Bank of America (BofA) has released a report analyzing the impact of geopolitics on global metals supply chains, highlighting China’s important role in green technology industries.
According to the report, China’s dominance in the production of electric vehicles (EVs), batteries and solar panels has created a competitive challenge for companies outside the country. This has prompted developed markets to reconsider their dependence on these supply chains due to geopolitical risks.
The BofA report outlines three ways in which global metal consumption patterns are expected to change. First, the shift to re-shoring is likely to lead to an increase in metal consumption in DMs through higher investments in fixed assets and manufacturing activities.
Second, after curbing investment in green technologies last year, China could see a drop in demand for metals as trade barriers widen. Third, technological innovation in DM could lead to the use of a different material mix than what is currently in use.
Despite these shifts, BofA maintains an optimistic stance on metals such as aluminum, especially as long as the focus on the energy transition remains strong. However, the report also acknowledges potential risks, including the impact of an escalating global trade war on economic growth and metals demand.
In addition, regional metal prices can vary significantly due to rising tariffs, and increased investment in innovation can lead to greater efficiency and substitution effects that could unexpectedly change price trends for certain metals.
The report also notes that DMs are actively trying to reduce dependence on Chinese metal supply chains. This initiative follows Europe’s experience with over-reliance on a single energy supplier, Russia, which has led to a painful lesson in energy security.
As Chinese industries face structural overcapacity, there is a risk for major employers in the US and Europe. As a result, there is bipartisan support in both the United States and the European Union for the creation of trade barriers, including anti-dumping investigations into electric cars, solar energy, and wind energy.
BofA concludes that while protectionism is not the ultimate solution, innovation could ultimately redefine the competitive landscape in the mining sector, creating new winners and losers.
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