At least a quarter of energy storage developers, investors and miners say that price volatility of critical minerals stops projects from taking off, a new report by DLA Piper shows.
Out of the 550 participants interviewed, 23% said projects that seemed viable were either deferred or cancelled due to unpredictable commodity prices amid tariffs, wars and other geopolitical tensions. Another 12% described price volatility as a dealbreaker for project development.
“Unpredictable pricing pressures are creating a domino effect across the sector, reducing investor confidence, constraining financing and structuring, and ultimately contributing to project delays, repricing and, in some cases, abandoned projects,” DLA Piper natural resources partner Alex Jones said.
The biggest obstacle to investment today, the report said, is the resistance in committing capital when future commodity prices are so uncertain and volatile.
More than half of respondents describe price volatility as a major constraint on mining or processing investment, with effects running throughout the project lifecycle. Among them, 28% struggled to secure bankable long-term offtake agreements, 27% have postponed investment decisions, and 26% faced a higher cost of capital.
Region dependent
The report suggests that projects in the UK and US feel the impact of price volatility the most, with 16% and 18% of participants, respectively, saying it is a dealbreaker for project development.
Just across the pond, Germany based project participants see a different reality when it comes to project offtake. The German market is the only one out of the participants to say that price volatility is not a dealbreaker, and only 8% of participants consider it a major problem.
Developers are then looking for regions where more control and proximity to the supply chain is possible, especially through the market’s ups and downs.
“It suggests potential capital is more likely to concentrate in regions perceived to offer execution credibility and proximity to supply chains and demand,” DLA Piper partner Oliver Wright said.
Australian participants say price volatility is just one of many material considerations for projects rather than that big of a roadblock.
Companies take the wheel
Companies are increasingly turning to vertical integration to reduce their exposure to volatile commodity markets and pricing benchmarks influenced by China, the report found.
At least 37% of surveyed developers and 32% of mining and raw materials producers have adopted the strategy, which allows businesses to control more stages of production, from mineral extraction and refining to manufacturing and recycling.
“For years, companies have had to depend on supply chains they do not control, and recent volatility has shown how quickly pricing and supply terms can shift,” Wright said. “As a result, developers and miners are now actively working to hold the stretch of the chain they depend on most, from the mine through the refinery to the recycling plant, so that a squeeze upstream no longer disrupts their operations.”
Outside of vertical integration, participants are also looking into redefining how prices are set, with 37% of them believing component-linked pricing would work better than raw material spot price. 48% of mining and raw materials producers lean towards long-term fixed pricing with periodic resets, the report showed.
“The objective should be to recognize that strategic mineral supply chains have a value beyond the daily spot price,” Rare Earth Americas CEO Donald Swartz said in the report.
“That’s why, based on our research, we expect the industry to shift what contracts are priced against, whether that is component-linked pricing, price floors or hybrid structures,” Wright said.
Source: https://www.mining.com/market-volatility-adds-new-hurdle-to-critical-minerals-investment-report/
