Geopolitics of Metals: What Strategic Chessboard?

The ecological and digital transition requires high metal consumption. In this context, the economic and geopolitical restructuring of metal commodity markets highlights the strategic importance of these resources for major powers, particularly China, the United States, and Russia, as well as Saudi Arabia, which seeks to develop its mining capacity. How can we explain the recent rise in metal prices? What are the European Union’s (EU) ambitions in this area? What developments lie ahead for metal commodity markets? Insights from Emmanuel Hache, Research Director at IRIS and expert in energy foresight and the economics of natural resources (energy and metals).

Metal prices soared a few days ago. What are the reasons behind this sudden increase?

Metal prices have experienced mixed trends since the economic recovery following COVID-19. Overall, as measured by the World Bank Index, they rose significantly between 2020 and 2021 (+30% on average) before stabilizing in 2022 and declining slightly on an annual average in 2023 (-10% compared to 2022). However, tensions began to emerge in the last quarter of 2023, triggering a price increase that continued into the first quarter of 2024.

Behind the short- and medium-term price dynamics looms the specter of an ecologically and digitally driven transition that is highly metal-intensive. The recent price surge recorded in mid-April, particularly for aluminum, nickel, and copper—three metals essential to ongoing transitions—stems from new sanctions imposed by the United States and the United Kingdom banning the import of Russian aluminum, copper, and nickel. Western commodity exchanges, such as the London Metal Exchange (LME) and the Chicago Mercantile Exchange (CME), will no longer be permitted to purchase metals from Moscow or store them in their warehouses.

As a result, aluminum prices reacted sharply early last week, climbing to $2,600 per ton from $2,400 a week earlier, as did nickel prices ($19,000 per ton compared to $17,500) and copper prices ($9,750 per ton compared to $9,200). These new sanctions were implemented to limit Russia’s financial resources amid the ongoing war in Ukraine, as Moscow remains a key player in the hydrocarbon markets as well as in metals, where it is both a major producer and exporter.

According to Les Échos, Russian metal exports have generated nearly $40 billion during two years of war. In 2023, Russia accounted for 5.5% of global aluminum production, approximately 4% of refined copper production, and 5.5% of nickel production. It should be noted that the European Commission has never imposed sanctions on the trade of Russian metals since February 24, 2022. Currently, only oil, coal, and their derivatives are subject to sanctions.

Should this reflect a particular reluctance on the part of the European Union to consider sanctions on metals?

The European Union is indeed highly dependent on external sources for its supply of metals and minerals—over 90% for technologies related to low-carbon and digital equipment. In March 2023, it introduced its Critical Raw Materials Act (CRMA), which sets very ambitious targets. These include developing domestic production within Europe (producing at least 10% of the EU’s annual consumption), processing within its territory (at least 40% of its annual consumption), and recycling (producing at least 25% of its annual consumption). The framework is accompanied by a geopolitical clause stipulating that the EU should not depend on a single third country for more than 65% of its critical raw materials.

While these goals for 2030 are ambitious, they do not protect the EU from today’s erratic market fluctuations or the current geopolitical consequences, which explains its cautious stance on sanctions targeting Russian metal production. The impact of U.S. and U.K. sanctions on the markets remains to be seen.

A parallel can be drawn with sanctions on Russian hydrocarbons. Indeed, the likely outcomes of the new sanctions include a redirection of metal flows toward Asia, the use of “shadow fleets” to export metals, or the use of third-party countries to mask the origin of shipments. The Shanghai Metal Exchange, the main Asian trading hub and now one of the largest global commodity exchanges, has already announced that it will continue to trade Russian metals and store them in its warehouses. This will likely further strengthen ties between Russia and China.

For China, this may also be an opportunity to secure Russian metals at potentially lower prices—a boon for the world’s largest metal consumer.

What other medium-term developments do you foresee in the metal commodity markets?

Because they are essential to both the ecological and digital transitions, minerals and metals have become a focal point for all stakeholders, regaining the strategic significance they lost during the 1980s and 1990s. Today, many questions arise regarding the future organization of these markets.

The transformation of the BRICS (Brazil, Russia, India, China, and South Africa) into BRICS+ with the inclusion of Saudi Arabia, Iran, the United Arab Emirates (UAE), Egypt, and Ethiopia represents not only a broader economic (from 26% to 29% of global GDP) and demographic (from 41% to 46%) alliance but also the creation of a true commodities club.

The BRICS+ alliance accounts for 43% of global oil production (41% of global reserves) and 35% of global natural gas production (around 50% of global gas reserves). In the agricultural sector, BRICS+ includes major producers and exporters of grains, collectively contributing over 40% of global wheat, rice, and soybean production.

In the metals market, the presence of China, Brazil, and South Africa alone makes BRICS a reservoir of raw minerals and refined metals. The addition of BRICS+ members, such as Saudi Arabia, introduces further mining potential. At the January 2024 Future Minerals Forum held in Riyadh, Saudi Arabia declared: “Saudi Arabia has the vision, the mineral resources, a large market, regional connections, and the right geography to become a hub for the mineral value chain.”

Metals and minerals are now central to Saudi Arabia’s Vision 2030 plan, designed to diversify its economy and prepare for a post-oil era. Riyadh is well aware of the metal demands driven by low-carbon technologies (batteries, wind, solar, hydrogen, etc.) and digital advancements. It aims to position itself as a key player in global markets.

Saudi Arabia’s strategy is multifaceted, combining the development of a domestic mining industry, incentives for foreign direct investment (FDI)—particularly from China—and the ambition to become a regional hub for energy and metal trade. This includes plans to establish a metals exchange within its territory.