US facing growing challenges in meeting increased critical minerals demand

Despite making a “splash” move to introduce new legislation to help improve its domestic critical minerals infrastructure, a new report suggests that the US is still facing an uphill battle to meet growing critical mineral demand levels.

Signed by President Joe Biden just over a year ago, the US Inflation Reduction Act (IRA) was the largest climate investment in that nation’s history.

It was designed to help attract increasing private capital to achieve the nation’s climate goals and strengthen long-term growth.

In particular, it was aimed at ensuring there was enough supply to meet an accelerating demand for critical minerals and copper that are vital to the energy transition technologies the country needs.

However, according to new analysis by S&P Global, meeting that demand is facing “considerable challenges”.

The new study called ‘Inflation Reduction Act: Impact on North America Metals and Minerals Market’ reveals that demand in the U.S. for decarbonisation technologies like electric vehicles and renewable energy will significantly increase by 2035.

Specifically, the study projects that demand for lithium will rise by 15%, for cobalt by 14%, and for nickel by 13% compared to forecasts made before the Inflation Reduction Act was enacted in August 2022.

Copper demand a real concern

The study highlighted particular concerns over whether the US will be able to meet the growing demand for copper, which is forecast to be 12% higher by 2035 than pre-IRA projections.

Notably, copper is not currently listed as a critical mineral in the US and does not qualify for IRA tax credits.

However, the study said its role as the “metal of electrification” makes it vital to the energy transition and demand for it will rise as it is used alongside critical minerals in energy transition applications.

Critical mineral demand accelerating

S&P Global also identified that the total combined energy transition-related demand for lithium, nickel and cobalt will be 23 times higher in 2035 than it was in 2021.

The study found that post-IRA demand is expected to be materially higher and securing enough supply under the law’s sourcing requirements faces considerable challenges.

To qualify for IRA tax credits, processing and/or extraction of critical minerals used must be in the United States and/ or in a country with which the United States has a free trade agreement (FTA); and that sourcing cannot involve a “foreign entity of concern.”

“This new comprehensive analysis shows that the Inflation Reduction Act is indeed transformative on the demand side,” said Daniel Yergin, vice chairman, S&P Global. “However, challenges remain in securing supply of critical minerals needed to meet growing demand and achieve its goal of accelerating the energy transition.”

Lithium forecast a positive

The report found that only lithium from among the four materials analysed in the study, is likely to be sufficiently supplied to the US under the IRA’s domestic content requirements, given already-planned capacity additions in the US and free trade agreement countries such as Australia, Chile and Canada.

However, it suggests that cobalt and nickel are both unlikely to be sourced at levels high enough to meet demand.

“While there is enough cobalt produced in free trade agreement countries to meet the IRA domestic sourcing requirement, the United States does not currently source most of its cobalt from those countries. Doing so would require a challenging reorientation of trading patterns across several countries given intense international competition for resources,” the study said.

Nickel a major concern

S&P Global believes obtaining sufficient nickel supplies will be most difficult as there does not appear to be enough nickel supply in free trade agreement countries to meet demand under the IRA requirements.

The study found that increasing US reliance on imports as energy transition demand grows has accelerated the number of challenges the country is facing such as long lead times and permitting complexities that may delay development of domestic resources.

S&P Global data on 127 mines across the world that began production between 2002 and 2023 shows that a major new resource discovery today would not become a productive mine until 2040 or later.

Copper issues could be met by reducing red tape

The study did find that copper represents a particular opportunity in the US, with the country possessing more than 70 million tonnes of untapped copper resources, equivalent to more than 20 years of the nation’s demand for the metal.

“Timely and transparent permitting is a fundamental operational challenge to supplying metals for the energy transition, particularly in developed markets such as the United States that have high levels of transparency and both political and civil society scrutiny of policy,” said Mohsen Bonakdarpour, executive director of S&P Global Market Intelligence.

“Expediting permitting reform while meeting environmental and community concerns has become a central topic in boosting mineral supply for the energy transition.”