Critical Minerals: Estimating Price Elasticity of Supply Using Mine-Level Data

As the demand for critical minerals to the energy transition strongly grows, it is crucial to understand whether their supply is able to match it. In this paper, we address this question by estimating the price elasticity of supply for 8 minerals between 2000 and 2019, using mine-level production data with global coverage. We isolate global price variations related to mineral-specific demand shocks using a structural VAR with sign restrictions and study the reaction of mineral production to these price variations in a local projection framework. We find robust evidence of a significantly positive price elasticity of supply, reaching 50% on average in the five years following the shock, largely driven by silver, copper, and nickel. We explore how the location of mines, mine-level characteristics and market-level characteristics shape these elasticities. Among location factors, we find smaller elasticities for mines located close to conflicts. Such effects partly explain a smaller price elasticity of supply in Africa. Turning to mine-level characteristics factors, we find smaller effects for mines with larger proven reserves, a larger number of produced minerals and more than one owner. Finally, regarding market-level characteristics, we find smaller effects when the global production is more concentrated across mines. The magnitude and significance of estimated heterogeneity are stronger immediately after the shock and decrease over time, suggesting that producers adapt to their environment.