By Suzanne Cosgrove
In comments before a meeting of the CFTC’s Energy and Environmental Markets Advisory Committee on Tuesday, Commissioners Kristin Johnson and Christy Goldsmith Romero called attention to the role of rare earth minerals in transitional energy and electrification. Demand for the metals, which are critical components of EV batteries, magnets and wind turbines, is expected to surge in the next several decades, Goldsmith Romero noted.
“The continued exploration of metals and minerals markets is important given increased demand related to the low-carbon transition,” Goldsmith Romero continued in a statement. “Increased electrification raises important issues of supply chain resilience, she said. “This includes the sourcing, manufacturing, and processing of metals and minerals in the U.S., rather than the U.S. being dependent on foreign sources.”
Goldsmith Romero noted that the U.S. was a leading producer of rare earth minerals for years, starting in the 1960’s, but China has since taken over much of the production. In 2020, “China was estimated to control 55 percent of global rare earths mining capacity … and 85 percent of rare earths refining,” she said, citing a 100-day supply chain review published by the White House in June 2021.
Inflation Reduction Act incentives. To support an increasing demand for rare earth minerals, Goldsmith Romero said, the Biden administration has directed nearly $200 million in Inflation Reduction Act and Bipartisan Infrastructure Law incentives to increase the resilience of the supply chain.
The initiative, which also incorporates a new tax credit for domestic manufacturers of “eligible components,” including rare earth elements, has spurred about $700 million in private investment in processing, refining and recycling facilities, including at the Mountain Pass mine in California, Goldsmith Romero said.
Addressing the supply chain outlook for the minerals, Johnson pointed to a recent Department of Energy analysis of lithium resources in the Salton Sea region of California, which found that, “with expected technology advances,” the region could produce more than 3,400 kilotons of lithium, enough to support over 375 million batteries for electric vehicles. That’s “more than the total number of vehicles currently on U.S. roads,” she added.
Price discovery and hedging. The CFTC has a key role to play in facilitating financial markets that will help enable the production and use of rare earth elements, as well as other essential commodities, Johnson said.
In late 2022, battery metal prices skyrocketed in response to surging demand, Goldsmith Romero noted. But new supply has since brought prices for lithium and cobalt down significantly. “That’s good news for buyers of EVs and renewable energy developers,” she said. However, the miners and processors of the metals will have to manage the risks that come with uncertain commodity prices as they make future investment decisions.
“The rapid growth of recently introduced derivatives contracts in cobalt and lithium suggests that some miners and manufacturers are already incorporating hedging into that risk management strategy,” Goldsmith Romero said. Currently, there are no U.S.-listed rare earth minerals derivatives contracts.
“We are studying the potential development of derivatives products to offer price discovery and risk-hedging opportunities in these markets,” Goldsmith Romero said.