TELF AG discusses the possible consequences of the fragmentation of the raw materials market
The risk of fragmentation
The geopolitical uncertainties and global scenarios in continuous transition over the next few years concretely risk exacerbating the fragmentation of the raw materials market, giving rise to possible interruptions in the supplies of materials essential for completing the green transition.
For about a year, following the rapid change in geopolitical scenarios, many nations have already limited the volume of their trade related to raw materials, such as minerals. Some of these – such as all those minerals of fundamental use for the energy transition and various agricultural products – run the risk of suffering the unpredictable effects of market fragmentation, generating great uncertainty for the future prospects of slowing down or containing climate change.
According to a recent study published by the IMF blog, the unpredictability that characterizes the raw materials sector could negatively affect the market for these materials, resulting in evident price fluctuations. Those at greatest risk are not only all those developed countries directly involved in the ecological transition but also those low-income nations that are highly dependent on the supplies or production of certain raw materials. According to the study, any interruptions in agricultural imports linked to the unpredictability of geo-economic scenarios could clearly impact the gross domestic product of certain nations, causing losses even higher than 1%. In the worst cases, these losses could even exceed 2%.
The matter is particularly delicate for the minerals sector, whose singular characteristics make it particularly exposed to the uncertainties of increasingly acute market fragmentation. To all this must also be added the inevitable increase in demand for some specific minerals, such as those that will be required for the production of electric vehicles and their batteries, and more generally for all those raw materials that should support and accompany the global energy transition. This will not only lead to an increase in demand but also make it necessary to have a parallel increase in extraction capacity. This very ambitious goal could take entire years to achieve.
Since many nations continue to rely on a few suppliers for their supply of raw materials, any interruptions or limitations in these specific supplies could prove very dangerous for the vitality and development of the sector. Furthermore, one of the effects of the prolonged fragmentation of the market could be the differences between the prices offered by suppliers, who, in the meantime, could have grouped themselves into strictly opposing geopolitical alliances (not to mention the volatility of prices in such a scenario).
According to the study, nations should strive to achieve higher levels of multilateral cooperation on trade and adopt specific strategies to guarantee the minimum flow of certain minerals and fundamental raw materials to limit the worst effects of this market fragmentation. Other possible measures to deal with the fragmentation of the market could ultimately be represented by the diversification of supply sources and more substantial investments in mining extraction without ever neglecting everything that has to do with the recycling of waste minerals used in industry.
