Increasing AI usage may boost demand for precious metals in 2024 amid a gloomy economic outlook driven by high interest rates and recession concerns, UK-based consultancy Metals Focus said in an Oct. 25 note.
Chips and other components used in AI devices require precious metals such as platinum alloys, silver, gold and palladium. The adoption of AI by many companies is expected to drive demand for AI equipment and the precious metals needed to manufacture them, Metals Focus said.
"Since most components used in conjunction with AI devices are high-specification, ranging from chips produced by advanced semiconductor processes to carried high-bandwidth memories and high-end multi-layer ceramic capacitors, we expect to see widespread support for a range of precious metals bearing components," Metals Focus said.
"Furthermore, to help cope with the evolution of AI algorithms and the requirements of high-performance cloud and edge computing, investment in equipment upgrades will continue to drive shipments of AI servers and switches," Metals Focus added.
However, supply chain issues linked to geopolitical uncertainty may hinder the development of new technologies. Metals Focus noted that Israel, which is at war with Hamas, "is an important stronghold for many electronics and semiconductor companies." The consultancy also flagged the impact of US sanctions and export controls on China.
"As a result, feedback from many of our contacts in the above supply chains suggests that, despite the upside related to AI, the electronics industry is unlikely to return to growth until the second half of 2024," Metals Focus said.
China restricting graphite exports
China's decision to restrict exports of graphite starting Dec. 1 is expected to drive up the pricing of the battery material, Australia-based financing advisory PAC Partners said in an Oct. 23 note.
China recently outlined plans to start imposing export controls on certain graphite products in December due to national security concerns. The country accounts for 70% of the world's production of natural and synthetic graphite, PAC Partners said. Graphite is used as an anode material in manufacturing lithium-ion batteries for electric vehicles.
Anode producers outside of China will have to look for alternative sources of graphite to meet EV demand, which may cause prices to jump, PAC Partners said.
"[Graphite from outside of China] may end up commanding a pricing premium in order to meet these demands," PAC Partners said, noting that graphite projects take several years to develop.
Amid these developments, PAC Partners said it considered Black Rock Mining Ltd. as a "top pick" for the graphite sector, citing the company's Mahenge graphite project in Tanzania. Black Rock is in the final stages of arranging project financing, and its graphite product has been tested to be suitable for anode production, PAC Partners noted.
South Korea's Posco Holdings Inc. is an offtake partner at Mahenge and owns an 11.5% stake in Black Rock Mining, according to S&P Global Market Intelligence data. Posco has been working to expand its battery materials business in the US to take advantage of the Inflation Reduction Act.
A project finance decision for Mahenge is expected in the third or fourth quarter and initial graphite production is targeted in 2025, PAC Partners said.
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