The global silver deficit is anticipated to increase by 17%, reaching 215.3 million ounces in 2024. This rise is attributed to a 2% growth in demand primarily driven by robust industrial consumption, coupled with a 1% decline in total supply, as reported by the Silver Institute industry association.

Balancing Demand and Supply Dynamics

Silver, used in various industries including jewelry, electronics, electric vehicles, and solar panels, as well as for investment purposes, is facing its fourth consecutive year of a structural market deficit.

Philip Newman, managing director at consultancy Metals Focus, emphasized that the deficit in the silver market serves as a strong support and foundation for the price. Despite a 30% decrease in the deficit last year, it remained substantial at 184.3 million ounces.

While global supply has remained relatively stable around the 1-billion-ounce mark, industrial demand witnessed notable growth of 11%.

However, despite the shortage, visible silver inventories and significant metal stocks held by individuals and investors continue to shield the silver market from immediate pressure.

Newman highlighted that while identifiable silver inventories and off-exchange metal holdings remain considerable, some of these reserves may be tightly held. Consequently, the impact of ongoing deficits on the market remains to be seen.

Reportedly, stocks held in commodity exchange depositories and London vaults experienced a 5% decline last year, amounting to nearly 15 months of global supply by the end of 2023. The majority of the decrease in reported stocks occurred in China, where rapid industrial demand growth of 44% is reshaping local supply/demand dynamics.

Spot silver prices, experiencing an 18% increase year-to-date, reached $29.79 per ounce last week, marking their highest level in over three years, amidst a rally in gold prices and strong copper prices.

RELATED: Copper’s Price Breakout and Big Role in a Net Zero World

Shining Bright in the Solar Revolution

The surge in solar installations and electric vehicle production not only represents a current trend but also serves as a compelling indicator for heightened silver demand. Silver’s unparalleled conductivity and its crucial role in photovoltaic cells position it as a cornerstone in the transition towards renewable energy sources.

The demand for silver in the solar industry has experienced a notable uptrend, accounting for around 5% of the total silver demand in 2014 and expanding to about 14% by the end of 2023.

According to estimates by BloombergNEF, each gigawatt of solar capacity requires approximately 12 tonnes of silver. Using this figure as a basis, the demand for silver in solar panels could witness a substantial surge of nearly 169% by 2030.

This surge would translate to an approximate requirement of 273 million ounces of silver, constituting roughly ⅕ of the total silver demand based on current trend projections.

Much of this growth is attributed to China, which is poised to surpass the total solar panel installations in the United States this year.

Gregor Gregersen, founder of Silver Bullion, emphasizes that the solar industry exemplifies the inelastic demand for silver. Although advancements have enabled the solar sector to become more efficient in its silver use, emerging trends are shifting this dynamic.

RELATED: America to See a Surge in Renewable Capacity in 2024

Meanwhile, supply is showing signs of strain. Despite a nearly 20% increase in demand last year, silver production remained flat, according to data from The Silver Institute. This year, estimates suggest that production will increase by 2%, yet industrial consumption will climb by 4%.

Silver Squeeze: Meeting Demand Amidst Supply Challenges

However, boosting supply isn’t a straightforward task, given the limited availability of primary mines. Around 80% of silver supply comes from lead, zinc, copper, and gold projects, where silver is a by-product. This strain on supply has led to concerns about future shortages.

A study from the University of New South Wales suggests that the solar sector alone could deplete between 85–98% of global silver reserves by 2050.

Studies are ongoing for alternative technologies using cheaper metals but their viability remains uncertain. Despite current price fluctuations, experts anticipate that substitution will become more appealing as silver prices rise, ultimately leading to a market equilibrium at higher price levels.

As the global silver deficit expands and demand surges, the market faces a complex landscape. The current surge in silver prices reflects market dynamics influenced by industrial consumption and investor sentiment. However, the journey ahead requires strategic planning to address supply challenges and sustain the silver market’s vital role in the transition to renewables and net zero.

READ MORE: Silver’s Crucial Role in Achieving a Net Zero World

The post Silver to See Growing Deficit in 2024 as Supply Struggles appeared first on Carbon Credits.

Analysts anticipate that reducing royalty rates could provide much-needed relief for lithium producers grappling with plummeting prices. The decline in lithium prices since the beginning of 2023 has been significant, with battery-grade lithium carbonate prices dropping by over 80% by April 2023.

Amid this downturn, lower royalty obligations to local governments could help alleviate financial pressures on mining companies.

Lower royalty payments would directly reduce miners’ cost of sales, particularly as lithium prices decline, thus bolstering profitability amidst challenging market conditions. This adjustment is seen as a short-term measure to support miners until lithium prices stabilize or recover.

Lithium Challenges Amidst Price Decline

The financing landscape for lithium projects in the United States is also encountering hurdles amid sustained low lithium prices. This could impede the current administration’s efforts to strengthen the domestic battery supply chain. 

Despite plans for around 100 lithium mine projects across the US, the appeal of these ventures has diminished due to the significant decline in lithium prices.

Data from S&P Global Market Intelligence reveals an 81.7% decrease in lithium prices from their peak in 2022. This prolonged period of low prices has made numerous projects less appealing to investors, affecting the overall viability of the development pipeline. As a result, financing for these projects is facing challenges, while impacting the domestic battery supply chain in the US.

READ MORE: Issues Facing US Lithium Projects and Battery Supply Chain Plans Amidst Price Decline

Factors contributing to the current market dynamics include increased production capacity in 2023 alongside slower-than-expected growth in electric vehicle sales. These conditions have led to a scenario where lithium prices are expected to remain subdued until there’s a notable improvement in EV affordability. 

Consequently, mining companies adjust their strategies. Some high-cost miners exit the market while others scale back expansion plans and focus on cost-saving initiatives.

The Royalty Realities in a Volatile Market

The fluctuation in lithium prices has a direct impact on royalty payments made by producers. 

Royalties are payments made by a third party to the owner of a product or patent for the use of that product or patent. These payments are typically outlined in a licensing agreement, which specifies the terms and conditions under which the third party can use the product/patent. 

The royalty rate, which determines the amount of the royalty payment, is calculated as a percentage based on various factors. These include the exclusivity of rights, the value of the technology or intellectual property, and the availability of alternative options.

Royalty structures for lithium extraction vary across major producing countries, with most employing variable systems that adjust with market prices. 

In Argentina, royalties fluctuate by province but are capped at 3%. Meanwhile, Western Australia and Zimbabwe set theirs at 5%, with options for partial payment in minerals.

Chile, home to significant lithium reserves, implements a unique royalty system through its production development agency, CORFO. Operators like SQM and Albemarle, major players in the Salar de Atacama, face variable royalty rates ranging from 6.8% to 40%, linked to market prices. This approach aims to support miners during price fluctuations.

Despite Chile’s comparatively high royalty rates, investments in lithium projects there and in Argentina remain attractive. In fact, most projects in these countries maintain profitability even amid current price levels. Chile is the second largest lithium producer while Argentina takes the fourth spot. 

As the lithium market evolves, variable royalty systems are gaining popularity for their adaptability to price volatility and support for the mining sector.

The Impact on Lithium Miners’ Bottom Line

In 2022, when lithium prices soared to historic highs, miners saw their royalty payments surge by a staggering 960.1% compared to the previous year. This increase in royalties significantly elevated overall miners’ production costs, with royalties accounting for over 60% of total cash costs.

While miners were able to absorb these additional costs during the peak price period, the likelihood of lithium prices returning to such levels in the near future is uncertain. As lithium prices normalize, royalty adjustments are expected to have a lesser impact on miners’ profitability. This is particularly prevalent in a market characterized by lower prices.

Lower royalty rates in a depressed price environment can provide miners with some relief. This will allow them to preserve margins despite challenging market conditions. 

Market projections suggest a decrease in average royalty payments and total cash costs, providing a favorable outlook for lithium producers. More remarkably, investors still continue to show strong interest in lithium projects amid short-term price challenges, foreseeing their long-term potential. 

READ MORE: Why Lithium Prices are Plunging and What to Expect

As lithium prices continue to plummet, the call for reduced royalty rates emerges as a lifeline for struggling producers. With royalties comprising a significant portion of mining costs, lowering these obligations could inject much-needed stability into the industry. 

The post Lower Royalty Rates Give Lithium Producers a Lifeline appeared first on Carbon Credits.

Decarbonization efforts, aiming for Net Zero emissions, require significant changes in the energy sector. This transition requires shifting from fossil fuels to metals and critical minerals like cobalt, copper, lithium, nickel, and rare earths.

The critical minerals market will grow 7-fold by 2030, and 10-fold by 2050 to over $400 billion, per the International Energy Agency estimates. Cobalt, in particular, has a central role in reaching the global net zero target.

Cobalt prices have plummeted to pre-2021 levels since the beginning of the year, with analysts predicting a continued decline. As of April 8, the London Metal Exchange cobalt cash price stands at $28,400 per metric ton, marking a 65.3% drop from the 2022 high of $81,900/t in March, 

This decline is attributed to the lack of expected demand from the electric vehicle sector, which has also affected demand growth in aerospace and consumer electronics.

RELATED: US Imports of Lithium and Critical Minerals Drop Amidst Shifting EV Market

The oversupply of cobalt in the market is exacerbated by increased output from producers in Indonesia and the Democratic Republic of Congo (DRC). Chinese production has also surged, further pressuring prices. Forecasts indicate that the cobalt market will remain oversupplied by 4,000 metric tons this year and in the forthcoming years.

Balancing Supply and Demand

Despite the price reaction to excess cobalt, producers are unlikely to cut output significantly. Cobalt production is tied to the dynamics and production costs of the copper and nickel industries, both of which continue to see robust output. While some high-cost cobalt producers may reduce output, low-cost producers are expanding production.

The IEA predicts a substantial increase in cobalt demand, with growth projected to be 5x higher between 2020 and 2040 under its Sustainable Development Scenario. 

The expected dramatic growth in cobalt demand underscores the need for increased production, with the IEA forecasting a 3-fold increase by 2030. This growth trajectory calls for the development of new mines and deposits to meet sustainability goals and mitigate supply risks. 

The agency also predicts that as early as 2030, mines will produce only 50% of the cobalt and lithium and 80% of copper required for the energy transition. 

The High Stakes of Cobalt Mining

The pressure on the cobalt supply chain is already evident. This is especially considering that the Democratic Republic of Congo supplies about 70% of the world’s cobalt. This raises concerns about reliance on a single source with questionable environmental, social, and governance (ESG) credentials.

This heavy reliance on a single source also poses significant supply chain risks, as evidenced by recent challenges in the European natural gas market.

Apart from supply concentration, cobalt mining practices and related issues in the DRC raise concerns for investors. These include environmental degradation, human rights violations, and governance challenges. As a result, investors are increasingly seeking alternative cobalt sources that offer greater transparency and sustainability.

The cobalt mining industry also exhibits a degree of concentration, with the top four mining companies contributing over 40% of global production. Glencore, a diversified mining and trading company, stands out as the largest producer, accounting for over 15% of total production. Interestingly, many of these major mining companies are located in emerging markets.

Note: production in kilotons per annum (ktpa)

However, there are challenges associated with assessing the ESG performance of these companies, particularly those that are privately held. Vale, despite having the lowest cobalt production among the top five companies, boasts the highest ESG rating of C+.

Australia and Canada are notable for their substantial cobalt reserves of critical minerals and relatively strong ESG ratings. These countries offer opportunities to diversify the global production mix of critical minerals.

While the DRC remains a dominant cobalt supplier, there are alternative sources available, although they may not be as abundant. Exploring these alternative supply options is crucial for mitigating supply chain risks and ensuring responsible cobalt sourcing practices.

Investing in Cobalt for a Greener Future

In response to the risks posed by concentration and ESG concerns in cobalt production, stakeholders, including investors and active asset owners, can play a significant role. They can advocate for greater transparency across the cobalt supply chain, incentivize sustainable practices through capital allocation, and engage with companies to improve their ESG performance. 

Additionally, investors may explore opportunities to support projects in jurisdictions with stronger regulatory frameworks and environmental protections. There are tools available to assist investors in navigating these challenges and pursuing responsible investment opportunities.

Although the bottom for cobalt prices is uncertain, some analysts anticipate a gradual improvement in prices over the next few quarters. However, the market remains volatile, and the trajectory of cobalt prices will depend on various factors. These particularly include demand trends and production dynamics in related industries.

In summary, as the world moves towards Net Zero emissions, the critical role of cobalt in the energy transition highlights the importance of sustainable and diversified supply chains to meet increasing demand while addressing ESG concerns.

The post Cobalt Crunch: Prices Plummet, Supply Challenges Loom in the Race to Net Zero appeared first on Carbon Credits.

On April 16, 2024, The Bank of Nova Scotiabank aka Scotiabank, one of the biggest Canadian multinational banking and financial services companies headquartered in Toronto, Ontario announced its acceptance of grant submissions across its operational footprint for the Net-Zero Research Fund. 

The press release states that organizations engaged in innovative research aimed at decarbonizing key sectors and facilitating the transition to a low-carbon economy can submit proposals for funding until May 28, 2024. 

Scotiabank’s Funding Range for 2024 

Scotiabank, with total assets of approximately $1.4 trillion as of January 31, 2024, is listed on both the Toronto Stock Exchange (TSX: BNS) and the New York Stock Exchange (NYSE: BNS)

For 2024, Scotiabank’s grants will range from CAD $25,000 to CAD $100,000. To qualify for support from the Scotiabank Net-Zero Research Fund (NZRF), eligible applicants must be registered charities or non-profit organizations.

Scotiabank launched its bold $10 million Net-Zero Research Fund in 2021 as part of the Bank’s Climate Commitments. For the last three years, the bank has partnered with leading research and academic institutions to fund climate mitigation and sustainability research. 

The bank has allocated CAD $3 million to over 30 registered charities and non-profit organizations involved in the climate sector. To qualify for funding through the Scotiabank NZRF, partner organizations must register as a charity or non-profit in their respective jurisdictions.

Submissions for the Scotiabank NZRF will undergo evaluation based on the following key criteria. 

Novelty: Firstly, emphasis will be placed on the novelty of the research, addressing gaps in current knowledge or understanding. 
Impact: Additionally, the potential impact of the research on sectoral, national, or global decarbonization endeavors, as well as its relevance to supporting financial institutions in these efforts, will be assessed. 
Expertise: Applicants’ climate change research expertise and organizational capacity to lead will be assessed. Projects must also provide clear deliverables, timelines, and budgets to qualify for funding. 

Study Scotiabank’s financing in the sustainability sector from the figure below:

source: Scotiabank, 2022 report

Projects in the pipeline…

Meigan Terry, Senior VP and Chief Social Impact, Sustainability and Communications Officer at Scotiabank.

“Climate change continues to be a major priority for Scotiabank and we are contributing to the development of sustainable options that help to advance a low-carbon economy,” 

For example, in 2023, Scotiabank awarded a grant to the University of Alberta to develop a net-zero vision and investigate transition pathways for Canada’s steel sector. 

Another recipient for 2022 was the Con Vida Foundation, a Colombian NGO dedicated to promoting sustainable, green avocado farming throughout the tropical Andes. The organization assesses the advantages of avocado crops mimicking a carbon sink across the region.

Various projects have received grants from the fund, including initiatives focused on 

Expanding carbon sequestration.
Enhancing greenhouse gas emissions measurement methodologies.
Identifying policy and regulatory changes to expedite decarbonization.
Stimulating demand for lower or zero-carbon technologies.

Navigating to Net Zero: All about Scotiabank’s Net-Zero Research Fund

Scotiabank has created the NZRF to facilitate the transition to a net-zero global economy by providing climate-related financing to clients in all sectors, including carbon-intensive sectors.

The bank’s prime mission is to advance to net zero by working with clients to achieve net-zero financed emissions by 2050. Furthermore, the company actively pursues emissions reduction efforts within its operations.

MUST READ: How Will Canada’s Carbon Price Increase Affect You? (carboncredits.com)

The navigation pathways as highlighted by 2024 Scotiabank’s NZRF Submission Guide are:

Encouraging research and dialogue to transition towards achieving net-zero emissions globally by 2050 or earlier, aligning with the goals of the Paris Agreement.
Recognizing initiatives for investment to ease adoption or broaden the application scale.
Enhancing ties between academic and non-profit research institutions and the corporate sector through collaborative efforts and knowledge exchange.
Advancing the Bank’s climate change strategy and perspectives on the transition to a net-zero global economy.

Here’s the link to the submission guide: NZRF_2024_Guide_ENGLISH.pdf (scotiabank.com)

Scotiabank’s Sustainability Focused Lending and Investment Guide

Scotiabank plays a crucial role in facilitating the transition to a low-carbon future while fostering sustainable economic growth. Through its Sustainable Finance group, Scotiabank helps clients integrate sustainability into financing. It also aligns capital market outcomes with corporate sustainability goals. 

The bank identifies eligible environmental and social projects and provides financing solutions to boost sustainability. It subsequently evaluates the eligibility of these activities, thereby, significantly evolving in the sustainable finance landscape.

source: Scotiabank

Let’s hope Scotiabank delivers the best financing to support the most deserving applicant and achieves its goal of becoming a net zero bank by 2050.

FURTHER READING: US EPA to Invest $20B in Climate and Clean Energy Projects for Underserved Communities (carboncredits.com)

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