Bank of America (BofA) released a report analyzing the impact of geopolitics on global metals supply chains, highlighting China's significant 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 (DMs) to reconsider their dependence on these supply chains due to geopolitical risks.
The BofA report outlines three ways in which global metals consumption patterns are expected to change. First, the shift towards re-shoring is likely to increase metal consumption in DMs through higher fixed asset investment and manufacturing activities.
Second, China, having restrained investment in green technologies last year, might see a decline in metals demand as trade barriers rise. Third, technological innovation in DMs could lead to the use of a different materials mix than what is currently in use.
Despite these shifts, BofA maintains a bullish stance on metals such as copper and aluminium, 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.
Moreover, regional metal prices could vary significantly due to rising tariffs, and increased investment in innovation might lead to greater efficiency and substitution effects that could unexpectedly change price trends for certain metals.
The report also notes that DMs are actively seeking to reduce reliance on China's metals supply chains. This initiative follows Europe's experience with over-dependence on a single energy supplier, Russia, which led to a painful lesson in energy security.
With China's industries facing structural overcapacities, there is a risk to large employers in the US and Europe. Consequently, there is bipartisan support in the United States, as well as within the European Union, for raising trade barriers, including anti-dumping investigations into EVs, solar, and wind industries.
BofA concludes that while protectionism is not the ultimate solution, innovation could eventually redefine the competitive landscape in the mining industry, creating new winners and losers.
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