Tween Rocks & A Hard Place

Context: India must be careful not to move from import dependence on oil to critical minerals.

India is a remarkably enthusiastic supporter of a clean energy transition: Because of the following reasons -

• Being an emerging economy with a relatively low level of per-capita energy consumption from traditional sources like oil and coal.
• Viewed as a pathway to reduce India’s extraordinary import dependence on oil (over 85%), which has serious economic implications — on current account deficit (CAD), the value of the rupee — as well as strategic implications

Challenges in clean energy transition: Due to the high mineral intensity, including the intensive use of critical minerals required for clean energy transition.

• Rise in demand and prices:
  • Demand for some minerals like lithium may rise 40 times, while the demand for cobalt, nickel and graphite will rise 20-25 times.
  • The demand for a more traditional metal like copper will rise 2.7 times, while demand for aluminium will rise by 1.8 times.
• Lack of supply: Globally existing mines can only meet a fraction of that demand.
  • Only half of the lithium and cobalt demand, and about 80% of copper demand.
  • That would obviously mean upward pressure on the prices of these minerals.
• Geographically concentrated production and processing: 70% of cobalt is produced in Democratic Republic of Congo (DRC), 60% of rare earths in China and 50% of lithium in Australia.
  • Processing of these minerals has even higher concentration where China has significant control - 35% for nickel, 50-70% for lithium and cobalt, and 90% for rare earth elements.

New challenges before India – Import dependence on oil to critical minerals

• Low production capacity: India produces negligible amounts of lithium, cobalt and graphite.
  • Overall, only 2% of India’s geological potential is mined, while just 10% is explored.
  • Countries Australia, Canada and South Africa have explored more than 90%.
• Surging demand: Growth of wind power infrastructure will lead to an increase in copper demand by two times, zinc by three times and rare earths by two times in the next two decades.
  • Biggest force multiplier – EVs and battery storage: Would require 30 times mineral inputs if they take even 50% market share, compared to internal combustible engine cars.
• Growing import dependence: Copper concentrate imports are 95% of domestic consumption; aluminium imports are 60%, zinc imports are 15%, cobalt and nickel are fully imported.
• Policy issues: Although the sector is open to FDI, there is negligible investor interest. Policy is not benchmarked to global best practices.

Way forward: India urgently needs to explore its own resources -

• Learnings from international conduct: Most advanced economies like Japan, the US, Australia and the EU have documented national policies and formulated clear strategies for the minerals critical for their domestic industrial and security needs.
• Relieve dominance of public sector: Which doesn’t have either financial or technical muscle to explore
• Expand mineral exploration policies: As 90% of India’s geological potential remains unexplored.