Emerging market (EM) metal exporters may be undervalued given increased demand for clean transportation created by regulation and consumer preferences, which could bolster frontier market prospects with booming mining investments .

As we explained in a previous blog post, the contribution of emerging and frontier markets to the global trade in clean energy metals has grown steadily in recent years. In 2020, emerging markets accounted for 44.3% of exports of the big five transition metals, which are the metals that are badly needed by renewable energy infrastructure, mainly in electrification activities: copper, nickel, aluminum, cobalt and lithium. This percentage was 42.6% in 2016. The graph below illustrates this.

China is a major source and destination of future metals, consuming about half of all major base metals in 2022, according to Standard & Poor’s. The other biggest world exporters of these metals are Chile, Russia and Indonesia.

Notably, the value of transition metal exports through frontier markets has increased by 45% over the past five years, with production emerging in new countries such as Namibia, Côte d’Ivoire and Pakistan. Clean energy metal mining projects are gaining in value, which is likely to stimulate the search for new reserves and new mining projects. Beyond the support metal hunting provides to prices and terms of trade, it also offers the potential to increase export earnings and foreign direct investment flows to key emerging and frontier markets.

But let’s look at the opportunities we see in key regions: Latin America, Sub-Saharan Africa and Asia.

Latin America: dominates the world supply of coopers with significant lithium potential

The copper mining industry is an essential part of the Chilean and Peruvian economy, contributing significantly to exports (62% to 63% of the total) and tax revenue (5% to 6% of the total). And production is growing in both emerging and frontier markets.

Copper production began in Panama in 2019, and its contribution to tax revenue and exports is expected to further increase in line with new tax provisions, volume growth and favorable prices. We believe Panama’s annual copper ore exports are expected to grow from $1 billion (11% of merchandise exports) in 2020 to over $4 billion in the coming years as production increases in a new mine, which will be one of the largest in the world. .

Critically, as Panama’s copper export volumes increased and copper prices rose, the country’s current account moved from a deficit to a surplus, greatly improving the performance of the external sector and enabling a considerable accumulation of international reserves.

Meanwhile, Bolivia, Argentina and Chile dominate the world’s lithium reserves, with 56% of lithium resources identified in what the US Geological Survey calls the “lithium triangle”. The contribution of lithium carbonate exports to overall exports is currently low (0.3% and 0.9% of total 2021 exports for Argentina and Chile, respectively). However, it has the potential to grow significantly with the right policy mix.

Sub-Saharan Africa: home of the largest cobalt producer with significant copper production

The Democratic Republic of Congo (DRC) is the world’s largest producer of cobalt, supplying more than 70% of global production. Other producers, including Russia and the Philippines, account for less than 4.5% of production.

Copper and cobalt processing capacity is largely concentrated in Asia, but the DRC and other countries in the region are seeking to adopt policies that will boost a regional battery manufacturing industry. This could allow an integrated value chain to emerge in Gabon, Angola, Zambia, DRC and Mozambique given the presence of critical inputs in these countries.

Zambia, for example, already has a well-established mining sector which contributes over 11% of GDP, 28% of government revenue and almost 80% of export earnings, as shown in the graph below.

Manganese is used in the cathodes of lithium-ion batteries. South Africa and Gabon account for approximately 43% of world manganese ore production. A new project in Gabon is under development, which will increase the mine’s annual capacity from 4 million tonnes to 7 million tonnes by 2023. The priority of these efforts will be an overall improvement in infrastructure and the stability of the mine. political, legislative and fiscal system.

Asia: Indonesia bets on the rise of the electric vehicle value chain

Nine countries together account for 75% of the world’s nickel reserves. In the emerging world, two of the four richest countries in nickel are Asian: Indonesia and the Philippines. (The other two are Brazil and Russia.)

Indonesia’s natural resource development policies (which have included mineral export bans) have come under criticism given the rapid pace of policy change more than a decade ago. However, overall, Indonesia is considered to have succeeded in achieving a well-diversified export base that has gone beyond exporting commodities to processed goods and increasingly manufactured goods. .

The Center for Strategic and International Studies expects Indonesia alone to account for about half of global nickel production growth through 2025, thanks in part to a joint venture with a Chinese company that is expected to play a key role in the global supply of nickel for batteries in the future. .

In our next article in this series, we’ll dive into the environmental, social and governance (ESG) considerations raised by increased demand for the metals of the future.