The changing dynamics in global metal markets: how the energy transition and geofragmentation may disrupt commodity prices

The energy transition and the increase in trade restrictions driven by geofragmentation present significant risks to critical mineral markets. This paper examines a subset of essential transition-critical minerals – aluminium, cobalt, copper, lithium and nickel – to assess how metal commodity markets may be impacted by shifting global economic dynamics.

The study explores the key long-term drivers of commodity price formation, the medium-term effects of trade interventions on price expectations, and the short-term volatility triggered by trade announcements. The results indicate that metal commodity markets are primarily influenced by demand-related shocks, with copper and aluminium prices being primarily driven by aggregate demand, whereas nickel prices are influenced by a more diverse set of shocks. Similarly, in the short term, nickel, cobalt and lithium prices are more sensitive to trade announcements compared with copper and aluminium prices. The findings and discussion focus on the risks to the energy transition and financial markets.

Key points for decision-makers

• The future supply and demand dynamics of certain minerals is a key factor in the feasibility of aligning the energy transition with the goals of the Paris Agreement on climate change.
• For the subset of ‘transition-critical minerals’ (TCMs) included in this study, aluminium, copper, and nickel are cross-cutting materials used in most types of low-carbon technologies, whereas lithium and cobalt are primarily used in lithium-ion batteries which are required for electric vehicles and battery storage.
• The analysis confirms that demand-side factors are the dominant drivers of price formation across aluminium, copper and nickel markets. The results suggest that market sentiment, future supply expectations and trade policies are particularly influential in shaping nickel price dynamics.
• The analysis also finds that restrictive trade announcements lead to significant revisions in price expectations, particularly in nickel markets, which are thus more exposed than other TCMs to risks from economic and political geoeconomic fragmentation.