll see good liquidity and good pricing for each of those monthly dates where you might want to invest to get exposure to those, if this is a thematic theme that you want to participate in.

There’s a lot of work to do, a lot of industry engagement, et cetera. But we think that what we’ve announced is going to really help all those players get better access to metals, which I think is going to be crucial over the next 10 years.

AH: I’m curious why you’ve decided to do this now. Obviously, you tried a decade ago to attract financial players and incentivize electronic trade, but it backfired, caused a lot of friction with members and a lot of business moved to the OTC market. I’m wondering why now, and is this in any way linked to the nickel situation in 2022 and actions that the LME committed to take to improve transparency after that?

MC: So, certainly with the nickel situation, and I think people will know we commissioned this independent report from Oliver Wyman, and one of the recommendations that it made is that the LME should look to standardize its market structure where appropriate, without loss of functionality to existing clients because there is a sense that the more standard your market, the more liquidity you’ll get. And that provides a liquidity pool in which everyone can participate even when pricing is becoming more volatile. Certainly, the Oliver Wyman report does draw a linkage, and we should respect that.

But we have now embarked on this modernization journey and yes, that probably did start with some of the immediate initiatives around nickel, things like OTC disclosure, things like our daily price limits, perhaps aligning more with some other markets. Then we did our closing price reform. It’s really that momentum, that confidence to then move on to the next market modernization, market improvement step, which is this enhancing liquidity white paper.

There is a degree of linkage to nickel, but I think it’s more a story of continual improvement, continual modernization, and making sure that when this energy transition fully arrives, we are ready. It’s not just the LME as an exchange, the business, we as a community, right? Our members are ready to benefit from that. Our clients are ready to benefit from that because I think we would all regret it if this incredible decade for metals does, manifest itself, and we’re not as good as, we can be to benefit from that.

AH: And why are you focusing only on small trades? I was curious. Why not bigger?

MC: We want to learn from our peers. There’s a lot of exchanges out there who use these block limits and generally the approach is that if a trade is large, then, it is right to allow that to be executed in different ways because it could potentially have a price-moving effect on the market.

So, traders end users, who need to put through a very large trade generally will need that flexibility, which is why block limits generally are set the way they are, such that trades above a threshold are not subject to that central execution requirement, whereas trades below a threshold are. This is generally how it’s configured in the industry.

AH: We’ve seen a lot of business move to the OTC market over the years. In your own words, what’s wrong with people using the over-the-counter market, the OTC market?

MC: This is really about how members give price exposure to their clients: there’s two ways of doing it. One is they can give them an LME client contract, as we call it, which is registered with our Exchange, booked at our clearing house. And then the other is the over the counter or OTC market.

We have seen over the last 10 years, more and more business go to the OTC market; I think, frankly, because in many cases, it’s easier for members of banks to manage that – they can put their own margin requirements on etcetera, so it just gives them more flexibility. Our approach to the OTC market is very clear, which is absolutely any members’ right to go and service their clients on an over-the-counter basis.

Not for me to say that’s wrong, but if those OTC contracts embed LME prices, which in the metals world, they very often do, we think it’s fair that people trading OTC play their part for the overall market.

So back in 2018, we put in place, what we call the OTC booking fee where we ask people trading OTC on the basis of our prices to pay, to embed those prices, to contribute towards the infrastructure at the LME that generates and checks and validates those prices and makes them as representative as they are.

And with the white paper announcement, we’re taking a similar approach in which we’re saying, if you’re running an OTC trade below the block limit, we would like it to be subject to the same transparency requirements as an on-exchange trade. So you can still, give the client an OTC fill, but we would expect the underlying trade to be shown on LME select, so it builds liquidity, builds pricing, and contributes to the value of those LME prices that then go back and underpin the OTC.

AH: You know, one statistic I found fascinating in the white paper was that less than 1 percent of LME volumes are traded in the ring; 48 percent are traded electronically on LME Select, which I actually thought would be a lot higher. And the remaining majority is traded bilaterally inter office, which often, you know, typically means negotiated in the telephone market. How much do you expect electronic or LME Select volumes to increase as a result of this plan?

I’m just wondering how transformative these changes are going to be?

MC: So it’s a great question. And it’s not one that we necessarily have a target on because I’m not really going for a particular percentage. What I want is a market where every client who wants to trade electronically can do so, and every client, who wants to take advantage of that bespoke date system can do so as well.

Other exchanges, their electronic proportion is 90, 95 percent and that makes sense for them. That’s probably never going to be the case for us because all of those physical averaging trades, cash prices, broken dates, as we call it on the LME, they’re always going to be bespoke and probably not suitable for electronic execution. That’ll always be in our telephone or inter office market. We have no problem with that being a reasonable percentage of the business. What we just want to make sure of is where the client wants that ability to trade electronically, they can.

The story that I always tell here is that I obviously spend a lot of time talking to clients and sometimes I’ll see several clients a day and you can absolutely have an experience where you see one client in the morning and they say, I wanted to buy some December copper on your electronic market, but there was no liquidity there and you go and see someone in the afternoon and they say, I wanted to sell some December copper, on your market and there was no liquidity there and you think, guys, I just need to put you in the same room and you can talk to each other but that’s what the LME system should be doing, right?

The LME system should be bringing them together. But the reason that it’s not there is, nobody wants to go first. You don’t want to put bids or offers into an empty screen because then you’re quite exposed. And again, we have to learn from other markets – other markets solved this problem long ago by simply making it a rule that that business comes on.

So, the guy who’s buying, knows that the guy who’s selling is going to be there and vice versa. That’s all that we’re looking to do here.

AH: Sounds a bit like online dating. So Matt, how long do you think it’s going to take before we see any meaningful change in volumes? I mean, is this an overnight game or a slow burn situation or something in between?

MC: No, even just implementing this is going to take about a year because we need to do this in a structured and a respectful manner. We’ve come out and said, this is what we want to do. But that doesn’t mean there’s not going to be a lot of conversation.

We’re going to set up member working groups to make sure that the new rules will operate effectively with all the different ways that members do business. We don’t want to stop any business hitting the market, and then we’ll need rule changes. We’ll consult on those and then members will need to make systems changes.

You’re not going to see this implemented until the back end of 2025 and it wouldn’t be right for us to rush it. So, it’s not going to be an overnight story. But I think it could be quite transformative – once these rules are in, I think we’ll quite quickly see that business start to form on the electronic market; all those people I mentioned who you tell me they don’t have the liquidity, I think they’ll be a lot happier. They will feel their execution experiences better. And then, and this is what’s really crucial – those players who love the idea of metals exposure, love everything we do on the physical side and the price relevance and the macroeconomic relevance, but just can’t get over our market structure, they will look at it and say, ah, you know, the LME has actually done something here and we believe that they will come in and participate.

And if we were speculating for new business while harming existing customers, obviously I wouldn’t do it. But what I love about this is I strongly believe this can provide better execution for people who want it on third Wednesdays, a route into the market for people who don’t currently trade it, without in any way harming existing physical traditional players. And actually, I think they will benefit as well, from the overall enhanced liquidity in the market. I feel pretty confident about this.

AH: A balancing act, but also important not to kill the goose that lays the golden eggs.

Matt, every episode I asked the same couple of questions to our guests. So firstly, what’s one thing we might be ignoring, but we should be paying attention to related to the LME?

MC: So, I would go back to, LMEpassport, right? And, you know, you can, you don’t have to have a login. You can just go to the LMEpassport website. There’s a link on our web page and see the disclosure that’s there, the data, the curation, because I think it is a great resource for understanding how the industry is beginning to approach these questions, seeing the fantastic disclosure that comes from the producers.

We don’t always talk about it, but I think it’s a great sign, not just of what the LME can do, but actually underlying that data, what our industry can do because I can’t think of an industry that in a 10-year period effectively has undergone such a fundamental embrace of sustainability, of responsible standards, while at the same time, continuing to produce metal that drives all of our everyday lives and drives the energy transition.

So, I’m actually really proud when I log on to Passport of what that means and being part of an industry that doesn’t always get the best rap, but that does a huge amount of work on making sure that we have a sustainable metals future.

AH: All right, I’m making a note to bookmark the passport page. And secondly, if you had to fast forward a decade, what do you think the LME is going to look like?

MC: Well, it goes back to really what we announced a few weeks ago and the white paper. It’s about an LME that is fit for the future. The history of our exchange coming back to 1877 – businesses do not survive, markets do not survive for that period of time unless they adapt and the adaptations the LME has been through, be they metallurgical adaptations.

The conversion from sterling to dollar contracts, which I wasn’t personally around, but I understand was pretty controversial. You know, we have adapted and changed and evolved at every stage. And yeah, there’s always been discussions, there has always been, objections, but the community has rallied round and moved on.

And so, the LME of 10 years’ time is going to have all the great things that we have right now. It’s going to have that dates structure. It’s going to have the daily physical pricing. It’s going to have the warehouse network. It’s going to have the investment in the physical that I don’t think anybody else can offer to the extent that we do.

But it’s also, I believe, going to have a really easy way for those who want to have participation in the metals industry to do so. And I think if we can continue to blend all of those things together, like we’ve done for 140-something-years, if we can continue to channel that spirit, I think it’s going to be an incredible place, to trade, an incredible place to work, and I’m really excited about it.

AH: That’s a very positive outlook! And now, let’s take a quick break from the interview to hear from one of our in-house experts here at Fastmarkets.

Imogen Dudman [ID]: Hi, I’m Imogen Dudman, a senior aluminium reporter here at Fastmarkets, working out of our London office. As Matt said, LME first began its passport at the end of 2021 with aluminium and the recent consultation on the exchange’s proposal to integrate mandatory emissions as the industry prepares itself for the full adoption of CBAM regulations in January 2026.

Aluminium has been one of the most advanced base metal markets across recent years in its work to demonstrate its sustainability credentials and more generally seek to decarbonize its production. As Matt referred to previously, LME passport, of course, covers not only factors such as pollution mitigation and other climate change related topics, but also measures such as human rights assurances and risk management.

If we focus more on the sustainability side of things for now, let’s talk a little bit about what low carbon aluminium looks like at Fastmarkets and within the wider industry. For anyone who isn’t an avid Fastmarkets low carbon aluminium fanatic, Fastmarkets methodology currently defines low carbon aluminium as maximum of four tonnes of CO2 equivalent per tonne of aluminium produced under scope one and two emissions.

To give this some context, according to data released by Fastmarkets research team, average CO2 emissions in primary aluminium produced in Europe currently stands at 6 .7 tonnes, while average Chinese production stands at 20 tonnes of CO2 per tonne of aluminium produced. The global average cradle -to -gate emissions in 2022 set at 15 .1 tonnes of CO2 per tonne of aluminium produced, according to data from International Aluminium. The industry has been working to clean up its act, and the global average in 2022 dropped by over 4% from 15 .8 tonnes of CO2 the previous year.

Fastmarkets launched its aluminium -low carbon differentials back in March 2021, and when you look at the market now, you can see just how far things have progressed, not only in Europe. In 2021, aluminium producers were working to decarbonise their production, but consumer appetite to specifically procure lower carbon brands was less widely adopted.

Fast forward three and a half years and we see increasing consumer demand for green production both inside of Europe and beyond, partly as a result of company specific ESG policies, but also as a result of increased legislation implementation, such as with CBAM. This has brought with it the emergence of green premiums being achieved for certain low carbon transactions.

Fastmarkets has since launched a number of different low carbon references, including differentials for both the United States and also for Asia.

European consumers, traders and producers are and will need to keep an ever-closer eye on low carbon credentials amid the ongoing transition to full adoption of CBAM, whereby importers must submit quarterly reports on the quantity of aluminium goods imported into the EU and the greenhouse gas emissions released as they were produced.

Following the recent energy crisis and periods of low regional demand, the European market has become increasingly reliant on imported tonnes. So it’ll be interesting to see for sure once CBAM gets enacted in full force how the market reacts and continues to evolve in this low carbon space.

AH: And now, back to the interview.

So Matt, to finish today, I’m going to pose a couple of questions that I sourced in advance from social media. So here is the first one for you. Importing countries are pursuing strategies to reduce their supply chain risks, seeking supplier country diversity. How do you see traders adapting? I think that’s a really good question.

MC: The LME is, at its heart, a global market and our history has been one of expanding the global pool. So, it’s actually funny, it’s only in 1989 that we opened LME warehouses in the US.

It’s only in 2000 that we opened LME warehouses in Asia. And, you think of that LME network now, and that globalism, is a big part of who we are. I’ll be very honest. The trends towards deglobalization that we’ve seen are challenging for a global business model like ours. And we see that in sanctions. You know, we’ve done a huge amount of work this year, in terms of ensuring sanctions compliance around Russian metal.

I won’t deny that these things are at their heart a little bit at odds with the LME’s concept of a global duty unpaid contract. But I think we’ve adapted well. In terms of supply diversification, if I’m a consumer and I want to make sure that I’m sourcing my copper from a variety of different countries, so I don’t become dependent on any one country, or maybe I have particular countries that I feel more comfortable with that’s absolutely something that can be done. We have a global price. Our members have an incredible business in warrant trading so you can go to one of our members and say that you want LME warrants from specific countries and they will go and find them for you.

And the great thing about copper contract, for example, is we have copper brands from all around the world. So, if you want US copper, if you want Chilean copper, if you want German copper, if you want Chinese copper, can get that on the LME? You may need to go and do some warrant exchanges and work with a member, but that’s a service that’s offered by the ecosystem.

When I look at it, yeah, critical minerals is changing, to some extent, global trade flows, and we are a global market, but we then have this value-add capability that our members can provide on sourcing from particular countries and I think we’re very much fit for the future on that aspect.

AH: All right. Okay. So, the next question was: as procurement focuses more on emissions, how are systems evolving to tie carbon metrics to refined product?

MC: Refined products can mean different things to different people. We operate at the smelter level, so if by refined you mean what comes out of the smelter, then the LMEpassport data applies directly to that metal.

If you go further downstream, say you go into a cable or wire or air conditioners or whatever it might be, then our vision is that that LMEpassport data can be an input into the emissions tracking and management systems of the fabricator and that they have one click they can connect to LMEpassport. They can suck in the emissions data for all of the metal that’s going into the furnace. And that’s an input to get to add to their total footprint.

The whole work around Scope 3, and supply change is really fascinating right now. And we think that LMEpassport is right at the center of that when it comes to understanding the footprint of your input metals.

AH: Yeah, I suspect the question was designed around that further down the supply chain, so it’s good to know you’re looking that far ahead and working that way.

Matt, obviously LME Week is coming up. It’s on our doorstep, the annual gathering of the global metals community in London. Just in your own words, what can we expect? What are the highlights?

MC: LME week, I always look forward to it, but in some ways it’s more the community than the LME itself. So, we obviously organize the seminar and then we have our dinner, which always a lot of fun. Talking about market modernization, for the first time we had a sort of a dinner entertainment, last year, we had Riverdance, which was extremely well received and, it’s very difficult to match that, but we do have a surprise entertainment, which I’m not allowed to reveal, but we’re very much looking forward to that and I hope everyone at dinner enjoys it.

I always think that the real value for me of LME Week is meeting everyone who uses our market. Indeed, those who don’t use our market and hearing their views. We’ve deliberately put out the white paper with a bit of notice so that people can start forming their views and I’m sure we’ll be hearing a lot of a lot of feedback during LME Week and really interested in that. I’m sure people will have views on a whole range of topics, and that’s always very valuable. We’ll be in listening mode to hear what people have to say.

AH: Yeah, well I am looking forward to it too – seeing everybody dressed up in their tuxedo penguin suits and formal dresses is always a little bit different from the day to day.

So Matt, thank you so much for today. We’ve run through some pretty technical aspects of the exchange and you have simplified it for us considerably. So, I have really enjoyed this. Thank you very much.

MC: I really appreciate the opportunity, great to catch up and see you in LME Week.

AH: Perfect.  And thanks also to you, our listeners, for tuning in today. If you liked what you heard and don’t want to miss any more episodes, go ahead and subscribe to Fast Forward on on Spotify, Apple Podcasts, Amazon Music and wherever you get your podcasts.

Tell us what you think in the comments and don’t forget to leave a review. And if you’re going to be in London for LME Week, the Fastmarkets team will be out in force, so please do come and say hello to us. Until next time.

The post Interview with Matthew Chamberlain, CEO of the London Metal Exchange | Fast Forward podcast episode 6 transcript appeared first on Fastmarkets.

Chamberlain’s full conversation with Fastmarkets’ Andrea Hotter on the evolution of the LME in the modern market, sustainability initiatives including the LMEpassport, as well as the potential for new contracts, will be available to listen to on Spotify, Apple Podcasts, Amazon Music or wherever you get your podcasts.

Evolution of the LME in the modern market

Chamberlain shared how the LME, a 147-year-old institution, has been instrumental in facilitating trades within the metals market. Initially, it started to address the industrial revolution’s demand for copper and tin in the UK. Today, it continues to support critical minerals essential for the world’s decarbonization efforts.

When asked what role the LME has to play in the energy transition and making the industry more sustainable, Chamberlain said this about its response to the broad consensus:

LMEpassport and responsible sourcing

“We believe that by leveraging technology and promoting transparency, we can make the metals market more efficient and resilient. Our goal is to build a market that not only meets today’s demands but is also future-proof,” says Chamberlain.

LMEpassport is a key tool in the LME’s sustainability arsenal. This digital register allows market participants to access and share sustainability data, ensuring transparency and accountability in the metals supply chain. Chamberlain believes that LMEpassport will play a critical role in promoting responsible sourcing practices across the industry.

Introduction of new contracts for the energy transition

Chamberlain highlighted the introduction of new contracts tailored to the energy transition. These contracts are designed to facilitate the trade of metals essential for renewable energy technologies, such as lithium, nickel, and cobalt. By creating these contracts, the LME is enabling market participants to hedge risks and invest confidently in the materials driving the energy transition.

“Our focus is on listening to the market and adapting to its evolving requirements. By introducing new contracts and enhancing our technological framework, we aim to ensure that all participants have the tools they need to succeed,” says Chamberlain.

He noted that low-carbon or premium contracts linked to the energy transition will likely be approached via spot trading platforms in order not to split liquidity from the LME’s core contracts.

Listen to the episode to learn more.

About Matthew Chamberlain, chief executive officer at the London Metal Exchange

Matthew Chamberlain is the CEO of the London Metal Exchange and a member of the Management Committee of HKEX Group. Chamberlain joined the LME in 2012, having advised HKEX on the acquisition of the LME while at UBS. He started his career at Citibank, and holds an MA from Trinity College, Cambridge. Learn more about Chamberlain and the LME here.

The post The future of metals trading with the LME’s Matthew Chamberlain appeared first on Fastmarkets.

Full episode transcript

Andrea Hotter [AH]: Welcome to Fast Forward, a podcast by Fastmarkets. I’m Andrea Hotter, special correspondent at Fastmarkets, and we are now into the fifth episode of our series focused on the critical minerals essential for the world’s energy transition. If you’re listening to this episode, then I know you would also enjoy episodes one to four, which are available to download on Apple Podcasts, Spotify, or wherever else you get your podcasts.

Now, today we’re going to be talking about something that can definitely be considered critical to the shift away from fossil fuels, and that is lithium. That’s because we need to produce lithium-ion batteries, which are crucial to batteries in electric vehicles and energy storage systems.

It’s even been called white gold as a result. But, prices have been on a turbulent journey, the supply chain remains heavily reliant on China, and the uptake of electric vehicles has faltered of late. So, who better to talk about all of this with us than Eric Norris, the president of Albemarle Energy Storage.

Energy storage at one of the world’s largest lithium producers. Eric has a background in specialty chemicals and joined Albemarle in 2018 as chief strategy officer. Later that year, he became president of the lithium global business unit, which became the energy storage global business unit in January, 2023. Eric, thank you for being here.

Eric Norris [EN]: Andrea, thank you so much for having me. It’s a pleasure to be here.

AH: I understand you’re in my hometown of London at the moment.

EN: Yes, we’ve swapped locations. I’m in London, but you’re not, so how about that?

AH: Yeah, I hope the weather’s treating you better than it was when I was there last, anyway.

EN: No rain, overcast, and a lot more pleasant temperatures than the southeastern US, I’ll say that.

AH: Okay. Well, that’s good. That is good news. So, I don’t know whether this is going to be good news, though. Let’s start with the lithium markets. It’s been a very volatile time for lithium, to say the least, although prices are doing a little bit better than they were at the start of the year.

I found the sentiment at the Fastmarkets Lithium and Battery Raw Materials Conference in Las Vegas seemed relatively lacklustre at best. Is that how you’re seeing things? What’s your view of the markets?

EN: It’s been a challenging time. I think it’s always important to keep perspective. We’re big believers in the energy transition and see this as a long-term growth trend.

Yet we’ve hit a speed bump, particularly in the Western world. If you look at EVs themselves, which is the big driver for us, our business, those of the whole industry. We’re still, as an industry, growing north of 20 percent in terms of EV sales, but the mix of that’s very different. And if you look at North America and Europe, they’re much weaker than expected, although still moderately growing.

Most of the growth’s in China through the portion of this year. And as you indicated, with that lower the demand than expected, we’ve seen prices fall quite a bit too.

AH: Do you think prices have bottomed? I mean, is there room for them to fall further? Are we there yet?

EN: As a company, we just reported our quarter. And at that, it was a strong quarter because of the growth we’ve had in our own volumes. Admittedly, those selling prices were a lot lower than they were a year prior. I can’t tell you if they bottomed. They’ve been unpredictable. I will tell you that they are below marginal cash costs and well below incentive cash costs. If you consider a Western expansion, even a China expansion now is questionable at these price levels.

I think for an industry that has to grow significantly, see demand growing two and a half times between now and the end of the decade, we’re going to need to see better incentive pricing, or we’re going to risk slowing down the energy transition, which is not a place we’d want to be. But again, economics have to support our growth.

AH: Right. This begs the all important question. Is anybody actually making any money at this price? As you just said, who’s going to expand in this market?

EN: I can talk to you about Albemarle and use that as a reference point for the industry. Where we are advantaged is in our low-cost resource position. And if you look at those resources, we have both brine and rock. We measure profitability at the resource level first and measure our returns and investment at that level. So hard to do for brine because there’s no market for brine, but there is a market for spodumene. If you look at spodumene prices and look at our cost position, we’re generating healthy EBITDA margins in our low-cost resource space.

However, the next step, we measure profitability from that resource to the customer in form of lithium salt. That’s where there’s a lack of margin. And that’s where frankly, a lot of capital needs to go. But even in China, but especially in the West, it’s hard to earn an acceptable investment return at that level right now with where these prices are.

What it comes down to is your advantage if you have a low-cost resource base, your further advantage if you have process chemistry know how. But even still at these prices is challenging.

AH: One of the consequences of those softer prices, and you’ve touched on this already, is that starting last year, we saw a variety of measures undertaken by companies revising down production guidance, delaying expansion plans for lithium projects or ceasing production altogether.

So I’d like to know, do you think these are the long-term prices that we should get used to? We’re talking about, we will need higher incentive prices, but should we be getting used to these? And what does that mean for projects if we have to?

EN: Well, I’ll tell you, and you’ll hear me say this several times from our perspective at Albemarle. We’ve got to remain agile in this market. It could be lower for longer. Prices could be lower for longer. Certainly, at the beginning of the year we thought that might just be a 2024 phenomenon. It appears it might be longer than that. The second thing is leverage those competitive advantages I talked about.

That’s a key foundation for us to move forward. Then finally, it’s to be ready to pivot when the market shifts. So, I think companies need to figure out how to survive in the short term in this environment. I don’t think the price levels are sustainable for the growth that we’re seeing. Ultimately, they will improve. It’s just, I think we’re going to be in a period of time where It’s all about how to be competitive in this sort of environment, which is a focus that we have at Albemarle.

AH: Well, let’s dig into some of those projects at Albemarle just a little bit. I’ll start with January when the company deferred spending on a lithium refinery in Richburg in South Carolina, and also at the technology park in North Carolina.

Was this a response to prices and market environment, just as we’ve been discussing, or was there a more strategic reason going on, especially around hydroxide?

EN: No, I would tell you that the decisions we made in January were a response to market conditions. If you look at where we ended last year, we ended position for significant capacity growth.

We’re going to see the benefit of that out of some of our assets in Asia and in Chile. But we further had investments planned in North America. This is all about pivoting west. Providing a supply chain for security of Western companies for global diversity. And yet, we also have to be very mindful, of course, of our balance sheet and the market that we’re in.

As a result, we pulled back on the investments that were much earlier stage, that hadn’t really gone out to shoot yet, or had significant capital commitments associated with them. And that included the US investments. Which we believe is still promising. As you know, we continue to invest and sustain the permitting process for King’s Mountain Mine, which is a low-cost resource.

But as I told you a moment ago, that next step, which is pretty capital intensive, we’re seeing very low returns, which is in chemical conversion. We’ve paused that at Richburg. As well, we’ve slowed down some of our technology investments, at least in terms of the size of what we’re doing. We’re still investing heavily.

We have a research facility at our Kings Mountain facility. It’s really a three-part site. It’s got a mine, it’s got a chemical plant, and it’s got a research site. That research is ongoing. In new chemistries and new processes to continually strengthen our competitive advantages, but we’re going a little less fast than we were before. So we paused on a larger site that you referenced also in the Charlotte area.

AH: Kings Mountain, just for those who may not know, is that’s a mine in North Carolina that was closed in 1988, I believe, and that you’re in the process of restarting.

EN: At one time, that region, ourselves and one other produced, that was the world’s largest source of lithium.

Or at least the western world’s largest source of lithium. From the beginnings of the Manhattan Project, believe it or not, when lithium was strategic for the Cold War. And what’s old is new again in the case of EVs. And as a result, that resource now is probably a top quartile, if not a top decile resource. As the industry has grown and lower costers like Chile have been exploited in the case of the Atacama. This is the next best resource and one we really do want to bring to market.

AH: Okay. And then I’d also like to turn to Kemerton. I can’t let you off too easily on that one. So that’s obviously the lithium hydroxide processing plant you have in Australia.

Now you made some tough decisions there recently. You stopped construction activities at Train 3. You put train two on care and maintenance, and you said you would focus on the continued ramp up and qualification of train one. Can you just explain why?

EN: Kemerton is a first of kind plant of its size and nature, in terms of being a 50,000 ton, at least the existing trains one and two, the largest and one of the few such spodumene to salt conversion plants outside of China in the world.

As you will know, Australia is also a source of diversification, certainly, from northern Asian locations and one that has free trade relationships with the US, which in today’s more tense geopolitical world has a lot of advantages. These all account for why that’s a great and strategic location for us.

It has, however, been a challenging project, largely because it was built during COVID, which posed its own unique set of circumstances. But it’s also one that is higher cost in this price environment. And I wouldn’t single out Kemerton, Richburg or any other facility of its kind in the West, in developed regions, Australia, North America, Europe would have a similar profile.

It’s in general about three times the capital cost, and similarly about three times the operating cost, excluding the spodumene, to run these plants, and in this environment, it’s not as economic, yet we also need to keep a foothold and build upon that. So, this is a scaling decision. This is about pulling back and saving some of our costs that we’re generating to be competitive to the cycles I talked about.

Well, at the same time, continuing to prove it out on one train there. So, we’ve idled the second train, we’re running the first train, and we’ve stopped construction of three and four, also because of the economic conditions. So, it’s really a further response to what you saw in January. We’re going deeper, and we’re going deeper because I think we see this price situation lasting longer. And our aim with our advantage is to be competitive through the cycle.

AH: And what does that mean for the spodumene that Kemerton was due to process from the Greenbushes mine?

EN: One of the things that this will allow us to do is process that spodumene through tollers who are largely in China. So this will be a lower cost route to market.

It will also give us some flexibility. You referenced hydroxide. I think you were hinting on the chemistry choice of battery producers and automotive producers today. There has been a shift towards more chemistries that can be made with carbonate or may be preferred to be made with carbonate. And by sending that spodumene into a toluene network that can also make carbonate, This will gives us more product flexibility as well.

AH: So, are you going to be able to give me some good news from China, from the Xinjiao and Meishan lithium processing facilities?

EN: Oh, it is spectacular. I would love to welcome you or anybody to our site in Meishan in particular. Xinjiao is also a great site, smaller site, one we acquired. Meishan is one we built from the ground up. It was a greenfield site, and by most engineering teams accounts, and these would be engineering and APC firms in China, they’ll tell you it’s the fastest to ramp from commissioning to qualified product they’ve seen within China. It is a world class plant. It’s modern, it feels and looks like something you can see in any part of the world, with degrees of sophistication in terms of how the plant is run, the looks of the plant, quality of the products we make.

We shipped our first customer product late in the second quarter, well ahead of what we thought was possible. We only started commissioning that beginning of the year. So very excited about the progress of that plant and proud of our China team for what they’ve been able to do.

AH: If you think across the projects, refining is hard. Not everybody gets it right. It’s obviously going right for you there. Why do you think it’s so difficult to get right? So many companies are struggling.

EN: Well, I think it is fundamentally a chemical process. A lot of people who approach this industry approach it from a mining experience base, because this is also a mining critical industry.

But you need to have chemical processing know how to do this, for one. And if you go into parts of the world where you may lack some of that infrastructure, that educational base, that knowledge base, the vendor base that supports it, Western Australia is a good example. It may take longer. Other producers in Western Australia are having similar challenges, and it’s largely because of the skill and expertise that’s there.

That’s one factor. Another factor is that it’s actually pretty demanding to make to the customer specification that prevails today. And that spec is continuing to evolve. So it’s really finally tuning a process around the level of impurities, the morphology and particle size of the product, to the exacting demands of what a cathode and battery producer need to ensure a safe battery that they can warrant for 10 years of operation.

And that puts a big demand on the quality standards of what you make. So it’s difficult from a processing standpoint. And then I think the last factor would be capital intensive. These are large chemical plants, lots of steel in the ground, lots of unit operations to be strung together to produce this product.

And that capital intensity means you’ve got to have the funding to support it. For all of these reasons, whether it’s access to labor, the demanding nature of the making the product and or the access to capital, I think a lot of the industry has struggled with it. A lot of those things are muted or addressed in China. China has a strong talent base in this area. They have a great supply chain and know how in the region to do this. Design institutes, local vendors, and the like. And then finally, the capital cost is about a third of what it would be anywhere else. So, they’re advantaged in that regard, and they’ve taken advantage of that. Actually, not just in chemical, we’re finding all the way down the supply chain, right through to batteries.

AH: Yeah. China certainly seems to know what it’s doing as is demonstrated by its strong position in the market. We’ve talked a little bit there about Albemarle’s projects. Let’s talk now about the broader supply side of the market.

We’ve seen a lot of attention paid to Africa with new capacity coming from countries, including Zimbabwe and Namibia and much more planned. It’s been coming on hard and fast. Do you think Africa is going to be the new growth area for 2025, as some people predict? Or do you think these current prices, as we’ve just been talking about, might deter investment and project development?

EN: When you say Africa, it’s like when you talk about any region. Not every project in Africa is equal to the other. Africa has some great resources and projects based upon those resources. By great, I mean large in scale, high grade. Such that the geology and the formation of the minerals in the rock lend themselves to a low-cost operation.

Now, some of those are in challenging regions, either conflict regions, regions where there are strong nationalistic tendencies where it might be challenging to work with the government, so getting a social agreement in place may be challenging, and are remote, so infrastructure, getting the product out plays a role.

Those are all things that will vary, obviously, because it’s a large continent and there’s a large geographic area where these resources are found that encompasses several countries. So, certainly some reveal it’s an area where Western companies have been challenged in the past because of some of the corruption and just overall ESG issues around operating and the standards that many companies like Albemarle have means we were just not comfortable going into regions like Africa, but many Chinese companies have. Africa you can think of as being a region that’ll very likely be a key supplier to China as China continues to grow out its energy base, its energy storage infrastructure.

AH: And obviously I’d also like to turn to the rapid growth in China in lepidolite production. Now, listeners, again, if you’re not familiar, lepidolite is a hard rock lithium bearing mineral that sits at the higher end of the cost curve. Eric, the view seems to be that despite the higher cost of this lepidolite production, Chinese producers will continue to grow producing it because they can offset losses with profits that they’re making elsewhere within their group. They’ve got effectively some flexibility to weather the storm. Do you agree with that opinion?

EN: I would say that lepidolite is very much, as you put it, high on the cost curve. There isn’t a country in the world that doesn’t have a serious focus on the energy transition. That isn’t thinking about how they advantage their local resources.

And China’s are different. And China is very aggressive in this regard in supporting its industry. Whether it’s subsidies and they exist around the world, not just in China, or it’s various forms of government support are important to keep the resources going. And then there’s also some forms of private enterprise, folks that are integrated, that are backward integrated into the material and the profits they earn in that part of the supply chain are less important than the profits they earn downstream in batteries or in automotive production.

So, they’re able to take advantage of profits elsewhere to subsidize profits there. My personal view on lepidolite is it’s a transitional resource. The aim of the companies that are operating them is to gain access to resources in places like Africa, or other places that might be more sustainable, might be lower cost, might even be more environmentally friendly.

I think one of the challenges of lepidolite are the tailings are In some regards, toxic. So there are some real challenges in operating it. But until that time, I think it’ll remain a supported resource in country to aid the transition.

AH: I would love also to know what you think about the entry of oil companies to lithium. The biggest to date is ExxonMobil. Do you think big oil could come in and just take over the sector, really dominate the upstream supply chain? Because it’s a real step change in just the past couple of years. Even when you attend a conference, there are a lot more oil companies there at the lithium event than there ever were previously.

EN: I think the good news about that is that the energy transition is being legitimized by those who are voting with their pocketbooks and who have a huge investment. So they see what’s coming. They see the future. It’s validating of everything we just talked about. So, when we sit here and talk about, woe is me, EV sales aren’t as strong in North America and Europe as we thought.

Maybe support temporarily has waned, either at a consumer or government level. It’s a speed bump. However, I think of all the things that they offer, and coming into this industry, obviously their biggest strength is their size and their experience in executing capital projects. So, when it talks about efficient capital execution, having a balance sheet, those companies have that capability.

Absolutely. But go back to what I was telling you before, in which I said, I might say a few times, the advantages that we’re pursuing are one to be agile, to expect prices to stay lower for longer and being able to operate competitively at the bottom of the cycle. And then also to leverage the competitive capabilities that you have to, in other words, have low-cost resources and processing technology.

So I think if you look at the oil companies for them to be players in the industry, they’re going to need to gain access to one of the key competitive advantages that others have, which is low cost resources. Smackover formation is a large resource. It’s not a very concentrated resource. It’s not a low-cost resource. It will require technology. Yes. That technology is often referred to as direct lithium extraction technology. It’s something we know well and are looking at in the smackover formation because of our bromine operations and we’re already there. We’re also looking at it importantly in the slurry to Atacama to enhance our yields and produce more from existing pumping rights that we have there.

And so it’s an important technology, but it, it enables something in low grade resources like the smackover formation where previously you could not extract lithium. It’s the only way to get to the lithium there. And I think it’s a good way to build a technology base. But to be serious in this industry, you need access to low cost resources in the long run.

We’re in the early stages of the oil companies looking at this space. They’re leveraging known capabilities they’re having in pumping and drilling. We’ll see where that goes long term.

AH: Well, as with anything, a really fast way for oil companies to get involved in lithium is through M& A. Now, we’ve seen a little bit of M& A broadly in the sector. Do you think there’s going to be more?

EN: You know, it’s interesting. I’ve been in and around this business for 15 years or more now. And I will tell you, when I came into it, it was a much more concentrated industry than it is today. With the rapid growth and excitement around it and the need for mining expertise in particular, because the legacy producers would tend to be more chemical producers, you’ve seen a proliferation of companies involved.

So, it’s become more fragmented. The supply base is incredibly fragmented today. Some of that’s the nature of the resources. The resources tend to be smaller. They’re not large mega resource like you see in iron ore, perhaps, or copper, but part of it is Just the evolution stage of the industry. I think consolidation will invariably occur like lithium prices I just can’t tell you when, when lithium price will go up or when consolidation will occur, but I think it’s inevitable. Look at us. We’re the largest in the industry and we’ve survived as a company at high profit levels in at price points that are lower than they are today. The challenge we have is how to do that going forward and keep spending on growth.

And obviously, we’ve had to pull back a bit. So size matters. Size of balance sheet matters. We have one of the biggest in the industry, and we have to be cautious on how we exercise things. Now take an even smaller producer. You can question whether they can survive at prices like this long term. You’re going to need bigger enterprises with bigger balance sheets for sure in time. I just can’t tell you when that will occur.

AH: Yeah. I was going to ask you about Albemarle’s position on M& A, obviously we saw the Liontown bid last year. Are you planning to get involved again? Any approaches or discussions you’d like to tell me about just between us?

EN: Just between us? A little secret?

AH: Yep.

EN: We have an active pipeline of things we always are looking at, and we’ll always consider that as an avenue. It’s been at multiple points in our supply chain, so it’s been things like going to the very beginning of the supply chain, it’s resources, and Liontown was an example of that. The decision we made on Liontown at the time was a prudent one in retrospect, a very prudent one in retrospect.

We were going forward at a very full valuation on a good project that actually, as we learned more about it, may have not been as quite as strong as we thought. And at the price we were paying in the market with what was happening in the market, You look back and you say, okay, okay. That was a good decision, but we’ll continue to look at resources.

We’ve made a small investment in Patriot battery metals in Canada, and we have active projects at even earlier stages where you’re just acquiring a concession of land and a few people doing work. So we have a range of various levels of how we look at resources. Conversion is another. We’ve done well by buying conversion.

Those assets today only exist, however, in China. And obviously we love our China business. We love being a big partner to Chinese companies and having that Chinese supply base in the world’s largest market for lithium. However, as the market grows, we want to have capacity outside as well. That acquisition opportunity is less obvious now outside of China in the conversion space.

And then the third area of acquisitions, what we would look at is technology, whether that’s a process technology, direct lithium extraction, or even technologies that will enable the future batteries, which I think is most exciting. I mean, I think we’ll look back a decade from now at what we have today and sort of say, wow, those are pretty simple chemistries we were working with.

If you look at come of the innovations that are in the pipeline today around solid state chemistry, lithium metal anodes, and the energy density they provide is truly revolutionary in terms of what it’s going to do for transportation and any other forms of e mobility.

AH: Watch this space then. Okay. So now we’ve been talking about supply. I’d like to discuss the demand side of the equation. As I mentioned earlier, lithium’s role in battery means electric vehicles are central to the demand story for the sector. Before we go on though, a personal question for you, Eric. Do you drive an electric vehicle?

EN: I do. I’m on my second one. So yes.

AH: Very good. Good to see you putting your money where your mouth is, as they say.

EN: And I’m proud to say I came to my hotel in London today in an electric car as well. It’s funny, you, you hear about electric vehicles in the US. They talk about, wow, I don’t know. I think this trend, maybe it’s not going to happen. The average consumer might feel that way.

And then you come to Europe. The first thing you get into an electric vehicle, because frankly, petrol cars aren’t very welcome in the city of London.

AH: That is true. It is expensive to drive them there. Okay. So, we can appreciate why electric vehicles are a key part of the energy transition. But as we’ve touched on earlier, growth in their sales has stalled over the last six to nine months.

The early adopters have come in, the corporate incentives have. plateaued. As you mentioned, it does depend on where in the world you are. US and Europe are struggling with sales. China, not so much. We do seem to be operating in phases. We saw a period where there was demand for electric vehicles, but not enough supply. Now there’s enough supply, but demand is slowing. So what’s next? Where do we go from here? What does the rest of the decade and the 2030s look like for electric vehicles?

EN: So much of this, Andrea, is wrapped into government policies. When I was at the Fastmarkets conference in Las Vegas, we talked about building a US supply chain and what it would take in order for a domestic, whether that’s domestic to Europe, domestic to the US, automotive EV base is dependent upon a domestic supply chain. The preference of any supply chain is to have it as close at hand as possible. And to provide that synergy, proximity and collaboration that comes from having your vendors right next to your automotive plant, and having the whole supply chain, not just a part of it.

That government will and support, there’s been attempts to go after it. But if you look at things like the IRA and the 30D credit, which is the consumer credit, I remember at last year’s Fastmarkets conference in Amsterdam, I sat on multiple panels or attended panels where people saying, woe is me from a European perspective? Why couldn’t we be more like what they’re doing in the U S and have this strong carrot approach versus a stick approach to EVs. What’s interesting about those credits is that they stay at the bottom of the supply chain, meaning at the point closest to the consumer, as they should be. So they allow a level of affordability to the consumer and a benefit to the OEM producer.

But half of that credit Is dependent on the critical raw materials all the way up the supply chain being produced either in country or in a free trade friendly country. Yet none of that sent of any of that benefit goes to such producers on product. So the big question we talk about the future. I believe we’re still going to be in somewhat of a global economy where there will be parts, components, pieces, products coming from various parts of the world, including Asia, including China, but with the tariff regime that’s been set up today, that’s getting more difficult, and yet the supply chain in the countries themselves, the European countries and in the US is a far shadow of what it looks like in China or is just not as capable to enable this transition. My biggest challenge of what the future looks like is that I would like to believe I’m an optimist that we will have better global collaboration, less tariffs, less hostility. But also stronger regional supply chains that comes from each region of being able to supply a significant amount, if not a majority of its needs from its own network or potentially even in country.

If that should happen, then I think we’ll have a very healthy energy transition, a very strong growth that I think, as I alluded to earlier, will go to technologies that are even more advanced than what we have today. We see demand growing two and a half times. One of the most important measures of what the future could look like.

It’s the U. S. dollar, 100 a kilowatt hour benchmark. China now is below that benchmark. And that benchmark is considered the parity point between EVs and ICEs. China’s below that mark. Provided the US and Europe continue to invest, they will get below that benchmark as well. That’s the tipping point. At that point, it doesn’t make sense to drive an internal combustion engine car any longer.

It’s all about electric vehicles. So I think it’ll happen. We’re just going to have to make the right decisions, the right investments around the world to do so. You need the right incentives, whether that’s support from the government or the right sort of economics from a pricing standpoint to support it.

AH: For sure. And you’re going back again to that same point that you made earlier that the West needs to become more competitive against China because China’s always cheaper when it comes to lithium. I think that seems to be an obstacle. The idea of everyone working and collaborating though, I’m not sure whether we’ll ever get there because there seems to be such a push amongst regulators to move away from and over reliance on other countries, which in this case is China because it dominates the battery raw materials supply chain.

EN: And the energy transition is more than just about the transition. It’s about energy security and who has the technology comes down to even national security becomes important. So I think you only get there when everybody’s got sufficient capabilities such that they can look across the ocean at one another and get along because they both have their own supply chains.

We’ll have to see. The energy security is what drives a lot of the policy. I think if you look at private industry, there’s far more collaboration with Chinese producers and vice versa than the public narrative might lead you to think. However, national security becomes the prevailing issue we have to be attentive to and that’s what drives a lot of policy right now.

AH: Yeah, absolutely. So just because you mentioned the Amsterdam conference last year, I’m just going to cheerlead a little bit for Fastmarkets and mention that everything we’ve been discussing today will be featured at the Fastmarkets European Battery Raw Materials Conference in Amsterdam again, which is coming up on September the 16th to the 18th. So set your diaries and hopefully we’ll see you there. Now Eric, you’ve been touching again on this. Thanks. The price. So a consequence of this reliance on China is that the lithium price is obviously very closely linked to China. You talked about regionalization of pricing. Is that the impact that we’re seeing given the operating costs outside China are higher?

EN: If we’re an immature market, one of the things that I know you’re aware we’re doing is we’re starting to do a lot of closed bids, a lot of experimentation. It’s really discovery on the pricing front. Part of that effort is to understand the value of a product, whether that’s how it’s made from a sustainability standpoint, where it’s sourced, what specification it has to see if there’s any differentiation there and to better be able to sell to the market in that regard.

But there’s a lot of debate. I know in the Las Vegas conference, there’s a whole panel. And I think more than half the panel thought. It’s going to be a commodity and whatever the price is set in China. That’s the price everybody else has to deal with. At least that was a prevailing view that I heard while I was there.

We’ll have to see how that plays out. I think the U S has to, and I can tell you that Albemarle ourselves, our focus has been to build lower cost means of executing capital, to drive certain technologies, to take out operating costs. As I said, we have access to low-cost resources. None of them are in China. They’re all based in free trade countries, in fact, to the US or Europe. So we have an opportunity to leverage that low cost base. We just have to be much more efficient, but as a company, and I would argue the industry and how we get that into the market.

I also think there’s a real value on sustainability, ultimately, how the product is sourced matters in a market like this, it’s hard to see it and frankly, hard to get it right. There’s just not a lot of product that isn’t that is made outside of China. So I would argue we haven’t seen enough yet to know how product is valued in different regions. But if you look towards other industries, there are value differences between inside one country, in this case, China and outside prices exist, there are multiple benchmarks for that.

So, I think it comes down to leadership and an understanding and differentiation in the marketplace. That’s a challenge I think we all need to take on.

AH: You mentioned the closed bids, you’re referring to the auctions there for the spodumene and lithium products. Can you. Tell me a little bit more about those. What’s the strategy, how the auctions work, who can participate?

EN: Yes. So what we’re doing is really for a couple of reasons. One is for just discovery of understanding the market. Two is to tap a part of the market we haven’t tapped before, which is the trading side of the market to get to know that group of people.

And three is to prepare for a future, a future of futures, so to speak, where products can be hedged. There’s a liquid enough market where you can hedge price risks. So for all those reasons, we see as the market develops an opportunity to get in early to understand how these mechanisms work. Most of our business done under contracts.

And even when we say we do a spot deal, that’s a one-off transaction between two parties at market price. That is not a true trading exchange mechanism. So, what we’re doing is learning more about how that works in order to prepare ourselves for all those three things I talked about, being able to work with traders, being able to trade ourselves, being able to work with, uh, and consider hedging strategies, and then to understand how we can differentiate one product from another.

They’re not really auctions. I call them closed bid for a reason, because what we do is qualify who’s going to be involved first. For compliance reasons, and to ensure transparency and confidence and trust in what we’re doing, we go through a rigorous process to qualify people, where they go through a compliance process.

And we’ve rapidly expanded that, so we’ve got quite a large group of folks inside of China, outside of China, around the world, who participate in these bids. They learn what the winning bid is, the data ultimately gets in to one of the indices that’s out there. But it’s not like an auction where it’s open and it’s very public who won the bid or who didn’t.

It’s a little bit more of a, it’s a step towards that, let’s put it that way. But it’s a way we can do things in a control mechanism to better understand and learn.

AH: Do you have any indications on how you see lithium pricing developing, the direction you’d like to see it go in?

EN: Well, look, it’s probably too early to say, but there are differences. There’s a different value that’s associated with lithium carbonate that’s sold from a Chinese toller in China to a certain spec versus one that’s sold from La Negra plant in Chile. There are differences and I think it’s understanding what the market values and seeing if there’s a, Again, an opportunity to differentiate or better price products.

It also will help us understand how we want to grow and where we want to grow our footprint. How valued is sustainability such that a higher cost processing technology, would it be worthwhile? Or operating a certain region would be more beneficial. So I think there’s good data that comes from the process itself.

AH: Yeah. Absolutely. Fastmarkets itself, you touched on sustainability there. We’ve launched weekly price assessments for battery and technical grade lithium hydroxide and carbonate in the US and Canada. We talked about regulation and the regionalization of prices. Are these factors creating the need for premiums in order to demonstrate that price differentiation actually does exist? Do you think premiums are going to become a set in stone factor of doing business in the future?

EN: Well, I don’t know. We’ll have to see. I think that’s part of the discovery process going through. If you looked at the market today and look at our strong results and what is it as I, as we earlier described a weaker market, certainly than a year ago, one of the factors that contributes to our price realization relative to market is the long term contracts we have.

And the price constructs within them. Now they’re variable. The price moves according to an index, very often a fast markets index that’s moving against on a lag basis, but there are collars around that in a way at this point in the cycle that provides a premium. It’s providing protection for us. What we’re saying is to that customer, we’ll build this plant and provide you this product.

We’re just asking for this level of price protection. And very often they’re asking for price protection the other way because they’re making investments that they don’t want to render uneconomic because of high lithium prices. So that’s the basis for a discussion, but that’s differentiation as well, right? That’s writing a differentiated price. Now, is that a premium at any one point in the cycle? Not necessarily. There are going to be times when the spot price is going to be a lot higher than a contract price. That will be at a premium, but it’s providing a level of stability to ourselves and to our customers that is a form of value creation for them and for us.

And that’s why those contracts are so important. And even at this point in the cycle, I’ll say very important to sustain themselves because at this point of the cycle, there’s a lot of customers who would love to not have to pay the floor price. But the bottom line is that this is part of a long term relationship to provide stability to them and to us.

AH: And now let’s take a quick break from the interview to hear from one of our in-house experts here at Fastmarkets.

Grace Asenov [GA]: Thanks, Andrea. Hi, everyone. My name is Grace Asenov, and I’m the base and energy metals editor for the Americas at Fastmarkets. Eric Norris mentioned the increasing regionalization of battery raw material supply chains, stemming from a shift towards nearshoring, and the government policies that support that including the US Inflation Reduction Act and also the European Union’s Critical Raw Materials Act. There’s two main reasons why lithium price dynamics in the US and Canada are expected to separate from the rest of the world.

Number one, the demand picture in North America. US lithium demand is predicted to grow nearly 500 percent by 2030. And number two is the regulatory environment. The sourcing requirements to be eligible for tax credits offered under the IRA could result in a price differential, aka a premium, compared to other regions, which should be beneficial to lithium project development in North America. That’s especially important right now in this low price environment to have pricing mechanisms that reflect each region’s realities. Why would you want to be tied to prices in Asia if you’re operating in the US and the US recovers faster? Because of legislation like the IRA. So far, our US Canada prices are showing a premium versus the rest of the world. That’s not really because demand here is better yet, but because of tariffs in place in the US versus lithium imports, and subsequently the smaller pool of nations that US buyers are willing to source from. A common question for many people in the market today is, will there really be an IRA premium in the future? The market is currently oversupplied, and prices are depressed.

But looking forward, even though there is a considerable amount of raw material supply that is IRA compliant, coming from the brine production in Chile and hard rock production in Australia, for example, the problem right now is that the majority of this material is presently shipped to China for processing, which is not IRA compliant. If we look at mined versus processed supply in 2023 versus 2034, China is expected to continue to dominate in the processing of lithium. More diversity in mine supply doesn’t help battery makers because they need the process supply.

And just thinking of this now purely in terms of supply and demand fundamentals, it’s likely that there will be a shortage of IRA compliant material. That means that continued investment in strategic partnerships will be key to building a robust North American supply chain. And buyers, sellers, and traders in this region will need pricing mechanisms that reflect the true nuances of their market.

AH: And now, back to the interview. Well, Eric, it’s that time in the show where I ask you a couple of questions that we ask all our guests. The first one is, what’s one thing that we might be ignoring, but that we should be looking at, related to lithium?

EN: We talk about EVs all the time, that is the centrepiece of demand. But if you look at the new technologies that I referenced, so such as advanced lithium, metal, and the like, those have great value in the defence industry. That comes back to this national security issue. Energy storage and access to this technology is something that is increasingly viewed as strategic by governments because there are more applications than just EVs.

There’s the grid, protection of the grid, the stability of a grid. There’s defines application and the benefits that that provides and security to a country. Like warfare or not, modern warfare relies heavily on lithium in many regards. And so, there’s some interesting opportunities there because those are areas where you can see new technologies take root faster than you would in EVs.

AH: Right, right. Okay. And then other question we ask everybody is if you had to fast forward a decade, what would the lithium landscape look like?

EN: I’ll go back to my optimist view. I think you’ll have three key regions of the world, China certainly, but also North America and Europe. Within each of those regions, you’ll have a supply chain that is self-sustaining for the industry that’s in those regions.

There’ll still be a lot of global trade because there’s resources in Australia and Chile, you mentioned Africa. There’ll be places of the world that supply into that. There’ll be a series of transactions between now and then that link those resources to various countries and producers in those countries.

And I think if you think about Albemarle, we’ll be a strong profitable entity, remaining a leader in this space, both in production and resources, but also in technology as a global operator. We’re proud of the fact that we’ll operate in each one of those three key regions. That’s a strategy for us going forward. That’s the future I see, despite all the challenges you see in front of us today.

AH: Well, good to be optimistic. Now, Eric, ahead of every episode, I saw some questions from social media and post them to our guests. So are you ready for a couple of those? The first one actually had two parts and it was around direct lithium extraction or DLA technology, which I think we’ve kind of answered previously about how you view it. But the second part of it was. Do you see DLE as a potential threat or a compliment to hard rock projects?

EN: It’s a compliment. The DLE is, when it’s bandied about the industry, it feels very disruptive. It’s been practiced for decades in one form or another. And the various unit operations, some of the unit operations are practiced even in our operations today for years and you didn’t know it.

Those forms of resin selection and solvent extraction that happen in La Negra plant today as an example. It’s use in unlocking a resource that was otherwise unable to be extracted, either because it was too dilute or because the conditions surrounding it from a solar operation standpoint, were not conducive to that.

It doesn’t magically make them lower cost. DLE is not necessarily a cost lowering. It’s a value unlocking. Relative to hard rock, I would say, still see hard rock being the workhorse of the industry. It’s far easier to access through traditional mining techniques. The processing technology, as we discussed earlier, has been perfected in places like China and is now starting to disseminate outside of China into places like Australia, hopefully the US as well. Our intent in the long term is to play a leadership role in that as economics permit. But I think hard rock is a workhorse. If you look at what we expect to happen for demand, you’re going to need a lot more resources and DLE plays a role in making brine resources economic.

AH: Room for both. Okay. All right. The next question we had, is there an opportunity for traders in lithium? I know you also touched on that slightly early. It’s an interesting one because obviously we do see some traders in the lithium sector already, but nothing like in other commodities like base metals or oil and gas. What’s your view on traders and opportunities?

EN: I think as the industry grows, you’ll see that evolve. I think you’ll see traders come into the industry for sure, or grow their presence in the industry. I think they’re a vital part of the mechanism of creating. More liquidity in the market so that you can actually hedge price risk in the future.

There’s already evidence now through New York, London and elsewhere, and certainly within China as well, of people trying to build that kind of liquidity and that kind of infrastructure to be able to create a healthy futures market going forward. So I think that’s healthy for us, but it’s a minority of our business that we would put to that by about 20, 30 percent of our business.

The rest would be under long term contracts, but that portion of our business playing there allows us some flexibility in our supply chain, how we run a supply chain, as well as access to and knowledge of some of the future direction of price, as well as being able to engage in hedging. So I think trading is an important place for it to play in the development of this industry.

AH: Okay. And then finally, a bit of a fun question to end on. What is the most surprising application of lithium that you’ve come across?

EN: There are a lot. I referenced defence earlier, so I won’t go there, but I will reference the health aspects of lithium. It’s traditionally been known as a mood elevator and it’s actually the oldest known and most widely prescribed drug for the treatment of bipolar disorder.

We actually provide feedstock through a drug master file for such purpose. Perhaps what’s even more interesting about this, and a lot of people don’t know this, is that if you go back to the turn of the century when you had soda fountains that were in pharmacies and before in the US and you had the FDA or the equivalent in Europe, you had people mixing elixirs to make people feel better.

Coca Cola came out of that period of time. So did 7 Up. And I don’t know if you know what 7 Up really was, what was in it. It was lithium. The equivalent weight of lithium is 7, and the up refers to the mood elevation that it provided. Now, as you may also know, Coca Cola had early ongoings with the coca leaf, so it had its history as well.

So it’s no longer used in 7 Up, but that’s where the name comes from.

AH: I have learned something new and very interesting now, and that is a surprising application. Eric, well, thank you so much for doing this. I know it’s a really busy time for you. And as always, I’ve really enjoyed our conversation, lots of insights into lithium, I think a key one being that lithium may be down, but it is not out.

EN: That’s right. That’s right. Thank you, Andrea, so much for the time. Enjoyed it.

AH: Great. Great. Well, and thanks also to you, our listeners for tuning in today. If you liked what you heard and don’t want to miss any more episodes, Go ahead and subscribe to Fast Forward on Spotify, Apple Podcasts, Amazon Music and wherever you get your podcasts.

I’d love to know what you think and also where you’re listening from. So, tell us in the comments and don’t forget to leave us a review. Until next time.

The post Interview with Eric Norris, president of energy storage at Albemarle Corporation | Fast Forward podcast episode 5 transcript appeared first on Fastmarkets.

Norris’s full conversation with Fastmarkets’ special correspondent Andrea Hotter about the opportunities, challenges and future prospects in this crucial sector in full is available to listen to on Spotify, Apple Podcasts, Amazon Music or wherever you get your podcasts.

Volatile prices and market dynamics

Eric Norris discussed the turbulent nature of lithium prices and market dynamics, providing a comprehensive state of the market today.

Price volatility: Lithium prices have been on a rollercoaster ride, fluctuating significantly over the past year. Norris mentioned that despite recent improvements, prices are still lower than they were a year ago.

“I can’t tell you if [prices] bottomed. They’re been unpredictable,” said Norris.

Regional variances: The market situation varies greatly by region. While electric vehicle (EV) sales are growing globally at over 20%, most of the growth is concentrated in China. North America and Europe have seen weaker-than-expected growth.

“We’re still, as an industry, growing north of 20% in terms of EV sales, but the mix of that’s very different,” said Norris.

Economic considerations: Current lithium prices are below the marginal cash costs, making Western and even some Chinese expansions questionable under these economic conditions.

“Economics have to support growth,” he said, which underscores the need for better incentive pricing to avoid slowing down the energy transition.

Looking ahead, Eric shared his optimistic yet cautious outlook on the future of the lithium industry.

Long-term growth: Despite short-term challenges, the long-term prospects for lithium remain positive. Demand is expected to grow 2.5 times by the end of the decade, driven primarily by the energy transition and the rise of EV.

“We’re big believers in the energy transition and see this as a long-term growth trend,” said Norris.

Investment and expansion: To meet the growing demand, significant investments in lithium production and processing will be required. However, this will only be feasible if prices reach levels that provide adequate returns on investment. Norris emphasized the importance of aligning economic incentives with industry growth to ensure a more sustainable future.

Listen to the episode to learn more.

About Eric Norris, president of energy storage at Albemarle Corporation

Eric Norris joined Albemarle in January 2018 as Chief Strategy Officer. In this role, he managed the company’s strategic planning, M&A, and corporate business development programs as well as its investor relations efforts. In August 2018, he was appointed President of the Lithium global business unit.

Prior to joining Albemarle, Norris served as President of Health and Nutrition for FMC Corporation. Following FMC’s announcement to acquire DuPont Agricultural Chemical assets, he led the divestiture of FMC Health and Nutrition to DuPont. Previously, Norris served as Vice President and Global Business Director for FMC Health and Nutrition, and Vice President and Global Business Director for FMC Lithium. During his 16-year FMC career, he served in additional leadership roles including Investor Relations, Corporate Development and Director of FMC Healthcare Ventures. Prior to FMC, Norris founded and led an internet-based firm offering formulation and design tools to the chemical industry. He started his career in a range of leadership roles with the Rohm and Haas Company. Learn more about Eric and Albemarle here.

The post Albemarle’s Eric Norris says better incentive pricing needed in lithium market to avoid slowing of energy transition appeared first on Fastmarkets.

Full episode transcript

Andrea Hotter [AH]: Welcome to Fast Forward, a podcast by Fastmarkets. I’m Andrea Hotter, special correspondent at Fastmarkets, and this is the fourth episode in our series focused on the critical minerals essential for the world’s energy transition. If you haven’t listened to the first three episodes, why not you’re missing out? Please go back and find them on Apple Podcasts, Spotify, or wherever you get your podcasts.

Now to this week’s interview. If you’re involved in commodities, you might have noticed that everyone very interested in copper right now. Even if you’re not involved in the world of commodities, copper may well have come on your radar in recent months anyway. So, whether you are a copper expert or not, I have a treat for you today.

I’m going to be chatting with Kathleen Quirk, the CEO of Freeport-McMoRan, one of the world’s largest copper producers. Kathleen has spent her career working for commodities companies and most of that time has been spent in copper. She’s been with Freeport since 1989. She was made chief financial officer in 2003. She became and remains president since 2021. And she joined the Freeport board in 2023. Kathleen became the CEO in June, 2024 with Richard Adkerson, who is a bit of an industry legend in his own right, remaining chairman. I am really excited to hear Kathleen’s view on what on earth is going on in copper right now. Why are we hearing so much about where things are going, whether the buzz around the market will last, and what’s coming next. Kathleen, thanks for joining us on Fast Forward.

Kathleen Quirk [KQ]: Thanks, Andrea, for having me. It’s great to be here.

AH: It’s great to have you here too. And our timing couldn’t be better. Copper is having a bit of a moment. It set record highs recently and seems to be a favourite with the investment community once again. Let’s dive right in. Why do you think that is?

KQ: Well, I hope it’s having more than just a moment. I think this is really an important time for the copper industry. The trends in demand that we’re seeing are so impactful. Copper’s role in global societies around the world is becoming more and more critical. Everywhere you turn, you see that copper’s intensity of use is increasing. It’s being driven by decarbonization trends, urbanization, connectivity, the world is becoming more and more connected. And so what we see as we go forward is demand for copper accelerate, which brings about a number of challenges for producers like ours who want to continue to serve the market and serve our customers. But the trends for demand are really important drivers as we go forward. And it doesn’t look like it’s going anywhere. It looks like it’s going to continue to accelerate as the world becomes more electrified.

And as we know, copper is the metal when it comes to electrification. So it’s really an interesting time. You mentioned I’d been in the industry for a very long time. And this situation that we’re in now, where we’re looking at demand growth going forward, puts a lot of pressure on suppliers like ourselves to try to boost supplies, which is a challenge.

AH: And it’s also a pretty volatile market right now. I’m curious, whether you think these recent record prices that we’ve been seeing are fundamentally justified or whether we’re at risk of being in a bit of a bubble situation?

KQ: We’ve been in this industry for a long time and it is a volatile industry. And sometimes you point to situations where the market overreacts on the downside and sometimes overreacts on the upside. But fundamentally, when you look out over the medium term and longer, really, the market is well supported, probably one of the most well supported fundamental stories of all the commodities that we look at. Short term, there’ll be macro trends or conditions that might influence sentiment. We certainly saw that earlier this year when power prices hit a new record. Many are calling for us to continue to see higher prices in the future. But what we really look at are the fundamentals and we think the fundamentals are very supportive of copper for the long term.

AH: Now, you mentioned it, you’ve obviously seen the cycles come and go. I’m curious, what’s the same now and what’s different from the past, particularly when we compare the cycle that started 20 years ago in 2004/05. I mention that because it was deemed to be a super cycle and I’m asking, are we in one now or is this something different?

KQ: I think it is different from what we had 20 years ago. 20 years ago, is when China emerged as the world’s largest copper consumer. And prior to that, copper really just traded off of GDP growth around the world and then developed economies. And then as China emerged with its huge populations became such a big consumer of copper now is 50 % of the market, the industry wasn’t prepared at the time for that surge in demand. so prices, which had been very low for some time, rose exponentially. Went from under a dollar to a $4. So went up four times. And now we have a new element of demand, which is broader based than just China.

When I think this underpins, the outlook for demand as we look forward. The growth in demand is coming from decarbonization trends. We’ve seen the big investments going on in renewable energy and those are going to continue as we look forward. And so what’s different now than in the last 20 years is the demand for copper is broader based. It’s not just coming from China. The growth in demand is really global.

The other thing that’s different on the supply side is as we’ve gone through the last 20 years, there have become fewer and fewer copper projects that are actionable to develop. And so, the lead times to develop new sources of copper supply have been extended. We’ve seen some really good, exciting things go on in the Democratic Republic of Congo, but there haven’t been discoveries of new copper deposits over the last several years, even though the industry has been exploring and trying to find new sources of copper.

So we have fewer projects to invest in. I think there’s an opportunity for us as an industry to get more help in boosting supply from technologies, which have evolved over the last 20 years. And now we have technologies that we haven’t had.

AH: There’s so much to unpack in there. I’m going to take you right back to the start there with the China thing. Cause I do want to dig into that just a tiny little bit more. Obviously still some people are so used to looking at China, they still get their eye on it. And currently things are a little bit different there. As you mentioned, the Chinese economy seems to be running at two speeds with exports and manufacturing doing pretty well, but consumption and property markets look quite weak. And that’s being demonstrated in physical copper offtake there, which is disappointing relative to price performance. So what’s going on? Where do you see the Chinese market in terms of demand right now?

KQ: So the Chinese market is an important part of the overall global copper demand, currently 50% or more. And last year in 2023, there were heightened concerns which are continuing today about the property sector, which had been previously a big consumer of copper. And that sector has been very weak over the last several quarters.

But what’s happened in China and last year, even with the property sector, actually saw consumption growth in copper hit a record in 2023. And that was the result of new uses of copper, things like investments in the renewable energy that we talked about earlier, but also electric vehicles that offset the more traditional uses of copper. Now, as 2024 is unfolding, people are asking questions the Chinese economy, we’re seeing some inventory builds going on in China at a time when normally inventories are declining. And so people are asking the question, what is going on in China?

What we do see is China’s got a commitment to continuing to build out its renewable infrastructure. That’s very copper intensive. We’re seeing China lead the world on the production of electric vehicles. That’s a strong element for copper demand. And there is talk about potentially stimulus or other activity that could boost the property sector. So people are giving China the benefit of the doubt when it comes to copper in looking at what it could be in the future as opposed to what it’s been over last few months. But time will tell.

AH: You spelled out the positives for demand. There are some questions around electric vehicles, however. I know, again, it’s regional. It depends where you are in the world. There’s been so much buzz as you highlighted around EV when it comes to new copper demand growth, but sales of EV have stalled this year. The pain points seem to be related to all things that matter to copper. Range anxiety is due to a concern over a lack of infrastructure charging, which requires copper. Power grids aren’t being developed to account for the new energy required and there’s not enough energy storage. And so all of that potentially impacts copper, right? Not always all good news?

KQ: Yeah, I think you’re right. You’re continuing to see announcements come out about the pace of the EV adoptions and the production of EVs. China continues to be producing a lot of electric vehicles, but elsewhere in the world, we aren’t doing as well. And I think it does take time. Any type of disruptive technology like this is going to take time for adoption. Like you say, the infrastructure needs to be developed to where people are comfortable that they will be able to charge when they need it. All that is happening. It’s not linear, but I think the trend is for more electrification. As any new technology, it’ll continue to improve and I think the adoption rates will grow over time, but it’s not just going to be out of the box perfect.

We really are hopeful that as we look forward, technologies will evolve to a level where some of our big haul trucks can be electrified. And there’s big implications for that if we can get it right and get the economics right, because we spent a lot of money maintaining diesel engines. And so I think there’s a big opportunity for the mining industry as a whole, if we can find breakthroughs like that, that allow us to get more cost-efficient and bring electrification into our business in a bigger way.

AH: Well, we’ve been talking a lot about demand. You mentioned supply earlier. Let’s turn to that side of the equation, there are, as you said, huge challenges when it comes to developing new mines. Permitting is a major one. I think if I had a pound for every time someone complained to me about the lengthy times that it takes for permitting, I’d be growing my retirement fund quite nicely. And I’d probably have quite a lot of copper in those coins too, if I think about it, but it can take over a decade to get permits for projects. And we often hear that some corporate projects run into stumbling blocks and delays that mean they run out of money before they can even get up and running. What can we do about all of that?

KQ: Well, I think the good thing about all this, the rise of the importance of copper and other metals for the energy transition is not lost on governments. So governments are looking to find ways to increase supplies of copper and other critical metals.

It’s not easy, but I think the process can be streamlined. And so one of the things that we talk to the government about is we really don’t need duplication of efforts. So we should work to streamline permitting. But sometimes you can get crossways because some people view streamlining permitting as meaning that the mining industry gets a pass on doing the right. And we know after having been in this industry for so long, that this is a very long-term commitment when you go into developing a mine. And you need to do things in the right way. You need to plan, you need to understand the impacts that you’re going to have on the communities, on the environment. That takes years of studying to really understand what the impacts are, years of modelling. You can’t just go in willy-nilly and say, “I’m going to build this mine. And yes, we’ll figure it out.”

You really have to do a lot of upfront planning to make sure that what you’re doing as a mining business is done in a sustainable way. So the first part of that work has to be the science, the work that we do to mitigate impacts and with the work that we do to collaborate and work with communities. Companies need to be really transparent with communities the pluses and minuses that go into developing a mine. So you can’t circumvent that process. That process is critical.

The work with communities is so important. The before, the during, and the after of a mining project are just critical. And so our philosophy at Freeport is that we’re going to be there for a hundred years in the world. go into developing a mine and we need to make sure that we’re doing it in the right, that the plans are robust, that we understand all of the impacts and we’ve modeled the results and that we’re adhering to those stringent requirements that we put upon ourselves and that we’re continuously improving. So that part of it can’t be dictated by a government.

AH: I’m so glad you brought that up because I think the community’s part, the sustainability aspects, it’s central to it. Opposition to projects often comes from, it’s grounded in local populations being concerned about what mining is going to mean for their daily lives. That leads to the question, does the mining industry need to do a better job of promoting itself? And also perhaps some bad actors, because sadly they do exist, do a better job of behaving?

KQ: Well, I think our industry has a very long way. We need to be less defensive and more on the offense about the good things that we do for our communities and societies. The buzzword ESG in our industry is so important. We’ve been doing it for a very long time, even before it was called that. But what has changed, I think, for the better is become a lot more transparent. And we’re reporting on all the things that we do, all the impacts that we have, the good things and the things that we need to continue to work on, things like carbon emissions. So all that transparency, I think has been good to build trust in the industry.

You talk about bad actors. think that’s the real exception rather than the rule. think most of the companies that are involved in our industry, and there are a huge number of companies involved in the industry. I think in the ICMM organization, they’re 30 or so, maybe a bit more or less. And all of these companies are committed to doing the right thing. And copper in particular, and Freeport’s been a big part of this, we started through this organization called the Coppermark, third -party assessments that measure us on 30 some criteria that were designed in connection with the United Nations sustainability goals. So each one of our operational sites, and we have several here in the U S, we have a big one in Indonesia, two large sites in South America, and we have downstream as well. Each one is put up to a test of these criteria that a third party comes in and assesses our compliance. And so it’s a transparent process that all of copper producers can measure themselves against. It’s got a lot of traction with governments, also with our customers that are asking some of the same questions.

We can show them the results of the copper mark and how we’re managing our responsibility against these important criteria.

AH: And on that subject of sustainability, and you mentioned carbon emissions earlier, we hear so much about green premiums. At some point, I know a lot of companies are hoping that the market starts to differentiate between sustainably and less sustainably produced copper in a commercial way. So, the copper mark can be a way of distinguishing that. The other main way so far in markets like aluminium is around carbon emissions. So do you ever see the carbon emission intensity per unit of copper being priced into copper contracts? Or is that wishful thinking. Do you think the market’s going to start paying for green copper?

KQ: You hear people talking about that from Freeport’s perspective. We view it as binary. If we’re not a responsible producer, we’re not going to be able to sell a product. We need to just hold ourselves to high standards in terms of all aspects of sustainability, including carbon reduction. I’ll throw in here, Andrea, I know you know this, but copper in terms of its carbon intensity is not as high as some other commodities. Copper is actually an enabler of the energy transitions, but it doesn’t mean that we shouldn’t pay attention to our carbon emissions. And so we’ve got a number of objectives that we’re pursuing to reduce our carbon intensity. We’ve made some real impacts on our emissions and we’ve got more to do as we go forward. But I don’t we’re getting paid more, we just feel like it’s the right thing to do. And if we don’t do it, people will go to producers that do it and use them as their preferred supplier.

I think it’s really table stakes in our industry to be a responsible producer. And at Freeport, we really take it very seriously as part of our franchise.

AH: Yeah, a new non-negotiable. changing the subject slightly, where do you see the prospective areas for supply. How do you assess regions like, for example, Central Asia as a future location for copper production, particularly in comparison to the African copper belt and Latin America, for example? I’m thinking here of Kazakhstan as a potentially bigger producer than it is now. That region generally, how do you see it?

KQ: Well, we’re not involved in Kazakhstan. I know there are others that are and see the opportunity there, the resource there. I think what it tells us is in order to develop new supplies, we as an industry are going to have to go into new areas. When Freeport went into the DRC back in the 200 -08 timeframe, not a lot had been developed in the Congo. And we went in with a major investment at that time and were successful there. It’s not easy, but that’s the reality of the market right now in order to develop new supplies. You’re going to have to take different types of risks than we’ve taken in the past. We need to go into new frontiers as we look forward. And there are lot of deposits in different places that haven’t been developed for a variety of reasons and challenges.

But at Freeport, what we’re really focused on is our brownfield development opportunities. So we’ve got expansion opportunities in Chile. We’ve got a whole host of opportunities here in the US where we already have an existing franchise, where we already have community acceptance. Those opportunities for us are lower risk and potentially higher value opportunities than going into a whole new jurisdiction. The other thing that we’re pursuing, we’ve got opportunities in Indonesia and Freeport has been there for over 57 years and not a lot of companies have been successful there, but it’s been an area that Freeport really has differentiated itself and been very successful in operating in over many decades. And so as we look forward, we see continued opportunity in Indonesia.

But the other thing that we’re working on at Freeport, which we’re very excited about, it involves technology and something that the industry needs to think about is, given the demand outlook for copper and the constraints on new supply development, we need to find ways to be more efficient and get more out of the resources that we already have.

We’re heavily involved in a new leaching technology to get more out of our US assets than we ever would have imagined in the past. And this is using new technologies that were not available in the past and we see an opportunity here in the US to bring on new supplies from just recovering more copper in our stockpiles than what we had previously projected.

We’ve hit our initial milestone in that and as we look forward, see the potential to basically bring on new copper. Very low carbon emissions, very low capital intensity. So it’s very exciting.

We’re going to need to make investments. We’re going to need to continue to do exploration. But I think in the medium term, looking at the next three to five years, there are some technologies that we can take advantage of in our industry to get more copper that’s going to be needed to supply this growing demand that we talked about earlier.

AH: Yeah. Sounds like the industry is going to have to get a lot better at using that technology to produce copper. I do want to ask you one more question on the supply front. If you forward far enough and after allowing for the depletion of existing operations, do you think there’s going to be enough committed mine supply to meet demand forecasts? I mean, that’s the real question, is it? Where is the supply growth going to come from? Are we going to get there?

KQ: Well, it’s a real question. It is a real question. I think people take some comfort in the fact that there are a lot of copper resources out there. Now there are challenges to developing those resources. Some of them are in communities that have rejected development of new copper mines. That’s a difficult one to overcome. And some of them are in locations where there are new jurisdictions that will require development over time. But going into a new jurisdiction is not always easy.

And we’ve just seen that with what’s happened in Panama after multiple years of investment and sizable investments and now to have that mine currently shut down is a setback. The resources are there, the challenges of development are enormous, but to me that’s where these technology initiatives really need to be pursued. And one of the things that I’m so excited about is we’re hearing a lot more about copper broadly. In the past, not a lot of people outside of our industry really understood what the role of copper is in modern society.

And now it’s becoming more mainstream where people really understand its importance in our everyday lives. And I think that attention is going to bring in new talent to our industry, new investments in technology. You saw what happened in oil and gas over the last 20 years or so, where all these new technologies came in and actually did have an impact on building supplies. I think that as we look forward and see all of the new technologies that are coming available, if some of that gets directed towards our industry, that’s going to help us boost supplies. We’re seeing investments being made to help cut down on the time that it takes to explore for copper, mine planting, software and those types of things that are coming into play. Artificial intelligence and machine learning is going to be impactful for our industry. We don’t know how and exactly when it’ll manifest itself, but I really do believe that with all this focus on copper, which had been, I think, ignored in some cases in the past, that’s going to bring about new technologies and new talent to help us to improve supply.

There’s also going to be other things that happen, right? We know scrap aggregation is very hard. It’s a very fractured business, but we’ll see that helps to supply more copper in the future because copper is recyclable. And so we’ll see that come into play too, but it’s going to require higher prices and sustained higher prices for people to build a business

AH: It’s certainly true. I do like the fact that people know a little bit more about copper and I don’t feel such a metals geek when I talk about it with my friends. In episode three, Kathleen, I chatted with Jeremy Weir of Trafigura about geopolitics. Now, it was a really interesting conversation. If the audience hasn’t heard it, I encourage you to go back and listen to it. Kathleen, I’d love your view on the impact of geopolitics on copper. You talked about new jurisdictions. That’s also part of this whole story. There’s an emphasis by many Western governments on working with domestic or friendly sources of copper and other raw materials. How do you see that impacting supply chains, particularly given that China is such a dominant consumer of copper?

KQ: Yeah. Well, Jeremy is certainly an expert. I did listen to that podcast and encourage people to take a listen as well, but geopolitics is going to continue to be very important in our sector more and more. And I think with this energy transition, it’s really opened the eyes of governments around the world about supply chains and whether or not the supply chains are resilient.

And we like free trade at Freeport in the industry. And we like the fact that copper is a global commodity, but more and more countries have become concerned about trade relations to make sure that their supply chains can withstand geopolitical issues. So you’ve seen much more governments, including the US, become very focused about where their supplies of materials are coming from and trying to find ways to encourage investments in countries that are friendly to the US to make sure that the supply chains are resilient.

And so it is a big issue. You’re also seeing the impact of countries that want to make sure that, I’ve gone through this in Indonesia, where Indonesia is rich in natural resources and became concerned that its resources were being exported and wanted to see more investment in country in terms of downstream process.

Part of what we agree to with the Indonesian government is to build capacity, not just in the mind, but to build downstream capacity so that Indonesia could have its own industry and benefit to the maximum extent from its resources. I think you’re going to see more and more of that where countries really want to make sure that they’re getting the benefit of the resources, that they’re not just exporting them and allowing other countries to develop the higher-value goods and leave their countries behind.

Resource nationalism has always been a part of what we do and issues that we face in dealing in other countries. It’s got to be a partnership where the country feels that they’re getting a fair share of the resources. You’ve got to find that balance between what returns the investors require and what is good for the country and all of its stakeholders.

So finding that right balance and that long-term model is a really key part of what we do as investors in developers of projects. And so we’ve got to find common ground. You’ve got to find a model that works over the long term for not only the investor taking the risk of investing multi-billion dollars in these resources, but you’ve got also that look at what it does for the people of the country and what it does for communities and the betterment of countries.

Our industry is such a great example of how we can provide employment. We can provide significant development, tax revenues and multiplier effects for what we do. But we’ve got to go in there and find the right model, not be too greedy, but be strong in terms of managing our long-term rights because it is a long -term business.

You don’t want to make a lot of upfront investments and find out that you didn’t have a deal that works over the wall.

AH: Yeah, absolutely. You’ve been talking here about brownfield and greenfield. Let’s turn now to M&A because we’re seeing a real revival of interest in copper companies. We can talk a little bit about tech resources and Glencore and BHP and Anglo-American in a minute. You’ve been through major M&A before at Freeport, Kathleen. There’s definitely preference to buy and not build and add new supply right now. Why do you think that is?

KQ: Well, I think the reality of the situation is that if companies had actionable projects to build and could grow organically, they’d be doing that. And you see all the large companies around the world over last 10 to 15 years, you can look at their strategies. They have all been focused on finding ways to get more exposure to copper. And yet these are well-capitalized companies, but they haven’t been able to meaningfully grow in investing in new copper projects.

So the only way really to do something and grow your copper exposure is to buy, because it takes so long to build, even with the best exploration team with the best development team. It’s a real challenge. Multiple years and really to have a big impact. When’s the last time that you saw something like an Escondida get discovered? Something like a Grasberg get discovered.

I mentioned earlier, there’s been some terrific development in the Democratic Republic Congo, but that’s been the exception rather than the rules. So I think it’s not a question of either or. I think it’s really what’s actionable. And even M&A is not actionable as we’ve been witnessing.

If companies could invest, make discoveries, go forward with project development, they would be doing that all over the place. It just shows the scarcity of copper and it’s leading people to say, if I do want exposure, I may have to buy it rather than build it because building is very long -term and uncertain.

AH: And still doesn’t solve that problem with more supply growth, it ultimately I mean, there seems to be a move towards being a pure play copper company. Even the large diversified miners are slipping down portfolios and focusing on a few core areas of which copper is won. We talked about the fundamentals. I’m guessing it’s probably going to be related to that. But why do you think that is, that real focus on copper right now?

KQ: Well, I think it’s about the fundamentals. And when you compare the fundamentals of copper supply and demand over the coming years and decade, you’re hard pressed to find a commodity that is more well-structured in terms of its fundamentals. This is something that people have recognized over the last 20 years. This isn’t a new phenomenon.

What has been a new phenomenon has been the acceleration of demand associated with decarbonization and electrification. But people have been calling for this for some time and copper has now have been differentiated among other commodities as one of the best structure to a fundamental standpoint.

So in terms of the M&A, I think there are some benefits of being large. Freeport is of the size where we are able to undertake projects of scale, we’ve got the balance sheet that allows us to make big commitments. It is helpful in terms of the risks that you have to take in making these types of investment in terms of the portfolio management.

We’re not interested in becoming larger just for the sake of being larger, but there are some benefits in applying technologies across a broader portfolio and in generating synergies and best practices and finding best talent. So there are some benefits of M&A, but I think what’s driving these companies now to copper are the fundamentals and the inability to grow copper just through investment.

If you’re going to move the needle when you’re of a certain size, it’s going to have to be through M&A. And there are fewer and fewer companies out there that are to your place in copper. And so that’s becoming more and more topical to look at what can companies do that want to increase their exposure to copper. And M&A is going to be part of that, but it’s not predictable because nobody wants to sell, right? Anybody has a good copper asset wants to hold on it.

AH: Well, you mentioned Glencore wanted to buy tech, including base metals. That didn’t happen. BHP wanted to acquire Anglo-American, including copper. That didn’t happen. What’s Freeport’s approach to M&A? Is the company planning to get involved in this current game of musical chairs?

KQ: Our focus is really organic. We don’t have a strategic issue to solve. Our strategy and being foremost in copper is rooted in what we have today. We’ve got large scale production today, plus we have organic opportunities to grow. Doesn’t happen overnight, takes time, but we’ve got a series of short term, medium term and long term opportunities that we believe will create value for our shareholders and also allow us to be relevant and a major supplier of copper in the future.

So for us to get involved in M&A, it would have to be something where there was value creation, something where there were synergies that we could combine with other companies and drive synergies, you know, take our operating practices or our technologies and spread it over more operations or vice versa. Take technologies that other companies have perfected and bring value to our operations. It would have to be something that would add value. We don’t have a strategy to grow the company by M&A. Our strategies on organic growth, but we’re alert to all the opportunities out there. You mentioned the M&A that we were involved in 15 years ago or more when we acquired Phelps Dodge. And that was a transaction that brought about value because it made the two companies stronger as one. It gave the Phelps Dodge business a very large, low-cost operation and it provided diversification for Grasberg in a larger, better capitalized company. So that was a really good strategic transaction. And from there, we were able to take it and build reserves and develop opportunities. So there may be another one out there, there are fewer and far between, but we’re alert to opportunities. You can’t always plan when the sun and the star and the moon will align.

But we’re ready. We understand what’s out there. And if it makes sense, if it’s something that drives value at the end of the day, then it certainly will be at the table. But it’s not something we feel we have to do.

AH: Well, now I know what the criteria are. I’m keeping my journalistic eyes open and beady eyes on the sector. Look, Kathleen, you are the new CEO of Freeport. What’s on the agenda?

KQ: Well, it’s exciting time. I’m honored to step in as CEO at this critical time in our industry. I’ve worked with Richard for a long time, as you know, and we worked together to build this company and Richard should start a fantastic job in building a culture at Freeport of competence and camaraderie and competitive spirit and doing the right thing for our business and stakeholders. So I’m looking forward to continuing that tradition. I’ve got some priorities that we’ve been talking about with the organization and they center around things like execution. That’s been a hallmark of Freeport, but it’s something you can’t lose sight of and we need to continue to execute reliably and responsibly. That’s something that’s just table stakes. We’ve got to continue to do.

We’ve also got to lean more into technology. And I’ve talked about the leaching opportunity, but it’s broader than that. And over the next few years, I really want to see us find ways to take technology to a new level that helps us be more efficient because it got challenges. You’ve got lower grades, got longer hauls. We need to find ways to be more productive in our business. so technology is a big part of that. Talent development is a big part of my agenda as well. We’ve got a great team of people, but I’m looking forward to the next generation coming up in the industry. I think we can great learnings from them. They can match up with our experienced people and the partnership between the experience and the new ways of working, the new ways of looking at things, I think are going to be very powerful.

I’m very much looking forward to making the company better, leaving it in a better place than where it is today. That’s a tall bar because the company’s in great shape. We’ve done a lot of great things at Freeport. I think there’s more to come. So it’s a really exciting time.

AH: For sure. think your agenda is going to be pretty busy by this time. Kathleen, I’d like to ask you a couple of questions that we ask all our guests. One of them is what’s one thing we might be ignoring, but we all should be looking at related to copper?

KQ: It’s pretty well understood. I can’t think of one single thing that is not understood. And I wouldn’t have said this three years ago, but really over the last few there is greater recognition about the importance of copper. And I think that was missing three years ago, four years ago, 10 years ago.

People just viewed it as another mined commodity. But I think there is recognition now about how important copper is to achieving our goals as a society to become more electrified, more modern, more connected, to take advantage of technologies. Copper is a big part of all of that.

AH: And the other question we have is, if you had to fast forward a decade, what would the landscape for copper look like?

KQ: Well, I really do believe that we’re going to see technology improvements, more automation, more technology, which will allow us to, think, better at what we’re doing today at being more efficient. I don’t see any major new unfound copper resources. The industry is pretty mature. I think that if we look forward 10 years, I think the industry will be a lot more innovative than there has been over the last 10 years. Not that say we’ve been sleepy, we’ve been working really hard at all this, but I think necessity is some other invention and we’re going to see more innovation, more technologies as we look forward.

AH: And now, let’s take a quick break from the interview to hear from one of our in-house experts here at Fastmarkets.

Olivier Masson: Thanks, Andrea. My name is Olivier Masson. I’m a principal analyst in the Fastmarkets battery raw materials team, where I oversee the nickel and copper analysis.

A key theme for the decades to come is decarbonization, which entails replacing CO2 emitting industries and technologies with low carbon or carbon free alternatives. Typically, that means replacing fossil fuels with metals.

Among the first industries to embark on this decarbonization drive, are power generation and land transport, starting with personal vehicles. In both cases, copper is one of the key metals to enable this transition. Crucially, this decarbonisation drive is broadly a global initiative. It will likely spur demand growth in most countries rather than just China, which has been the main driver of demand growth in the past decade. Given the global push towards greater renewable power generation, we expect a trebling of copper consumption for wind power generation over the next decade.

Solar power is a mostly land-based technology and although we expect a solid increase in generation capacity, the lower copper intensity compared to wind power generation means that we expect the growth of copper consumption in solar applications to be slower than for wind power.

The electric vehicle sector is another energy transition linked driver of refined copper demand. We estimate that the average copper content in an electric vehicle to be about three and half times greater than for an internal combustion engine vehicle, with copper required in the battery itself and in the electric motor as well as the wiring.

Moreover, electric vehicles require a charging infrastructure, which also needs its copper cabling. Given the outlook for EVs, we expect this sector to be the major driver of energy transition copper demand over the next decade, with a forecast quadrupling of refined copper consumption over the next 10 years.

With the energy transition increasing the requirements for copper, the question arises of where the industry will find the required additional units. Investments will be needed in expanding existing operations, extending mine life, bringing new projects online, as well as greater exploration activity. So even if some potential future mergers or takeovers are successful, additional copper supply will still be required. This can only come from greater mining activity, an increasing recycling or even technical innovation. One thing is certain, with the energy transition driving refined copper demand growth in the years ahead, the supply side is going to have to find ways to keep up with this demand. This will make copper a very sought after commodity. Activity in the market could get red hot.

AH: And now, back to the interview.

All right, so it’s that time in the podcast where we take a few questions from the audience that were sourced on social media. Now we had a really great question. What makes more sense, developing already discovered large but low-grade copper projects in anticipation of higher prices to make the economics work in the future, or exploring first for higher grade deposits that would be lower on the cost curve but profitable if prices stagnant? Is it all about the grade or is it any cost?

KQ: Well, really the answer is we’ve got to do all the above, but at Freeport, as we look back at exploration and finding grade, I mean, that’s been the Holy Grail for our industry for some time. People have been looking for that high grade because it’s very challenging to get a low grade deposit to work economically. But at Freeport, since we already have infrastructure, we’ve been very good about being able to manage and operate low grade mines, particularly here in the US over last several decades.

For us, that increment of making investments in not only increasing production, but also finding ways to be more productive to bring down the costs of production. That for us has been a better outlook. And we’re not ruling out exploration, but it’s a lot less certain. And like with this leach opportunity, we’re finding a new mine with something we already have right in front of us. And so for us, that is a lot better risk reward opportunity than exploration. So like I said, we’re not ruling out exploration. We’re still doing some, but you can’t put all your eggs in that basket because it’s very rare to have a new discovery. Freeport shows a chart of the major copper mines and when they were discovered. And most of the copper mines were discovered decades ago. Some of them a century ago. So when you look at what’s been discovered recently, it’s a very short list.

In terms of the certainty for us, it’s more on investing in assets that we already have and making them better and making them more profitable and scaling them. But it’s, know, other people have a different strategy because they have what we already had, you probably wouldn’t do what we do starting from scratch.

AH: Some people need to do that exploration. that leads nicely into another question that we had from the audience, which was around the price that incentivizes exploration. Is there a price that spearhead significant exploration encourages the startup of new lines? What’s the incentive price? Or again, is it something different?

KQ: Higher prices bring in a lot of different thought. You’ll see more scrap come available at higher prices. You’ll see thrifting that happens. The topic of substitution always comes up, although it’s difficult to replace copper’s characteristics. But the exploration part is not something that happens overnight. Going from exploration to ultimate development is a decade. It’s even what we’re doing in Chile, where we’ve got it defined. We’ve got this great opportunity to go through the permitting process and construction process. That’s seminary years on something we already understand and we’ve been operating for decades. So the exploration phase takes a very long time. You have to drill multiple cores to understand what you have. You’ve got to work on mine planning, all the ancillary things that go into it. How are you going to manage salines? Or if it’s a leach facility, do you have enough land there? Enough water? All the things that go into planting a mine take a very long time. And so if copper prices were to double tomorrow, the industry just can’t respond quickly enough to add supplies. Now, yes, that’s going to bring out these things I talked about, scrap and thrifting and substitution, but it’s not going to change the ability to take a new discovery and bring it on in three years.

So, we need some more technology to help with that equation, but it’s not there yet.

AH: For sure. For sure. Well, it’s definitely a good story at the moment. Kathleen, I could talk to you for ages. This has been absolutely great. Copper is so central to our everyday lives and you have really clarified quite how much. Thank you so much for giving me your time today. I always learn a lot from you and I know our listeners will have too.

KQ: I just want to tell you thank you for your coverage of our industry. You’ve been following it for a long time and you understand it. You understand the people, you understand all the dynamics. And so it’s always a pleasure to talk to someone like you that has such a deep knowledge of the industry and the market. So thank you for having me.

AH: Well, that’s very kind. And thanks also to you at home, at work, in the gym, in the car, electronic, I hope as well, or wherever you are listening to us today.

In order not to miss any more episodes and why would you want to, please make sure you subscribe to Fast Forward on Spotify, Apple Podcasts, Amazon Music or wherever you get your podcasts. And don’t forget to leave us a review.

The post Interview with Kathleen Quirk, CEO and president of Freeport-McMoRan | Fast Forward podcast episode 4 transcript appeared first on Fastmarkets.

Full episode transcript

Andrea Hotter: Welcome to Fast Forward, a podcast by Fastmarkets. I’m Andrea Hotter, special correspondent at Fastmarkets. And if you’ve been listening to the series, you’ll know that my colleagues and I are taking a look at some of the main issues impacting the critical minerals essential for the world’s energy transition. If you missed the first two episodes, it’s not too late to go back and listen to them. You can find them on Apple Podcasts, Spotify, and wherever you get your podcasts.

This week, we’re going to take a look at the influence of geopolitics on the energy transition. Many of the important questions in commodities nowadays are about geopolitics. Where does that commodity come from? Is it important for national security? And how do we know it has a secure supply chain? But it obviously also relates to foreign policy and international relations. It’s a very big topic and we’re going to handle it with Jeremy Weir, CEO of Trafigura, a major commodity trading house and one of the world’s largest suppliers of minerals, metals and energy. Jeremy, welcome to the podcast.

Jeremy Weir: Pleasure to be here. Thank you, Andrea.

Andrea Hotter: So Jeremy, you’re a geologist turned derivatives trader. You worked on the commercial side at mining and metals companies in your home country of Australia. And then you joined Rothschild Bank in 1992, before moving to Trafigura in 2001, where you went on to become the CEO in 2014. So, you’ve seen a few commodity cycles and running a large group like Trafigura, which is active in 156 countries, you have to navigate global geopolitics on a daily basis. With all of this in mind, I’d like to take a step back at the very beginning and talk about the role of a commodities trader.

Commodities traders are shrouded in a kind of legendary mystery. Many believe they operate in the shadows, they’re highly secretive, they trade as if they’re gambling in a casino. And there’s a view that commodities are highly speculative and far riskier than other asset classes. So, I wondered, can you demystify things a little bit and perhaps bust some myths along the way for us. So, to begin with, what exactly does Trafigura do and why do you think it’s helpful to the commodities world?

Jeremy Weir: I think one of the things is if you talk about dark histories, et cetera, that’s not our business. Our business is actually about supply chain management. And you have to be able to do that regardless of the environment that you’re operating within. And so, if you wind the clock back to pre-Covid areas, there were open markets everywhere. Everyone was focusing on price and efficiencies and one of the clock forward to where we are now, we’ve been through Covid, we’ve got geopolitical issues and we’ve got highly fragmented supply chains. And our function and our role really is to buy the commodity, move it to the location where the consumer needs it in a highly complex environment.

And yes, you do see a lot of price volatility and you see a lot of freight price volatility. We have to navigate that. And you can’t do that if you’re a speculator, you can’t do that on a consistent basis and a profitable basis long -term, to me it just doesn’t work. And so therefore our company has been in existence for over 30 years. We’ve been able to do this for over 30 years. So therefore actually our business is about risk mitigation in a highly complex and volatile marketplace. So really what we do across the entire spectrum of commodities we trade, so it’s the oil barrel, it’s the molecule of gas and LNG, it’s the electron, it’s non-ferrous minerals and metals and bulk commodities. We have to move those commodities logistically from source to end consumer in a transparent and appropriate manner, in a manner which ensures price competitiveness because it is a highly price competitive environment.

Andrea Hotter: Yeah, I remember you telling me previously that first and foremost Trafigura is a commercial trading company and that is the engine room of the business. Trafigura had revenues of over 244 billion last year. In a marketplace where the participants range from little fish to big fish, commodities traders that leverage both the physical and paper side of the market, such as Trafigura, are very successful big fish. So, what does really influence the price? Is it the large trading houses like Trafigura? Do trading houses such as yourselves want to be money-making solution providers, as you just described, or kingmakers?

Jeremy Weir: We’re not sitting there actually having necessary a price direction and a view on price direction of what we do. We’re effectively looking to mitigate the risk. Yes, we have over $240 billion turnover last year. But if you look at the margins around the business we trade and the volatility of the underlying market, actually those margins are quite small in terms of being able to navigate that.

And so therefore in our business, higher or lower prices don’t really benefit since we buy and we sell. We typically expose the commodity price. We have to manage that. There’s other people which have directional views on prices and markets, but that’s not, if you like, our competency. I would say, given that we cover a lot of different markets, we do have very strong analysis. We do understand the dynamics of marketplaces.

And therefore, we’re able to communicate those with our customers and we have our views and we’re able to orient our business, if you like, around that. But at the end of the day, we’re trying to manage price risk, manage basis risk, which is the variability to underline index prices. And that’s what we have to do efficiently, effectively. I think what is important in today’s world is there seems to be a lot more correlation across various commodities.

There is interlinkage. And I think having not only the global footprint that they have, as you mentioned, we did business in over 150 countries last year. But the fact that we’re involved in multiple commodity streams really help us understand the global dynamics of marketplaces. And that’s why we’re starting to see some of the smaller independent traders find it more difficult in today’s environment because it’s just very difficult to survive if you’re a regional and specific commodity.

Andrea Hotter: Yeah. So sometimes bigger is better. Where does Trafigura really care about being dominant in the markets and where do you want to be involved?

Jeremy Weir: I think dominance is not really the right word. We are service providers. Really, at the end of the day, if I move back to Covid, we had a lot of customers which were locked down at home, didn’t really understand what the current dynamics of the markets were. We had a lot of uncertainty. We were able through our market positioning, when I say market positioning, our overall coverage of markets across various commodities, really able to help them navigate through that. So we’re there to provide a service to customers.

And it’s moving just not into the underlying commodity price. Now it’s moving to the carbon markets and other areas, emissions trading, emissions reporting. So these types of things are the things that we really, really want to try and do to assist our customer base as the best we possibly can.

Andrea Hotter: Yeah, I’m glad you brought up customers here because I’d like to talk about what we’re here to talk about today. Obviously, geopolitics. Do you think there’s been a lasting change on behalf of your customers, the producers, the consumers that you work with to more proactively manage the commodity risks in their businesses because of the changing geopolitical backdrop?

Jeremy Weir: We just have a much more challenging marketplace ahead of us in many different aspects. If you look at the mining business, there’s been a lot of talk in terms of managing permitting, managing indigenous issues, local communities, the challenge that exists in the inflationary aspects of new mining.

So therefore, that’s more complex. Then you look at the overall supply chain in minerals and metals as well in terms of there’s historically been a focus on mining, but now there’s also a focus on processing, the concentration risk about processing.

And then you’ve got the emissions footprints that really weren’t something was discussed a lot five years ago. Now it’s very much at the forefront of people’s minds. Then we’d look at AI and other issues. I think it’s a far more complex supply chain than we’ve ever seen. I don’t see a reversion of that, at least in the next five to 10 years. And so therefore customers around the world, both on the producer and the consuming sectors and processing sectors actually have to try and adapt to these challenging environments.

And quite frankly, organizations such as ours should be there to help them.

Andrea Hotter: Yeah. And transparency obviously is important here. Technologically driven advances have really helped transparency, whether that’s the information flow that you’re talking about, the insight into payments, logistics, traceability through the supply chain, all of those things. Do you think that that transparency hinders or helps commodity trade houses? Or maybe it’s a combination of both.

Jeremy Weir: Look, there’s market transparency, but also as a corporation, you have to make decisions. And from our perspective, we’re a large organization. I think I’ve often been found to say, I think it’s important you’ve got an obligation to society and part of that obligation to society and stakeholders that you need to be best in class and people want to know what you do, how you do things.

That’s why even as a private company, we do publish our annual results. We have for a number of years and also our sustainability report and that is a ‘warts and all’ report. And I think it’s important that people understand who you are, the challenges you face and how you operate.

And that’s helped us actually increase our stakeholder base. For example, we’re dealing a lot more with governments and not only just from helping them understand the complexity of supply chains that exist around the world, but also across the various commodity streams, but also from a regulatory point of view, to help them understand some of the challenges that exist.

Andrea Hotter: And those are all things I want to talk about with you today as well. Trafigura, just whilst we finish the little bit about the role of the trader. Trafigura has adapted its portfolio to focus on the energy transition areas, such as renewables, carbon markets, which you’ve also mentioned. Do those that don’t adapt fall by the wayside and become obsolete? I mean, do oil traders, coal traders still have a role going forward?

Jeremy Weir: Oil is still very much a part of the energy mix today. And so therefore what we are is transitioning. I think we’ve seen probably a recognition that that transition will go in fits and starts because it depends on the availability of raw materials, the technology, and the capital availability that exists. And I think that’s where we will see changes.

But from our point of view, we have our own views on life and we direct our business in a certain way. And really, it’s just reflective of what society demands up. As we transition, we’ve got a platform which has capital availability, knows about logistics, can manage risk. And so therefore, what we just do is transition the business as society demands and stakeholders demands. And so therefore what we are doing is preparing ourselves for the future, whatever pace is dictated by the marketplace.

And I think we’re going to be well positioned for that. And so therefore that’s the way we look at the energy transition. But I think it’s important to recognize, I think there is going to be a quite a long tail for hydrocarbon usage because we just literally have many different demands on energy requirements, development of economies in the global South.

And so therefore we have to recognize those and try and find that difficult medium.

Andrea Hotter: They don’t call it an energy transition for nothing. Let’s move on to geopolitics, which has obviously made the world a lot more complicated. One of the ultimate representation of the worst of geopolitics perhaps is physical conflict in the form of war. And clearly the commodity sector has been significantly affected by Russia’s invasion of Ukraine. Similarly, we’ve seen a conflict in the Middle East between Israel and Palestine.

Let’s start with what this has done to logistics and the production as well as transportation of commodities. I’m thinking here about the Black Sea and the Red Sea shipping lanes. Lengthy journeys presumably means higher costs and increased maritime emissions?

Jeremy Weir: Exactly. What we have seen is, particularly in the tanker market, you’ve seen the evolution of the Grey Fleet, which is less known holders or owners of those vessels. And that’s something in the region of about 13 to 14%, I believe, of the tanker fleet. So it’s very significant.

We’re obviously seeing much longer journeys as a result of the conflict and due to sanctions, they’re all barrel traveling to certain locations and not to others. So therefore, it’s creating a problem. We’re forecasting something around about a thousand barrel a day increase just in the bunkering market, just because of the increased shipping journey. So yes, it’s causing problems. We’re also seeing very high rates in terms of the tanker market. And if you look at the shipbuilding market as well, we’re seeing yards full. Be it on tanker markets or LNG carriers, et cetera, in Korea and other locations simply because of the demand.

Andrea Hotter: And you mentioned sanctions there. You know, obviously sanctions or high trade tariffs have been imposed against Russia in a bid to stifle out its economy. When you hear sanctions are imposed, what happens at a company like Traffic Europe? What’s on the checklist as you work to show you’re compliant? Talk me through what happens.

Jeremy Weir: Well, basically we’ve got a very active and attentive compliance team because you have to be in today’s world. Obviously have relationships with the various regulators, but they keep us extremely well informed of any changes. And as soon as there’s a change to some sort of sanctions list or be it the SDN list or whatever, we’re very much aware of exactly what they are. It’s reported and advised to the company globally and particularly the commercial teams and managers advise of what impact it has, how to behave, what the challenges are, et cetera. And we’ve got all the checks and balances there as well. It is extremely complex because you’ve got different regulatory environments and therefore you have to be aware as a multinational company with employees holding different passports that you have to be cognizant of that and making sure you’ve got the right procedures in place to ensure you comply and protect the organization and your employees as well.

Andrea Hotter: Yeah, that’s one of those complexities you mentioned there, the differences between the regions. We’ve seen that play out with metals and the London Metal Exchange warehouse stocks. Much of the material held in LME warehouses now is Russian, which is particularly important for aluminium, nickel and also copper. We saw that play out in the US when COMEX prices soared and companies struggled to make deliveries. And the LME is obviously following sanctions imposed by the UK government, but you talked about complexities. Talk me through what you feel about those complexities when they add these differences between the regions?

Jeremy Weir: Well, often it can be very complex. For example, as you said with the LME and the recent reporting, we’ve had requirements around that, and particularly with respect to deliveries, and the UK government made some further changes and further clarification. So we’re able to understand those better, but there was a period of time where it was a bit difficult to understand and people weren’t exactly sure. So the proper thing is engagement at all times to really understand what are the regulators trying to achieve and how they best been interpreted. And our compliance team work with our legal teams to try and understand.

I think one thing which is also important to recognize in today’s world is that from a compliance perspective, for compliance to be effective within an organization, they can’t be seen as a policeman. This is one thing which has taken some time, but I’m actually very pleased that the compliance division and how they work with the commercial teams has progressed over the last five plus years. They’re really seen as a business partner. When there’s issues where people are uncertain, people rather than just, okay, go on the fly and do a trade, they actually go straight to the compliance people. In meetings when I’m talking about businesses we’re not quite sure of, as I said, nine times out of 10 or more, there’s always been interaction with the compliance department. So I think it’s very important to have that culture in an organization such as ours. Otherwise in today’s world, it’s going to be very, very difficult to comply.

Andrea Hotter: Yeah. And it probably makes a difference for the compliance team to feel valued in a company. Usually they’re the ones everyone’s running a mile from, but no, it’s good to hear. I’m just curious your view. Some people are comparing the current geopolitical backdrop for commodities to the eighties when there were sanctions against Iran, Cold War sanctions against the Soviet Union. I know that predates your professional career a little bit, but what do you think?

Jeremy Weir: I think we’ve got a very fragmented world. We do engage with governments around the world. You can start to see how policy is starting to get defined and what the objectives might be regardless of what side of the house you’re on. And we’re starting to see some definite lines being drawn. And I think it’s going to take quite a bit to turn that around. So I do see we’ve got a very challenged environment. I’d like to think that levels of communication and technology and the fact that people travel a lot more and awareness would start to address some of these issues, at least from a social perspective and as a result, business perspective. But all that being said, I think we have got a very, very challenging environment ahead of us.

And I just hope that we don’t go into a more extended period of conflict or an expanded geographical conflict.

Andrea Hotter: We’ve obviously also seen not just physical conflict, we’ve seen trade wars escalate over the years, most notably between the US and China. We saw the Section 232 tariffs heat up on aluminium and steel. Now we’ve got Section 301 tariffs. We’ve seen 100 % tariff on imports of Chinese electric vehicles to the US, tariffs on more than two dozen critical minerals, including graphite, tantalum, tungsten. There are tariffs on semi conductors and advanced batteries. And it’s not just one way. China also has imposed export controls on gallium and germanium and banned the export technology to process rare earths. It’s going on everywhere. How do you navigate all of this as a commodity trade house?

Jeremy Weir: Well, I think at the end of the day, it’s up to the government to determine what they do. It’s not up to us. And what we have to do is effectively abide by the rules and the regulations within which we operate.

So all it really means is that we have to ensure that we’re really up to date in terms of what tariffs are being imposed or what regulations are being imposed and just ensure you’re at the sharp end of that and comply. That’s it. There’s no alternative to that. But I think at the end of the day, we still are a company which has to provide services and commodities to a global customer base. And we will continue to do that while we can. One thing I think is important is open market, open trade has developed certain supply chains in certain regions to rewire that is going to take a significant amount of time and effort and capital. And I just think the regulators and the governments probably need to appreciate how intertwined some markets are. And it’s not like a Silicon Valley company where you just do something very quickly and you’ve got a new app or whatever it might be. These are large industrial complexes and complex supply chains, which if you want further diversification, it’s going to take time, a lot of time.

Andrea Hotter: Yeah, with that regulatory backdrop, the US inflation reduction now, the EU’s Critical Raw Materials Act, many initiatives, the implications to climate, trade security, foreign policy, they’re potentially enormous in terms of the subsidies, the tax policies and so on. We’re also seeing some of the key commodities that Trafigura deals with being deemed critical, whilst others, we talked about coal and oil being viewed on the way out, even if it is a transition.

It’s not just in the West, China is calling for Made in China 2025, the Belt and Road Initiative. How is all of this changing the nature of commodities trade? You alluded to it there, but is it creating new areas where you say, I’m just not going to get involved in this anymore because it’s not worth it?

Jeremy Weir: Well, there’s some business you just can’t do and some counterparties you just can’t deal with. So you don’t quite simply pass your KYC standards, whatever it might be.

But ultimately, we do have to deal in challenging environments. We have to move materials from sub -Saharan Africa, which can be very difficult to international marketplaces, and we’ll continue to do that. Now, what it just does mean is that the fragmentation that we see in certain marketplaces is inflationary because the costs of moving the material is becoming more expensive because it’s not as streamlined as it used to be. But we will continue to do business in the commodities we operate within and the markets within which you operate in according to international regulatory requirements to the best of our ability. And we may see some of these changes over a period of time simply because costs are too much or commodities are no longer required. But while the commodity still moves and we still are able to do so, we will do it.

Andrea Hotter: I’m curious as to what you think is the new oil in geopolitics? I mean, is it nickel? Is it copper? Is it lithium? How is Trafigura looking at the markets? It seems every few months there’s a new flavor of the month, but I’m interested to hear your view of this.

Jeremy Weir: I think we’re fixated on oil history. If you even think about the oil market, if what we’ve seen over the last six months that happened pre the new oil production coming out of the US and different technology, you would have seen oil prices probably with a three digit number. You didn’t because you had diversification of supply. So therefore, if you’re looking at what is a new oil? I don’t necessarily sort of look at it that way. I look at what are the specifics of the underlying commodities? What are the demand signals? What are the supply signals? And historically, you might have groups, for example, non-ferrous metals together. It’s not the case anymore. Nickel, quite frankly, with what we’re seeing in Indonesia, is in abundance. Now, while some governments might say that it’s a critical mineral, maybe it’s protecting some industries. But, you know, if you look at copper, for example, it’s fundamental for moving the electron.

And the electron is going to be a very important part of the energy stack on a forward looking basis. And therefore, while we’re redoing the grids, if we’re looking at AI and other things, we’ve got a real deficit of copper going forward. I think that’s been well voiced by many market participants. And we have to work out a way to meet that demand signal. But I’m calling it new oil. I think the energy stack is far more diversified. There are different forms of storage of energy as well.

We’ve got 900 carbon falls, so it’s just a much more complex mix on a forward-looking basis.

Andrea Hotter: You know, that division, critical minerals are good and fossil fuels are less good. Trafigura has obviously gone into renewables as a new pillar for the group. Was that inspired by the energy transition, so to speak?

Jeremy Weir: I think what we’re trying to do is if you look at the energy mix on a forward-looking basis, it’s going to be a combination of hydrocarbon fuels and non-hydrocarbon fuels and the electrons. Given the core competency that we as a company in terms of logistics, moving, in terms of supplying commodities, goods, energy, what’s the future of our company? What’s the future of our company product mix on a forward-looking basis? And the thing is you just can’t switch these things on and off. You’ve got to understand how do I move ammonia? How do I manage hydrogen? Given the volatility on renewable energy, how do we provide power and electricity to companies? So those sorts of things, we need to understand them. And those skill sets have to be built up over a period of time. So our view is quite simply, let’s ensure that we have a view on where we think the energy market and the energy transition is taking us. Where does Trafigura fit into that new world, can I say?

And how can we develop the competency to ensure that we’re able to provide those services to a customer base? But also let’s build that competency over time. So when the society demands, we’re really in a very, very strong position to provide those services. So therefore the platform of the company just pivots. It pivots as we move, as we go through that transition, but you can’t just turn the switch on and off. It’s five years plus of building core competencies in underlying markets. So then you’re able to provide the services competitively.

Andrea Hotter: So that diversification is interesting because we all like to talk about globalization and free trade, but there’s a huge amount of polarization underway. When Western governments talk about friendly nations and working with them, they’re typically really talking about diversifying buying away from a reliance on China. They’re all talking about the desire to create resilient supply chains, but aren’t we adding to their volatility by moving away from China? The point I’m trying to make here is, don’t we just need to get over this east -west divide? What would happen if we brought down the barriers instead of raising them?

Jeremy Weir: Well, I think obviously we’ve seen China has through three decades of industrialization and developing its economy, which has been extremely successful. It’s become quite resource hungry, but it’s also built an incredible competency in certain market sectors, particularly in metal processing. Now, they’re quite light on resources. Okay, they’ve got very little copper, little bit of zinc and lead, obviously a lot of coal, but they need the minerals and metals to process it for the development of the economy. They’ve done that very well. And if you look at who have built the most smelters in the last three decades, probably 80 % plus has been built in China. So they’ve developed that. And I think up until recently, the West has been pretty comfortable with that. But as we look forward, and even if you look at what happened with Ukraine and the European energy, there’s a parallel there by saying over -reliance on one particular sector is not necessarily a good thing or not strategically a good thing. So therefore there’s a resetting going on. So we just have to, I think, have a balance between what is required, what is a sensible strategy globally going forward to provide a diversified supply chain rather than a concentrated supply chain. That’s what the world is starting to grapple with at the moment. And it’s going to be very interesting to see how that plays out. But I just think that’s the trajectory. And quite frankly, it seems to be a relatively sensible one.

Andrea Hotter: Do you think the West can ever really achieve that goal, decoupling its incredibly integrated supply chains from China, given the dominant position that the country has in processing, manufacturing, and as a consumer of commodities?

Jeremy Weir: Well, historically you’ve seen processing around the world. And the thing is, what is the economic dynamics of that at the moment? We’re seeing incredible challenges. If you look at the smelting industries of copper and zinc and lead at the moment, quite frankly you question the viability of these occurring outside of China. But I’d like to think that’s a cyclical thing and that will change. But look, you can argue, is it better to build where the energy source is there or where the resource is? So there may be different dynamics at play here, which can justify being built in Mexico, being built in South Korea, being built in Sub -Saharan Africa, being built in other consuming areas. So I do think it’s appropriate that they can be built outside of China. And I think it’s just a further diversification.

I think the other flip side is obviously China is a big exporter of finished product. And so therefore they need those international markets as well. It’s not just the domestic market, which is satisfying the requirements of the production.

Andrea Hotter: Right, exactly. And that comes to an interesting point. Obviously, mineral wealth is fixed geographically. You’ve either got it or you haven’t got it. So if you’re not a resource rich country, you’re going to need to work with partners that are, right?

Jeremy Weir: Correct. And look, you’re starting to see that with alliances being built at the moment.

There’s a different mix of player in today’s world. You’ve obviously got government players, government institutions from the Middle East coming into the mix now, rather than private enterprise and where historically it’s been Chinese backed enterprises been quite adventurous from an expansion point of view, particularly in a higher risk area. So the dynamics are changing very rapidly.

Andrea Hotter: With those partners, that change obviously brings a change to the financing backdrop you’ve mentioned.The sovereign wealth funds, new players coming in. I mean, how is that changing competition? Because I assume the drivers are very different for those types of investors.

Jeremy Weir: There’s two parts to it. One is from, if you like, people seeing the energy transition and how can they play and how can they diversify. Maybe, for example, if you looked at the Kingdom of Saudi Arabia, how they diversify in their investment portfolio, how they’re saying, well, we can possibly be a processing hub, then develop a mining industry. I think they’ve got some long -term planning in place and now they’re looking at how they further expand a field through that process. Obviously, you see investments from the UAE as well. You’ll see investments in certain sectors like in Zambia. But I think the other areas is not just from a long-term positioning with respect to the supply of raw materials, but also actually the demand side where we’re seeing governments recognizing of what critical minerals is. If you spoke to certain governments 10 years ago about critical minerals, they would have been looking as though you’re coming from another country or out of space. It’s something which is quite new and they recognize the importance of minerals and metals to the energy transition. So therefore we’re starting to see government starts of European credit agencies and other import export agencies providing finance. And we as a company, for example, are accessing that form of finance and providing those commodity flows, be it LNG into Germany, into Europe, into Italy, into metals, into Europe, into South Korea, into the other governments. And so it’s not just the equity side of the business, but also in terms of securing flows for future demand on a long-term basis, which is interesting.

Andrea Hotter: Yeah, for sure. And I’m really curious to hear a little bit more about the partnership that you have with the US government in the Lubito corridor of Angola. We had Helena Matza, the State Department on the podcast.

And she was talking about the import -export trade route that you’re creating between the African Copper Belt and the Atlantic coast of Angola. Can you tell me a little bit more about this from a Trafigura perspective?

Jeremy Weir: Interestingly enough, it was the old Zaire railway line, which was destroyed during the Angolan Civil War. And since then it was being rebuilt. And what we have done is basically there was an open tender held by the Angolan government, which we together with partners were successful in that tender. And effectively it’s a 30 year concession where we are operating that railway line. There’s a significant capital investment to upgrade the railway line on the Angolan side, but also refurbishment on the DRC side. And that has a massive impact. It’s going to initially, post ramp up, have a 1 .5 million ton capacity. And what that means is that you will basically take copper out of the DRC, out of the copper belt to the coastline in roughly say five working days, give or take. Currently it takes five weeks by trucks and you’ve got massive congestion obviously has a huge impact on emissions footprint, on society, on road degradation and security of supply because there’s often a lot of robberies, quite frankly, which take place. So really it has a massive impact and that will, I think, drive a lot of inward investment into the region. It’ll also increase trade through Angola and have a huge impact of opening up the whole Angola railway line. So it’s a new economic artery for the region. It really has a positive impact.

So we, together with partners, we’re working with the DFC on a financing. It’s been a very constructive process and very pleased as to the progress. And I think we’re hopefully at the final stage of finalizing that. I think it’s going to be a very, very successful partnership.

Andrea Hotter: Great. I look forward to seeing how that develops. I’d like to turn now to the carbon markets, which I think have been a really important development influenced heavily by climate targets set through international agreements like the 2015 Paris Agreement. We’re seeing the introduction of the carbon border adjustment mechanism by the EU, the emissions trading scheme too. We’re seeing geopolitical battle lines being drawn between countries over climate targets and critical minerals. I wonder whether the creation of a global carbon market, which is what we all seem to want, is actually being held back because it requires coordination across borders to prevent the so-called carbon leakage that we hear about.

Jeremy Weir: I don’t know how many emission trading schemes we’ve got around the world, but it’s a lot and they’re really moving very quickly. And I think the main thing is that it is fragmented and we haven’t got a consistent carbon price around the world. And quite frankly, I think it’s going to be very, very difficult to get there. But what we are seeing is, for example, with the carbon border adjustment mechanism, people concerned about fiscal leakage. And so therefore new schemes have been established pretty quickly. By developing a carbon price, I think that’s a good thing. So therefore we can start to understand what the cost of emissions is and we can start to price that accordingly. We’re very much involved in the market in terms of we have a joint venture with Palantir for Scope 3 emissions tracking. So we can start to understand what the emissions footprint is on basically when you acquire a ton of copper in a certain location or a barrel of oil, whatever it might be, you have a high degree of granularity of what the emissions footprint is around that. Other industry members are saying, let’s get the data. Let’s try and first of all, understand what the emissions footprint is.

Once it’s understood, then we can start to deal with it. Then we can start to say, how can we reduce it? What’s the technology around reducing it? And then more importantly, what are the other mitigants? And so therefore we’re spending quite a lot of time on nature-based removals. We’ve got a carbon trading team, which is very active in the marketplace, providing services to the industry, but also looking at nature-based removals, which are Article 6 compliant to just see how these can be developed and how can these be applied. And we are seeing a lot of interest from some industries around the world.

Andrea Hotter: Yeah, fascinating. And it all plays into the role of environmental, social and governance standards or ESG and how they’re being impacted by geopolitics. I find this a really interesting topic because auto OEMs on the one hand are expressing concerns, let’s say about the standards at some nickel production facilities in Indonesia, which also have a major Chinese shareholder base. While at the same time, they’re also moving to invest in Indonesia themselves.

And as far as I can tell, no one stopped buying Indonesian nickel on mass. So which is it? Is geopolitics driving momentum and sustainability or is it just not there?

Jeremy Weir: You’ve got many different vested interests on this one. I think what we’re seeing is huge technological advancements in nickel production. There are some environmental concerns, not just on the process in some of the technology, but also from the mining perspective. That’s been highlighted for those which you could argue are higher cost and disenfranchised in that process. But I think one of the issues we do have, and I think it’s a common concern, is that we don’t have standard ESG standards. So what standards do we have and how do we actually comply with these standards and how can we benchmark against these standards? So therefore we can then start to really address the problem.

But coming back to your particular question, I do think we are having different standards across different regions. I do think things like carbon tax on nickel, people looking at carbon pricing and saying, well, why aren’t we pricing differently? Should we have a green premium on certain minerals and metals? Until we have a carbon price, which is acceptable, even if it’s under different emission trading schemes in different regions, we’re not going to get any green premiums until we have actually a defined carbon price.

Andrea Hotter: Also, that obviously really depends an awful lot on tracking and tracing. I mean, there’s a regulatory drive to monitor the origin of materials, which is also being in part driven by this geopolitical backdrop, which means we need to have a much better handle on the traceability of supply chains. There are some decent steps being taken, but there’s a long way to go. As we improve, as we know more where things come from and how they’re made, do you think where the line people draw to not do business become firmer and more solid? That fragmentation becomes more structural as it were?

Jeremy Weir: I think you’ll have a differentiator. It does come back to economics initially. Okay. I do think you’ve got to get a carbon price.

But even if you look at carbon or if you look at other ESG standards, responsible sourcing, all these sorts of issues, I think some people will say, no, I’m not prepared to buy that. Even in our own process of responsible sourcing, we do our own KYC analysis of our counterparties. Some people we won’t buy from, quite simply. So therefore there are those standards that companies have. And once you have transparency around that, it’ll make life a little bit easier. But quite frankly, the trend is inevitable. We’re in a certain path and trajectory. And I think it’s important that we continue that.

Andrea Hotter: Jeremy, I could dive into all of these topics much more deeply, but I know we’ve only got a limited amount of time. So I do want to ask you something we’re going to ask all of our guests, which is what one thing we should be looking for, but we might be ignoring. Where might we have the blinkers on at the moment?

Jeremy Weir: I think one of the issues is the power markets. First of all, the capital investment in renewable energy is huge. But the efficiency is still not great. If you look at the solar side of things, even in China, we’re probably looking at high teens efficiency. If you’re looking at tracking solar panels, maybe in India, I’m hearing mid 30%, which is very, very high wind, et cetera. So therefore, installed capacity doesn’t mean that’s the available power. And at the same time, we’re trying to decarbonize. So we’ve got huge amounts of pressure on the existing systems. We’ve got out of date grids which haven’t got the capacity to deal with the huge amounts of future power requirements, even in developed markets. And that’s before we start talking about emerging markets. So volatility in surges of power, that’s a problem. And then you’ve got the AI side of things, data centers and that. So we look at what the usage of industrial power is now, but then we’ve got a whole lot of other usages and demands, which are going to be extraordinary. So therefore we’re not only trying to deal with an energy transition, we’re actually trying to deal with massive increased capacity or power requirements on a forward-looking basis globally.

So how do we deal with power generation? How do we deal with movement of the electron and how do we do with energy storage, particularly when we have volatile, renewable sources of energy? So that to me is the big question which you have to try and solve. And I think people just waking up to it, if you look at forward power prices in the US at about two years, I think there’s a big wake up call there.

Andrea Hotter: Yeah. And obviously you’re going to take a lot of critical minerals to get there too. So, good news for the commodities world. And if we had to fast forward a decade, what will the landscape for critical minerals look like given current geopolitical trends? Obviously, we don’t know where we’ll be exactly with geopolitics in a decade, but if you had to guess, where would you say?

Jeremy Weir: I think we’re going to see higher price environments for a start. I think we’re going to see more diversified supply, particularly in the process inside you. You can’t change your geology so the resources are where they are. You may see development in new areas.

I really hope we’re going to see a great mining ecosystem developed in sub-Saharan Africa, which will be highly positive for those countries. And I’d really like to see that, but we’re going to see, I think, higher prices. People are going to get used to the fact that commodities aren’t going to be higher priced. We’re going to see probably a bit of inflationary results, but we shouldn’t necessarily be too scared of it because if you see the copper price at $15,000 or even higher, I don’t think that’s going to have a huge increase on component prices on a forward-looking basis. But the biggest issue is actually have we got the supply to meet the forward demand? That’s going to be the critical issue. And are there any other technologies which can displace some of the existing materials or the way we do things? That’s going to be the challenge.

Andrea Hotter: Yeah, fascinating. And now, let’s take a quick break from the interview to hear from one of our in-house experts here at Fastmarkets.

Lasse Sinikallas: Thank you, Andrea. And my name is Lasse Sinikallas. I’m the director of macroeconomics here at Fastmarkets. I wanted to take a look at the global economic growth and the energy transition on discussion and how oil price and the fossil hydrocarbons prices like natural gas, they used to be the inflation driver in most of the advanced economies, most of the global economies as well. So basically oil price defined the level of inflation when Russia attacked Ukraine. There was a big push in inflation and energy with the energy in a flow from Russia to Europe being stopped gradually and now being more or less close to zero.

Now that Russia is out of the game, so the hydrocarbon based energy has to come from somewhere. It has come from both the USA and from the Middle East, the traditional hydrocarbon hub of the world. Now with the latest war in Gaza, so that means that everybody was expecting the oil prices to push higher again, but that hasn’t happened. And that’s partly because of the major transition of US oil production becoming the largest in the world. And at the same time, Europe, which is one of the key areas in the world that consumes oil, which is imported, Europe is very much already moving on with the energy transition.

We’ve seen a huge amount of renewables added to the European energy market. There’s a lot of CO2 neutral power becoming online. We have some nuclear, but we have a huge amount of solar and wind energy. And those are a big game changer in the sense that the energy driven inflation, which used to be very important for those industries, which are connected to the commodity supply chain, say forest products, metals, even agriculture products. All those supply chains were very much seeing those impacts from the energy price changes.

Now, with the electrical power and with sources of that power being solar, nuclear, wind power, they are almost inflation neutral. The inflation for those comes from the price of those raw materials going to solar panels or wind turbines. It comes from labor market. It’s not that much of a geopolitically connected thing. And that to some degree immunizes those countries now moving into the sustainable or renewable or zero CO2 energy sources. And at the same time, it changes the game the industries are playing because slower producer price inflation due to energy will mean more stability, more ability to build the business on those energies.

Andrea Hotter: And now, back to the interview.

So Jeremy, it’s that time for the segment in the podcast now where we’re going to throw some audience questions at you, which I sourced recently by social media. So first question we had was, we’re seeing a lot of geopolitical tensions impacting Europe and the Middle East energy supply chain. So what strategies can mitigate these disruptions?

Jeremy Weir: Good question. I don’t know how you resolve the current geopolitical issues at the moment. We have got problems, obviously. We talked about long shipping routes, disrupted supply chains. These are due to sanctions and other issues. Until we have a resolution of certain conflicts, quite frankly, I don’t see how we’re going to address these problems in the very short term. And we’re going to have to have some fundamental changes with the current conflict dynamics and geopolitical dynamics to address on a sustainable basis.

Andrea Hotter Yeah, fair enough. The next question goes back to the idea of price purification and the move away from global pricing as geopolitics pushes countries to sort of split off into trading blocks.

How does the potential rise of bilateral trade, especially between the BRICS nations, impact Trafigura’s plans for the next couple of years?

Jeremy Weir: It doesn’t really. I mean, we source from multiple jurisdictions and we sell in multiple jurisdictions. And while we have disrupted supply routes and as we talked about, we have sanctions where we can’t trade in certain things or trade with certain companies. We just comply. But at the end of the day, the molecule, the tunnel will be sourced and supplied within them most economic parameters. Whatever is thrown at us, we have to adapt to that. We’ve got to function and then we have to continue to provide that function to society.

Andrea Hotter: And then the last question we had was around energy supply and its impact on commodities. So higher prices, energy supply, obviously they’ve been a big factor in forcing the closure of commodity smelting and processing capacity in Europe. We’re waiting to see whether Ukraine and Russia renew their transit agreement to continue to send Russian natural gas by overline pipelines to the EU after the share. Is Europe at risk of losing its processing industry?

Jeremy Weir: Look, high energy prices are a problem. We have a zinc industry and we had to try and manage that industry when we had very high energy prices. But I think coming back in particular to gas, the consensus view appears that Ukraine will not renew the agreement and that has largely been priced into the gas market. It also should be recognized it’s less than 10% of what Russia used to supply to Europe. So there’s alternative forms of energy.

And really higher energy prices in Europe compared to, for example, the US is definitely a big issue for domestic processing. And as I mentioned before, that was a problem for us within Neostar, a zinc smelting business, but we’ve been able to manage that. And I think that’s what we start to see. There’s a little bit of industry coming back at the moment. So we seem to be bodied out and hopefully that’s going to be the case. But energy prices now at current levels are something which we can manage.

Andrea Hotter: Well, Jeremy, it’s a complicated world, but thank you for taking us through it. And thank you so much for being in the hot seat today. We really appreciate your time and answers. I personally have really enjoyed our chat.

Jeremy Weir: A pleasure, Andrea. It’s been a pleasure for me as well.

Andrea Hotter: Thank you very much. And thanks also to the audience for joining us today. In order not to miss any more episodes, make sure you subscribe to Fast Forward on Spotify, Apple Podcasts, Amazon Music or wherever you get your podcasts. And don’t forget to leave us a review.

The post Interview with Jeremy Weir, CEO of Trafigura | Fast Forward podcast episode 3 transcript appeared first on Fastmarkets.

In a wide-ranging 30-minute conversation, Jeremy Weir, executive chairman and CEO of Trafigura, and Andrea Hotter, Fastmarkets special correspondent, discuss some of the major challenges commodity traders of all sizes are facing, including:

Weir also shares how Trafigura is preparing for the energy transition, questions the viability of base metals smelting capacity outside of China, and much more. Subscribe to Fast Forward to get the episode as soon as it drops.

About Jeremy Weir

Jeremy Weir became Executive Chairman and Chief Executive Officer of Trafigura in April 2018. This follows his appointment as CEO in March 2014 after a career spanning nearly three decades in commodity and commodity derivative markets. Learn more about Jeremy and Trafigura.

The post Trafigura CEO Jeremy Weir calls out market fragmentation as biggest challenge facing energy transition appeared first on Fastmarkets.

Hosted by Andrea Hotter, the episode features Paul Lusty, head of battery raw materials research at Fastmarkets.

The key points covered in the discussion include:

• State of the lithium market
• Outlook for global EV sales and the rise of plug-in hybrid electric vehicles
• Latest EV battery chemistry trends and preferences
• Challenges in decreasing reliance on Chinese supply chains
• Factors to keep a close eye on in the BRM markets

Listen to the full episode and subscribe to Fastmarkets’ Fast Forward podcast on Spotify, Apple Podcasts, Amazon Music or other podcast providers today.

What is the state of the lithium market?

The lithium markets experienced a major price rally in late 2022, followed by a correction in 2023 that resulted in an 80% drop in lithium prices. This downturn has prompted producers to cut costs and delay investments, particularly affecting supply chain development outside China.

While the lithium market currently lacks direction, we are beginning to see positive signals that could lead to price increases in the coming months:

• Strengthened spodumene prices: Spodumene prices have increased by 40% from the 800-900 per tonne range seen in February, which is expected to support chemical salt prices later in the year
• New Chinese automotive policy: The Chinese government has introduced a policy to boost consumption in China which led to a rally in Chinese lithium futures prices
• Increased battery installations in China: Battery installations in March 2024 resulted in a 70% increase month-on-month and a 40% increase year-on-year
• Destocking cycle coming to an end: Analysis shows that since the price fall of 2023, Chinese producers have de-stocked around 70,000 tons of lithium carbonate equivalent. This trend cannot continue indefinitely and consumers will eventually need to return to the market for new materials

The lithium market is expected to mature with time, resulting in increased liquidity, more suppliers and diverse sources. As the market stabilizes, demand fluctuations will have less impact on prices and volatility should decrease over the next five to ten years.

What is the outlook for EV sales?

EV sales growth rates have slowed since the exceptional growth rates of 2021 and 2022, dropping to a 36% year-on-year growth rate in 2023 from over 100% back in 2021.

Some commentators suggest the EV market is losing momentum, but Fastmarkets believes it will continue to grow steadily at a more sustainable year-on-year growth rate over the next decade.

The current market trends reflect various regional and country-specific challenges:

• Countries with high EV penetration, like China and Norway, are seeing slower growth due to market saturation, but China’s robust charging infrastructure combined with affordable EVs are likely to continue to drive consumer adoption
• Sales in Europe and the US have fallen short of expectations, largely due to interest rates impacting vehicle financing and consumer buying decisions
• The Asia Pacific region is experiencing exceptional growth, particularly in emerging economies like Thailand, which saw nearly 500% year-on-year growth recently, powered by strong government policies and incentives

Plug-in hybrid electric vehicle (PHEV) sales have been rising at a stronger rate than full EVs in the US and China. In China, market saturation in major cities and the lack of established EV charging infrastructure in rural areas are making PHEVs a more practical choice. In the US, PHEVs appeal to buyers hesitant to switch to fully electric cars due to range anxiety and a preference for long-distance travel.

What are the latest EV battery chemistry trends?

NCM (nickel cobalt manganese) chemistries have seen a resurgence in the past year, particularly for NCM 622 and NCM 523 as a result of lower BRM prices. LFP (lithium iron phosphate) demand has also increased.

LMFP (lithium manganese iron phosphate) has recently been included in Fastmarkets’ chemistry forecast due to rapid advancements in LMFP cell production and commitments from original equipment manufacturers (OEMs) to use this chemistry. We are anticipating LMFP to capture 17% of the passenger EV market by 2034.

Sodium-ion batteries, similar to LFP, arrived on the scene due to high lithium prices in 2022. Given the low lithium prices right now, there is little incentive for commercializing sodium-ion technology and it is predicted to capture only 4% of the battery market by 2034.

In terms of energy storage, solid-state batteries are generating interest due to their potential for significant advancements in range and charging times. Recent announcements, like Toyota’s claims of 750 miles range and 10-minute fast charging, highlight their promise. However, there are still significant technical and manufacturing challenges to address before they can be widely commercialized.

What are the challenges in reducing dependency on Chinese supply chains?

There are many policy and regulatory efforts to regionalize supply chains, such as the Inflation Reduction Act (IRA) aimed at onshoring and clean energy investment in the US, the push for Chinese de-investment from lithium projects in Canada and the establishment of the National Security Investment Act in the UK.

In terms of markets, graphite is a great example that exemplifies the challenges in moving away from Chinese supply chains. With the US regulations for critical minerals coming into effect in 2025, no EVs will qualify for the 30D tax credits under the foreign entity of concern (FEOC) definition, since nearly all natural anodes are produced or processed in China.

Another example of this is nickel. Indonesia’s dominant nickel market, backed by the Chinese steel industry and investments, faces compliance challenges with FEOC guidelines. Over 25% Chinese ownership in major projects and the lack of a US free trade agreement affect its eligibility for new EV tax credits under the IRA.

There will be significant challenges in reducing reliance on China due to its established dominance in this space. Policymakers need to understand that building economic capacity and resilience takes time.

What should BRM market participants watch for in the next decade?

1. The impact of the low-price environment on BRM supply

This is expected to cause BRM supply challenges by the late 2020s, leading to deficits in the next decade. The weak market sentiment is discouraging investment and essential project development, which could hinder the establishment of supply chains outside of China.

2. China’s response to the low-price environment

China remains poised to dominate global EV and battery production, posing risks to US and European automotive industries. It may move to support financially challenged projects or invest in underfunded areas like Africa and South America.

3. Battery recycling and the circular economy

This will significantly impact the BRM industry in the next decade. Regulations focused on minimum recycled content and supply chain performance will drive increased use of recycled materials in batteries.

4. Green premiums and other pricing mechanisms

The industry should anticipate the emergence of pricing mechanisms for green or low-carbon materials in BRM markets in the coming years. These mechanisms may include regional premiums tied to regulatory compliance, such as the IRA.

Fastmarkets’ Fast Forward podcast provides invaluable insights for industry professionals, metal traders and battery material buyers. For more in-depth discussions and to stay updated on the latest trends, be sure to listen to the full episode and subscribe to the Fast Forward podcast.

The post What to watch in the battery raw material markets: Five takeaways for the next decade appeared first on Fastmarkets.

Hosted by Andrea Hotter, the episode features Helaina Matza, special coordinator for global infrastructure and investment at the US Department of State.

The key points covered in the discussion include:

• The legislative initiatives pushing energy transition forward in the US
• The intricacies of managing international projects in the global economy
• What it takes to scale operations and secure financial support
• The complexities in the relationship with foreign entities like China
• Factors to keep a close eye on in the short-term

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Bipartisan Infrastructure Law (BIL) and the Inflation Reduction Act (IRA) are pushing forward energy transition in the US

In recent years, the US has seen significant legislative actions like the Bipartisan Infrastructure Law (BIL) and the Inflation Reduction Act (IRA).

The IRA aims to cut emissions by 40% by 2030, but its ultimate goal is to drive economic growth, create jobs and set a global standard for decarbonization and sustainable practices. It represents a landmark in legislative history, directing over $369 billion toward sustainable job creation across the supply chain. The BIL complements this with $97 billion in clean energy incentives through loans and grants from the Department of Energy (DOE). These initiatives have already created over 210,000 jobs, demonstrating significant impacts on employment and worker rights.

There is plenty of energy in the space around the electric vehicle (EV) revolution. Despite a minor deviation in EV deployment and sales trends in the US, the growth outlook is positive and supported by initiatives such as the DOE’s grant program, tax credits and other incentives for customers and manufacturers of batteries and EVs. With 30 gigafactories in development, the US is actively pursuing sustainable mobility and technological innovation.

Understanding the intricacies of the global economy is crucial to managing international projects

The US, in partnership with the G7, is leading a shift in its foreign economic policy with the Partnership for Global Infrastructure and Investment. This initiative aims to deploy $600 billion to address infrastructure gaps in emerging economies by 2027. The investment strategy covers a range of sectors, including clean energy, agriculture, digital access, healthcare and crucial physical infrastructure like ports and rail systems. It represents a move towards sustainable development, focusing on collaborative, value-driven engagement with the global south, aiming for mutual progress without imposing heavy debts.

However, recognizing the interconnectedness of the global economy is crucial. The key focus in the US lies in bolstering the domestic economy, generating new employment opportunities and transitioning towards decarbonized job sectors. The challenge is in scaling these innovations to a broader market on an international scale. Global cooperation is essential, not only with established allies like those in the G7 but also with nations in the global south. This is especially true in critical sectors like semiconductors and critical minerals for EV and clean energy sectors.

An example of this is the Lobito Corridor project.

Scaling operations and securing financial support requires strategic efforts with willing partners

The success of entering new markets depends on two main factors: the geological presence and the willingness of local partners. The latter is influenced by aspects like having a democratically led, transparent governance structure and its readiness to improve its investment environment. Both of these are crucial for attracting foreign direct investment (FDI).

Financing projects in emerging markets requires shifting investment from developed markets, which is a step that demands patience and strategic efforts. Leveraging concessional capital and partnerships with the US, EU and private sectors, alongside de-risking initiatives, can lower capital costs and boost confidence among financial partners. This model plays a crucial role in changing perceptions and encouraging investment in these markets.

The primary challenge in our line of work lies in scaling operations to address the vast scope of needs. Despite progress, current efforts don’t cover all areas that need this support, particularly where critical minerals are lacking. A comprehensive strategy, along with willing partners, more resources, better transparency and regulatory improvements, is essential to expand economic development and prove the viability of these projects.

“I am very optimistic,” says Helaina Matza, “as you probably can hear from my enthusiasm for the work that I’m lucky enough to take part in. But the challenge is really in scale. And so, the work that we’re doing on the continent of Africa is certainly not indicative of all the need on the continent.”

“There’s many other corridors and areas that require additional investment, some that maybe are lucky enough to have critical minerals that help make that investment a bit easier, but many that do not. So, how do you scale this theory of economic development deployment in a way that we can cover more markets more broadly? I think it’s going to be a bit of a trip,” Matza says.

Diplomacy remains key despite the complexities in the relationship with China

Concerns persist over economic policy and overreliance on single-country supply chains, such as in the case of China. Matza says that efforts are underway to diversify these supply chains.

“Creating that diversity, whether it’s all at home or in other parts of the Indo-Pacific with our European partners is in interest of the global market,” says Matza. “We’re talking about some very nascent minerals and metals and then some that have been trading for a long time. So, as much as we can invest in diversity and resilience, to help support the normalization of this market to the extent we can. We think that’s our goal and objective. And that’s a big piece of how we’re approaching this issue.”

The implementation and rollout of regulations concerning foreign entities are complex, such as in the case of nickel from Indonesia, where there is a reliance on Chinese shareholders in its production process. The treasury and energy departments are working to provide guidance and clarity, though challenges and questions remain regarding definitions and practical application.

The policies aim to balance short-term constraints with long-term benefits by engaging with various stakeholders, including the automotive and battery industries and critical mineral producers, to ensure resilience and support investment, despite the inherent complications and subjective nature of what constitutes effective control.

Key things to keep a close eye on in the short term: market trends, elections and supply chain health

• Closely monitoring market trends in essential battery raw materials such as nickel, cobalt and lithium is vital, particularly for mining and processing projects in the industry that are temporarily on hold. Market fluctuations could have significant impacts on where we go next.
• The presidential elections in the US. If the administration changes, so could some of the narratives – but there are some reasons to be confident. There is a bipartisan agreement on the importance of strategic competition and supply chain security for the US and current efforts focus on long-term development with work expected to persist across future administrations.
• Continuous effort and attention to supply chain health and international relations are necessary, even in times of success, to ensure ongoing progress. Global enthusiasm for local innovations is well-deserved, but partnerships and global connectivity, despite potential shifts, remain crucial.

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Full episode transcript

Andrea Hotter [AH]: Welcome to Fast Forward, a new podcast by Fastmarkets. I’m Andrea Hotter, special correspondent at Fastmarkets, and over the next several months, my colleagues and I are going to take you on a journey through some of the main issues impacting the critical minerals that are powering the world’s energy transition.

Now for our inaugural episode, we decided to take a look at the regulatory backdrop. I know, I know regulation, it does sound quite boring, but before the word regulation makes you all switch off, I promise you this won’t be a dull conversation. Today, we’re going to be discussing a number of things, including what exactly minerals-focused development looks like, who’s working with whom, what’s going on in Indonesia, what’s the approach to China, and what you should be paying attention to that you might not be aware of.

So, to bring us up to speed on the state of play with the energy transition. I’m here with Helaina Matza of the U. S. Department of State. Helaina is the Special Coordinator for the Partnership on Global Infrastructure and Investment. Helaina, it’s really good to see you again. How are you?

Helaina Matza [HM]: I’m doing great and it’s so great to see you as well. Really happy to join you today.

AH: Well, big thank you from my side. I know you’ve been really struggling with your voice this week, so I appreciate you doing this podcast while you’re feeling sick and I hope it doesn’t contribute to you getting laryngitis or something.

HM: I think we’ll be okay, but you know, we’ll definitely work on my voice a bit.

AH: All right. Well, so to kick off, I think it would be really useful for you to talk about the United States where we’re having this conversation from and give me a kind of a sense of what it’s like to be in the U S market right now. Can you, can you kind of lay the land out for us?

HM: Sure, happy to do so. And so, in the case of the United States. There’s been so much energy and action over the last several years since the Biden administration started. We had historic legislation passed from the bipartisan infrastructure law to the Inflation Reduction Act as well.

And that’s done so much to change the tone in the U S market. We are seeing that the IRA alone will help us cut emissions 40% by 2030, which is about 80 percent towards the implementation of our N. D. C. That’s not just the climate goal. That’s also informed by an extreme amount of incentives and growth within our own economy. So even though we’re seeing a bit of a dip in the trend that we anticipated for US EV deployment and sales, we still are anticipating to have a 20 percent increase this year, with that increase continuing over the next several years at the same rate, if not larger. We have 30 gigafactories planned or under construction, and we are working diligently to implement the different opportunities that came out of both BIL and the IRA through the DOE grant program and several other incentives that go directly to consumers, but also to the manufacturers of battery packs and EVs themselves, as well as some of the processing technology along the way.

These incentives also go over to solar manufacturing as well. But for the purpose of this conversation, we see so much energy in the space around the EV revolution.

AH: You mentioned the IRA there, and I think probably unless you’ve been living under a rock for the past 18 months you’ve probably heard of the Inflation Reduction Act, right? So it’s certainly the area where I’m getting the most questions and I know you’ll be able to answer them far more eloquently than I probably could ever. So let’s take it to the basics, perhaps: what exactly does the IRA have to offer and for whom?

HM: Absolutely. So the IRA is a really historic piece of legislation. This is the deployment of over $369 billion of incentives to create new, clean and green jobs all across that supply chain with different opportunities for every group that participates, whether that’s the private sector, consumers or workers themselves. So in the case of the private sector, we have several new clean energy tax credits, and more than $200 billion in new clean energy investment from the private sector really has taken off since the IRA passed and since the president has taken office.

And the bipartisan infrastructure law is deploying $97 billion from DOE in clean energy incentives vis a vis loans and different grants. For workers, this offers approximately five times the incentives to companies to pay their workers a prevailing wage and register and use registered apprenticeships.

So being able to pass that down vis-a-vis incentives to improving worker rights. And already we’re seeing clean energy projects since the IRA created more than 210, 000 jobs. And so, so much of the thinking is, how do we use the energy within our own economy, no pun intended, to help not only create jobs, to demonstrate there’s other ways to participate in our economy that helps us decarbonize as we go, but push those opportunities to the rest of the world, which is really what I spend most of my day doing.

AH: So that’s obviously a lot of money and a very big laundry list. Okay. So, I guess getting down to the nitty gritty: exactly how is the US looking at doing this, at actually implementing the IRA?

HM: Sure. So as I mentioned, there’s a handful of different tax credits and incentives that go directly to battery producers, as well as those who apply and are winning grants for different critical mineral processing technologies and capabilities.

AH: Yeah, it’s massive. So that’s what the US is actually aiming for, but it’s going to take more than just the US, right. So how are the US’ international partners actually responding to this and how are those conversations evolving?

HM: I think the IRA was an incredibly impactful piece of legislation that certainly took some time for our partners to unpack and understand. And we spent, as I can say, as someone who takes care of some of our diplomatic relationships, we spent a good deal of time with our partners, one, explaining how the IRA would be implemented, what that means for incentives across many clean energy technologies, including clean hydrogen, which was a major question and concern to our partners, just as much as what we’re here to talk about today, which is the EV battery supply chain.

And I think from a moment of concern that we maybe would be affecting global competition in a challenging way, we’ve seen our partners really respond to us laying down the gauntlet with the IRA and developing their own incentive packages. So, whether it’s Australia, Canada, or the EU, they’re building in new clean energy incentives into their legislation and budgets to be implemented this year and next. This is exactly what the IRA is intended to do. Take the action that demonstrates we can create jobs at home and translate that to other economies that we work closely with. So, they choose to design their version of an IRA that benefits their economy. And so, I think that we’re in a really different place today.

AH: And you know, just as you were saying that I was thinking this is obviously a massive task. So presumably it doesn’t allow the US to just use the same playbook as it has in the past. If you are modernizing your approach to foreign economic policy as a department, what does that look like?

HM: It’s an excellent question. And this is really a place where my team gets to sit and be a big part of the journey of our evolution of economic policy. And so you know, taking care of the global infrastructure portfolio here at the State Department, we are running the US implementation of something called the Partnership for Global Infrastructure and Investment.

This is a G7 initiative where we have collectively deployed or committed to deploy $600 billion to close or start closing the infrastructure gap in emerging economies by 2027. This is a huge number. It’s a multi-sectoral approach. So it’s not just focused on clean energy, although clean energy and clean energy supply chains are a big piece of this, but we’re supporting the development of infrastructure projects in ag, digital access, health, and then critical physical infrastructure, like ports and rail.

And the reason why I raised this program, not only because I run it, I’m very excited about it, but because it’s demonstrating an evolution in our economic policy, how we’re thinking about the ecosystem of investments, of how we interact, with the global south in a way that they’re asking us to – showing up that’s in a way that’s expansive beyond the relationship that they’re used to with us where I think our partners feel that they can rely on us often in times of crisis and often in areas around health and other places that we’ve proven ourselves in some emerging markets around the world, but expanding that to what they want, which is a way to effectively advance their economic development, be part of a new clean energy story in a meaningful way, in a way that adds value to their country and to their people, and doesn’t require them to take on the same debt that they have in the past.

And that is no easy challenge. We’re in early days of our work and doing that. That’s why it’s not just the United States. We’re doing that with the G7. We’re doing that with other likeminded partners outside of that group as well.

AH: Yeah, no wonder you’ve lost your voice. You’re doing a lot of work! So I often get confused with all the different departments I’m dealing with and you’ve just kind of laid out what you’re doing from the way you’re describing it, the department that you’re working for the partnership on global infrastructure investment that unit seems to manage the international version of the US’ global infrastructure work. Is that the right way of looking at it?

HM: I think that’s absolutely the right way of looking at that and look, you know, we work very closely with the White House, our leadership there who covers our international global energy and investment engagement. This is an important pillar, an important part of that overall picture. And so together we coordinate our interagency in not only aggregating the good work we’re doing already and trying to get more out of it, but to think through what we could do proactively in new markets.

AH: I can see where the similarities are with this to the work that’s taking place. What’s the difference between the kind of work that’s taking place in the US and the goals abroad? And how are you making them align? How do you connect the two?

HM: So obviously the top priorities at home are investing in expanding our own economy, creating new jobs, decarbonizing those jobs, and so much of that is going to not only come from policy and regulation, it comes from innovation, innovation that our incentive packages are helping to push forward, but that already to some extent have been born and conceptualized within our own labs. This is where the US always shines. And then our challenge occasionally is how do you scale that, right? And so that’s what so much of the incentives at home are designed to do. However, we don’t live in a vacuum. This is a global economy. Our foreign partners are incredibly important to us. Obviously, we want to ensure that we are taking advantage and investing in our relationships around the world, not only with our key likeminded partners that you see in the G7, but also in the global south in response to the demand that we’re seeing from them, to diversify investment, to diversify those that are working in those sectors. And frankly, that serves us as well. These supply chains are incredibly complicated. They’re, very concentrated. And in turn, coming out of Covid, we saw the constraints that happened. In over-concentrated supply chains, whether that’s in the semi-con industry or the critical minerals that fuel the EV future, but really the whole clean energy future. And so, the idea of working in that type of partnership is really in service of all those goals.

AH: What I would like to know is just give me some examples for instance, I know we’ve from our conversations, you’ve been to Indonesia. You’ve been out into the continent of Africa. Can you give me some examples of the work so we can kind of get into the nitty gritty of what the department’s doing?

HM: Maybe the best example to start with is the work that we’ve been doing on the Lobito corridor, which is a really exciting partnership between the government of Angola, the government of Zambia and the government of DRC that they created to work in more close coordination with each other. The U. S. came in and then we brought additional G7 partners with the Europeans joining us and said, how do we support the connectivity agenda of these three countries in a way that we can utilize our tools to de-risk bringing the private sector in a bit more?

And so we made several investments first in Angola, supporting the refurbishment of the Benguela rail line through a loan that we are putting forward to help support that consortium. In turn, because we require and we all agree that those should be open access rails that many other customers could utilize – that’s how you really incentivize trade – that opened the port concession as well, which we understand was just awarded very recently to a European firm. And so, we use that initial investment to help connect Angola more efficiently to DRC up to Kolwezi, which is really the beginning center of the copper-cobalt belt.

We have also worked with the Europeans to invest in a new greenfield rail, 800 kilometers of rail. Seriously, the first major investment the US has made in such a type of project in over a generation. And this is to connect Zambia in the southern part of the Copper Cobalt Belt once again to the Benguela line, so they’re able to trade with the West more easily.

So, you’re doing something, taking advantage of commodities that need to move already. You’re making a huge investment in that critical backbone and what it enables is incredible. We’ve been able to invest in the US largest investment on the continent and new solar deployment in Angola. We’ve been working with the US telco provider and moving out their services from Rwanda to the rest of the corridor. And they, in turn, are working with a very large agricultural producer in Angola to work with US aid on a mobile money program so they can actually connect farmers to each other and create a network of subsistent farmers that can aggregate their product to utilize the rail.

AH: So, the goal is to facilitate work that’s already happening there, industries that are already there. The cobalt, the copper, et cetera, presumably that’s part of the focus for the future growth, right? Facilitating transportation, logistics and development in those areas. And those are minerals that the U. S. and the rest of the world is looking to produce.

HM: Absolutely. And in a way that’s aligned with our ethos of how Western companies, how the U. S. does business. That creates more openness, more transparency and a really concerted effort to make this a platform for two-way trade, to include agriculture, to think through ways that we can not only provide connectivity to the West, but also connectivity within the continent.

And this is a partnership that is designed just as much from our African partners as it is from us. And so that partnership is really, really key to making this work successful.

AH: Yeah, and I, I was going to ask you, is the U. S. doing this as the U. S. alone or working with partners? But I’ve heard the word partnership quite a lot from you, so I know you’re definitely filling the dance card. I guess that it kind of leads to the next question: there’s a lot of money at stake here. How on earth is all this work being financed? You know, I hear constantly that it’s tough to secure financing at the moment for many different projects and so on. I’m just curious. What’s competition for finance like, talk me through the various financial tools that you’re using to enable projects like this to happen.

HM: We’re seeing this shift as more money and capital are going to energy projects as we’re starting to work on infrastructure needs. But that’s all going to markets that are OECD that are easier to work in. And so, to shift that, to expand that fold, to attract investment in what we’re calling emerging markets takes time.

Some of the markets we’re working in do have deep capital markets and are just focused on scale. But in the case of the Africa example, I was sharing they, there takes a lot of work to, to make that attractive to, to investors. And so, the structure I mentioned of how we’re investing, particularly in the Greenfield rail is designed to try to help with that.

It’s saying, hey, we have some concessional capital on the front end. The United States, the European Union, we’re here to help you risk that investment in a meaningful way, but we’re also using a private sector partner. We’re not just financing a feasibility study that’s handed over to the government and then the government has to go figure out what to do.

We’re doing it with a partner who’s ultimately going to figure out how to implement that project, meaning they’re going to do the fundraising for the rest of that commercial capital. Everything we do to de-risk that project is to bring down the cost of that capital, which is quite high in those markets. That’s how you begin, right? That’s how you start changing the narrative. That’s how you start building trust in the financial community that working in these markets, especially on these high value projects really is within their interest, but it takes time. And that’s why we’re doing this really strong focus on these handful of corridors to demonstrate that that it can be done.

AH: So, okay, we’re talking here about what you’d like to see and what you’re starting to see happen. I’d like to also know where isn’t it working yet, and where can it get better? What are the areas that need to see some improvement? Where are we lacking? What would you like to achieve, but you haven’t been able to get there yet?

HM: It’s a great question. I am very optimistic, as you probably can hear from my enthusiasm for the work that I’m lucky enough to take part in. But the challenge is really in scale. And so, the work that we’re doing on the continent of Africa is certainly not indicative of all the need on the continent.

There’s many other corridors and areas that require additional investment, some that maybe are lucky enough to have critical minerals that help make that investment a bit easier, but many that do not. So, how do you scale this theory of economic development deployment in a way that we can cover more markets more broadly, I think it’s going to be a bit of a trip.

And of course, a piece of that is not just everything that we do, but having willing partners on the other side to continue to improve the regulatory environment to create more transparency and frankly, to require the same level that we’re offering of service from anyone entering their economy. And it takes time, not every partner is in the position to do that, and if we could scale faster, if we had more resources – of course, that’s always something we wish for – I think that we would be in a much better position. So those would be the things I would say if I had my wish list. I would certainly lean on those to do this in more places and demonstrate that this model can work.

AH: We’ve talked a little bit about critical minerals. I’d like to dive into that a little bit more. You know, we touched on copper and cobalt. Obviously, we’re not seeing the US produce cobalt. You have to go to other parts of the world to get that. So I’m curious to know which parts of the supply chain you’re seeing the most interest in. Firstly, from the perspective of the government, whereabouts in the critical mineral supply chain, is it looking to do this work? And secondly, I guess, from the perspective of the market coming to you and saying, hey, we’d like to get involved in the work that you’re doing. I’d love to know if these two align, basically.

HM: You know, they really do. I think those lists would actually look quite similar, maybe with a couple different caveats. But what’s motivating our thinking on what is needed for the global EV supply chain will continue to shift. We’re very well aware that chemistries are evolving. Even in our own economy, as we’re investing in developing new types of battery chemistries, but there are some truths that will remain no matter what.

Copper is going to be required for many uses beyond our needs, but also in just transmission and the ability to deploy clean energy as a whole. Obviously, so many of the materials that maybe you and I aren’t as focused on as those that are thinking about the clean energy future. You apply to defense applications, apply to our cell phones and everything else that we need.

The national security imperative is there to care about ensuring not only that there’s access to those materials, but that those supply chains are diversified and healthy, including the parts of it that are at home and the parts of it that need to be in other jurisdictions. In the case of what we care about, there’s a couple of factors that come into it.

One is geology, right? And you touched on that. Where are these materials actually available? The other is how saturated is that market already? Or concentrated, I should say, that market is already? With one entity that is really managing both the production and frankly, also the processing and you see, especially on the processing side, those numbers for certain materials like graphite hit 90 percent. The other factor that’s quite important is how others are managing that supply chain. In cases where China has put export controls on a handful of materials, whether that’s germanium or gallium or graphite, that is a signal, that there could be challenges in that market as immediately or in the medium term. And so, when we think through that graphite goes to the top of the list, rare earths go to the top of that list. We’re obviously concerned about, cobalt as well.

Lithium with prices dropping so much and we’re seeing projects get slowed is of concern and then nickel, seeing the huge dip in price because of the very large amount of supply challenges projects in other parts of the world that were on their way to getting started. All of these things are a concern. And if you talk to different parts of our government, they may add a handful of other minerals and metals to that list.

AH: So basically internationally, you’re having to bridge the gap where you can’t fill it with the upstream domestically because the geology is not there. The projects aren’t there. And then you are able to focus more on the mid-tier manufacturing segments in the US more domestically.

The U.S. doesn’t have its own nickel production; again, that’s another one that it struggles with, it’s on the critical minerals list, do you think that’s going to drive battery chemistries? Do you expect Western companies to focus on lithium-ion phosphate batteries because that’s way easier than nickel in terms of availability. Or do you think that there’s an alternative solution. I guess that’s what you’re trying to create,

HM: I think it totally matters, Andrea, what timeline you’re talking about. It’s 2024 right now. So many of our targets are aligned with a 2030 timeframe, both on policy and on climate ambition and you name it. 2030 is right around the corner. We realistically have to assume if we’re going to support the growth in that time frame, the way that we anticipate and hope, even if it’s half of that growth, that there is going to be a reliance on a version of the chemistries of lithium-ion batteries as we know them today.

I don’t think we’re able to shift. I mean, there has been disruptions like that, and a lot of them have come out of innovation from the US over the years. But realistically, I think lithium-ion batteries will have a place in the market in the near term. I think LFP batteries, as you mentioned, are quite attractive in many different ways, and we’re seeing other parts of the world really invest in them heavily. In the United States it’s really going to just matter if they’re able to ultimately demonstrate that they can get the density capacity that’s required to go those longer ranges, in the United States, maybe more so than anywhere else. We drive a lot more and so range anxiety is a real thing. And I’ve experienced it myself driving at different points, trying to make it from DC to New York. There’s also a lot of city driving.

For what could be next, you’re probably tracking the same potential opportunities, whether they’re sodium ion or flow batteries, they each have their different pros and cons. And I do think we’ll see a disruption at some point that is going to put us in a different situation on how and what we’re worried about on supply chains. But, that’s not today. My job is to operate in the challenges of today while looking out for the future.

AH: I do want to also turn to China now. A lot of what we’ve been talking about today is designed to reduce a reliance on China, which is obviously the producer of a vast number of critical minerals. It dominates the mid-tier and downstream processing segment and it’s doing incredibly well at driving electric vehicles containing domestically produced batteries off the forecourt.

So, you know, that’s all very well and good, but I guess if the West was to describe its relationship with China on social media, I think it’s complicated would be the best fit.

Is there collaboration with China in all of this? Because I can think of a number of projects and partnerships that exist obviously today and look like they’re going nowhere. So, you know, what is that relationship? What does it look like?

HM: So, it’s complicated. I’m thinking about the Facebook status is probably a very, very fair point. We are in a competitive posture right now with our Chinese partners. That doesn’t mean that diplomacy is out the door. There are many areas that we are working on trying to evolve that relationship.

But when it comes to economic policy, we are still concerned, not just because it is China, but because there is a concentration in any one country to the extent that there is around supply chains that are really important for the whole world. Creating that diversity, whether it’s all at home or in other parts of the Indo-Pacific with our European partners is in interest of the global market.

It helps us let these commodities operate in more normal market conditions, which is really challenging, and we should take a step back and say, you know, I wouldn’t even necessarily call these materials commodities quite yet. We’re talking about some very nascent minerals and metals and then some that, you know, have been trading for a long time. And so as much as we can invest in diversity and resilience, to help support the normalization of this market to the extent we can. We think that’s our goal and objective. And that’s a big piece of how we’re approaching this issue.

AH: Let’s take an example. I know we talked about nickel. The reason I wanted to talk about it is because you know, we’ve talked about the dominance of China in some parts of the supply chain. In Indonesia, the biggest nickel producing country in the world, the majority of the nickel projects there have a Chinese shareholder at the smelting stage. But you’ve got a part of the world where 60%, coming up 70 percent by the end of the decade of the world’s nickel is being produced there, which means there is a reliance on working and operating and taking the minerals from companies that are Chinese.

There is a foreign entity of concern definition which says that for the purposes of the Inflation Reduction Act, a company that has more than 25 percent ownership or control by a nation like China, and that can be board seats, voting rights or equity, they’re not eligible for IRA tax credits.

What’s the impact of that definition? How strict is it going to be, really? How are you going to know that the nickel that’s coming into the country is meeting those requirements? I’m trying to work out how we ever going to really, really know. You know, over to you.

HM: I know it’s, it’s incredibly complicated and look, a lot of the foreign entities of concern implementation and rollout, it’s still being sorted out and the treasury department and the department of energy are trying to get guidance out as quickly as they can, as we start closing some definitions along the way, but they engender more questions than they should.

That’s why we do this in a staged approach so we can hear from the automotive industry, so we can hear from battery producers, so we can hear from critical mineral producers and understand how we’re helping in the long term. But any policy creates some sort of constraint in the near term and how you balance that out is complicated.

And it’s partially subjective. It’s not all math, unfortunately, it’d be great if it’s all just worked out perfectly on an Excel sheet. This is another opportunity to try to level the market and increase and support investment in other jurisdictions that will bring that resilience I mentioned before.

But it’s going to take time, and the way that the foreign entities of concern definition is designed does have some ambiguity on what effective control means, even though it’s defined, there are other elements that will make that evaluation a little bit different upon the review, I can’t speak on the behalf of those agencies, but maybe would involve that definition evolving over time.

A lot of this will be dealt with through review of taxes and really, a lot of that put on the end-consumer to prove that their supply chain came from where they said it would. And so, it does put some of that burden on the ultimate producer, whether that’s a car company or a battery company. And that is part of how this will work. But this push, this desire for more transparency of supply chains, this isn’t a new thing. I remember, you know, 15 years ago when I entered this world, having a very similar conversation on solar. We took a different approach on solar in the end, and it’s kind of ebbed and flowed.

But at the end of the day, understanding where these materials come from isn’t just an economic issue. It is a forced labor issue. It’s an environmental issue. We are doing ourselves no service if these materials are processed and produced in extremely dirty ways, in ways that are not healthy for the environment.

Mining is a dirty business. I don’t mean that in any aggressive way. It’s just never going to be perfect, but there’s ways for it to be better. And we’ve seen some amazing operations in our visits around the world and here at home. And you want to stand it up. You want to create a race to the top. And that’s a really challenging thing to do. And I think these are some of the ways that we get there.

AH: Yeah, it is complicated, but it’s fascinating as well. Helaina, I could talk to you all day about this. I’m curious to know what you think are the key things we should be looking out for very short term over the next couple of months. Is there anything coming up we need to keep an eye on.

HM: Look, I think when it comes to the market, we’re all going to be watching to see how the nickel market levels out, what happens with the near term oversupply in cobalt, what happens if lithium works out.

And then there’s a handful of mining projects and processing projects that are really on hold as the market is responding. On the diplomacy side, I think you’re going to see a continuing set of partnerships designed to invest and support everything we’ve been talking about today. I think you’re going to see a lot of positivity and expansion of not just the work that I’m doing, but the works that others are doing as well.

AH: And also we can’t ignore the big thing happening this year. It’s 2024. Lots of big elections around the world, including in the United States in November. We know that President Joe Biden will be running against former President Donald Trump. I’m not asking you to predict the winner, but I would like to know what happens with the kind of the bigger conversations if that administration changes.

HM: Yeah, look, it’s a good question, and frankly, a question that every one of our partners have, whether it’s industry or our diplomats on the other side of the table. And it’s a fair question to ask. And as a career public servant myself, I’ve taken great pleasure of being a continuing face on my side of the table. And I think that means a lot.

This administration was very, very smart in choosing what to fight for and what we legislated, right? IRA has benefits very much in red states, if not even more so in red states than blue states, there’s a lot of reasons to feel confident that these big legislation packages will remain intact.

But I can’t predict the future. And this is part of the hill just as much as it is who wins our presidency. I will say from an international perspective, if we take the lessons we gathered from the previous Trump administration, which could certainly look different if there was a second term for him – the idea of strategic competition and the idea of supporting America and our supply chain security, it’s a pretty bipartisan issue.

And so, while the efforts we have now are incredibly comprehensive, and they look at a broader development agenda, I think the crux of a lot of the work, at least in my space, will continue to persevere on. Also, I just always love to remind folks that so much of what we are deciding today locks us into a multi-year trajectory.

We’re talking about three budget cycles today. We’re talking about out years quite, quite far out. So, I hope that offers some assurances that the enthusiasm you’re seeing around this issue set, a version of it will hopefully stay no matter what. But we feel very, very confident in the work that we’re doing today under this administration.

AH: Okay. Now, look, we’ve been talking about many of the key issues and addressing some of the questions that people have been asking, but what’s the thing that people are underestimating? What should we be paying attention to that we’re probably not really looking at right now?

HM: Yeah, I mean, I don’t think it’s one thing, right, because this path has multiple eventualities, depending on whether or not we have a massive innovation in the supply chains whether it’s a battery chemistry, or someone of these new really exciting processing technologies taking scale. One of the challenges that we’re maybe underestimating is even under those conditions, how important it is to really care about these supply chains and what our relationships overseas mean to keeping them healthy.

There’s so much enthusiasm for the work we’re doing at home, and it’s all well deserved. And I think that our partners around the world are thinking through their own ways to implement as well. But the nature of our connectivity may shift, but it’s never going to go away.

And so, I say that I can’t help it. I’m a foreign policy person. I always think about as you said earlier, partnership, which like maybe for the bingo card of this conversation, I’ve said, you know, over a dozen times. Even as we’re solving along the way, and we are solving and we’re making a lot of progress, that we can’t take our foot off the gas even if we’re having success and it doesn’t feel like there’s immediate pressure. So that’s what I try to watch out for every day, and I think others are starting to as well.

AH: Covid was the best example for a big wake up call for many to understand how supply chains work. So, definitely one to keep an eye on. And then if we had to fast forward a decade, what do you expect the global picture to look out? Get your crystal ball out and tell me where you see the world.

HM: Yeah. I mean, I know where I hope to see the world. I’m optimistic of the picture. I think that we will be on our way to hitting our climate goals. Are we going to be exactly where we want to be? Time will tell, right? And there may have to be more aggressive policymaking to ultimately get us there.

I hope that we’re in a healthier supply chain situation, but while improved, I think there will certainly be some challenges and competition. And so maybe going from a 1-grade higher situation than we are now, but I think we’ll still be in it in a decade to come. And that’s okay. As long as we keep working on really creating the future here at home and in the world that we want to see.

AH: And now, let’s take a quick break from the interview to hear from one of our in-house experts hear at Fastmarkets.

William Adams [WA]: Well, thanks, Andrea. For those of you who don’t know me, I’m William Adams, and I work at Fastmarkets on the research team, looking at the battery raw materials and base metals as well. I think what Helena said was really interesting.

While we tend to think about US regulations in terms of the amount of gigafactories and EVs and energy storage systems, that’s just what we see on the surface. I think we need to realize that that’s just the tip of the iceberg.

Underneath all that, is a myriad of actions, developments, decisions, partnerships that are all focused on building a secure supply chain for the US green transition. And that will create a lot of well -paid jobs in the US. It will provide opportunities for the free trade partners as well. And it will also cut the US’s carbon footprint, which at the end of the day is what we’re all looking to do to.

I think it’s important that we step back and realize that many of these policies need to be given time for them to take effect. There are so many pieces of this jigsaw that need to fit together before the whole US supply chain can diverge away from the foreign entities of concern, FEOC. And much of this is complicated to deliver, especially when measures include investing in ports in Africa, in railway lines to secure these corridors that Helena mentioned, which are needed to help extract the raw materials from these landlocked countries such as the DRC and Zambia.

One of the problems is that we’ve got used to how fast we expect this EV evolution to unfold. We’ve seen that the amount of EVs in the US that qualify for tax credits this year has fallen to 19 compared with 43 last year. So, on the surface, you could argue that the policy isn’t working. But it’s important to understand that yes, even though the number of qualifying vehicles has fallen, it’s actually now pushing the OEMs who last year, their vehicle might have qualified and this year, it doesn’t qualify, they now need to really change their supply chain to make sure that those cars can once again qualify for the tax credits. The drop in a number of qualifying EVs might suggest the policy is broken. But I think it’s applying pressure to the US manufacturers to act.

It is a big issue time and it’s something that we all need to get very aware of. Regulators need to be mindful that legislation with tight timelines runs the risk of creating more of a headwind than a tailwind in their endeavour to push this green agenda.

The regulators and the supply chain need to get this balance right. The regulators need to listen to stakeholders and change the guidelines accordingly. The drop in qualifying EVs happened as new Treasury guidelines came into effect on January the 1st this year. And it tightened up the battery sourcing requirements that aim to wean the US battery factory off the Chinese supply chain. And this year, the FEOC rules affected battery components. Next year, it will get even tighter. The rules will extend to the critical minerals for batteries. And that’s likely to see even more, even fewer EVs rather qualified for the tax credit.

We do expect the regulators or the Treasury to change those guidelines. And there has been precedence for that. We’ve seen that already. The Treasury exempted some materials for another two years, which showed the powers that were listening to the industry. Had they not then it’s likely that there have been even fewer EVs eligible for tax credits this year

AH: And now, back to the interview. Well, this has been great. Helaina, though, before I let you go, we have gathered some questions from people within the battery raw material sector. And I wanted to pose a couple of those to you now, if you don’t mind. So, putting you in the hot seat.

The first question is something that we’ve actually touched on earlier, but it’s where will the western capital and know how come from and what can be done to lure US or non foreign entity of concern companies into the space? I guess that’s a good question because we keep hearing that the west is way behind on technology and lacking the required capital. So, where’s it going to come from and how are we going to get that there?

HM: Western capital is not going to automatically materialize, or at least not at the cost that we’ll make those projects of commercial basis.

This is a two-part question. One is western countries or western governments doing what we’re doing through the Partnership for Global Infrastructure and Investment and other parts of our economic policy to crowd and finance by providing the tools around these projects to de risk them in a meaningful way.

That’s the loans that we’re providing. It’s the grants that some countries are providing. The political risk insurance tools and the partnership with the MDBs to help make these projects more attractive. But it’s also incumbent of the emerging markets to continue to improve their regulatory environment to think through how to back and support these projects in a way that doesn’t negatively affect their debt balance sheet like has been posed before.

And I think that what we’ll see is as you have a handful of wins, especially in complicated markets, that there is capital out there. It’s on the sidelines. It would love to find a home in places where they can make a good return. If we can demonstrate that what we’ve been saying for years, which was a high risk, high reward can be a medium risk, high reward, then we’ll make progress.

AH: And just one more question and then I’ll let you go. What criteria does the State Department use to determine which countries it wants to work with to develop critical minerals infrastructure? I guess why Zambia and the DRC and not somewhere else?

HM: One piece is geology, although you’re right, we’re not in every geological jurisdiction. And the other piece is the willingness of those partners, and that could be measured in so many ways, from having a democratically-led government, or working on having a more transparent governance structure in country, a desire from that country to invest in what’s really hard for them, which is the enabling environment to attract more FDI. It’s a change in business for those countries as well, and they have to express that willingness. We can’t and we shouldn’t go into markets that aren’t ready to make that evolution. I think that when you layer on those considerations, that world gets a little bit smaller.

And by no means you’ll see that we’re not in every jurisdiction that we hope to be in over time. We’re doing work through the Indo Pacific Economic Forum, through APEP, through other regional areas that will continue to expand. But those initial criteria, I think, really demonstrate where we can be successful and we’re going to go where we think we can be successful.

AH: Great. Well, I’m sure with you at the helm, there will be a lot of success. Helaina, this has been a really great wide-ranging conversation that I’ve really enjoyed. I want to say thank you so much for being so open and so generous with your time as well, particularly when you’re not feeling very well. So, thank you.

HM: Andrea, I appreciate it so much. And I’m just delighted and thrilled to be a part of your inaugural session. And I hope that for a conversation on regulation and government that we did not bore your audience.

AH: I’m sure we did not. Brilliant. Thank you, Helaina.

HM: Thank you.

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