The new commodity superpowers

This is an audio transcript of the FT News Briefing podcast episode: ‘The new commodity superpowers’

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Sonja Hutson
Good morning from the Financial Times. Today is Monday, August 14th, and this is your FT News Briefing.

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The rouble took a tumble. And there is a battle in Washington over whether to give green tax subsidies to ethanol. Plus, demand for minerals critical to green technology is surging. The FT’s Harry Dempsey tells us about the countries where they’re being mined.

Harry Dempsey
And that has governments thinking, “Wow, you know, we need to really ensure we secure our fair share of this deal”.

Sonja Hutson
I’m Sonja Hutson, in for Marc Filippino, and here’s the news you need to start your day.

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The rouble has hit a 16-month low. Russia’s currency has lost a quarter of its value this year. That’s thanks to a surge in military spending, a drop in exports and, of course, western sanctions. Plus, the country’s central bank has been aggressively cutting interest rates. There is a glimmer of hope for Moscow, though. Oil and gas revenues started to rebound in July.

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Airlines and farmers are joining forces in the US. They want corn-based ethanol to power aeroplanes instead of jet fuel. So the groups are lobbying the federal government to make ethanol qualify for green tax breaks under the Inflation Reduction Act. But they’re going up against environmentalists who say ethanol isn’t actually that green.

Joining me to talk about this is the FT’s Chicago correspondent Claire Bushey. She covers the airline industry. Hi, Claire.

Claire Bushey
Hi, how are you?

Sonja Hutson
I’m doing well, thanks. So why is the airline industry so interested in ethanol?

Claire Bushey
I mean, they are interested in lots of types of alternative fuels, but we can’t overstate how tiny and nascent the market for sustainable aviation fuel actually is. And so the airlines say that, you know, there is an established ethanol industry and so that this is a more viable potential fuel than making fuel from other types of feedstocks like used cooking oil or animal fats.

Sonja Hutson
What about the farmers?

Claire Bushey
So farmers have been feeding into the gasoline market since about 2007, when the renewable fuel standard established that 10 per cent of what you pump at the gas station is going to be ethanol. And the problem is, as the automotive market transitions ever so slowly to electric vehicles, you don’t need gas. And that’s why farmers need somewhere new to sell ethanol.

Sonja Hutson
So there’s another player here, which is environmental groups. Why are they against ethanol getting these tax breaks?

Claire Bushey
So this is where it gets tricky. There are questions about how much ethanol reduces emissions. Because if you like, say, break up some trees which are sucking carbon out of the atmosphere so that you can plant crops, that is going to make your emissions profile look worse. So you can contrast that with some of the second-generation sustainable fuels that are made from waste products where they’re reducing emissions by a lot more. However, those are not at scale. Ethanol has been at scale for a while. And what environmentalists are worried about is if you give ethanol tax credits, we’ll never get to the point where we have newer fuels developed at industrial scale, because why would you do that if you’re already making money selling ethanol?

Sonja Hutson
Well, what are the airlines make of that argument?

Claire Bushey
No one is arguing, including the airlines that, like, ethanol reduces emissions as much as these newer, sustainable aviation fuels. What they are saying is the fuels that are available to us today will not be as good as the fuels available to us in 20 years. Doesn’t mean we should wait 20 years for the perfect fuel.

Sonja Hutson
Claire Bushey is the FT’s Chicago correspondent. She covers the airline industry. Thanks, Claire.

Claire Bushey
Thank you so much.

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Sonja Hutson
Experts say that materials like copper, lithium and nickel are going to be vital for a green economy. That demand is good news for countries like Indonesia, Chile and the Democratic Republic of Congo. They all have large deposits of minerals that are used in electric batteries and solar panels. And they want to make sure they can cash in on that.

Here to talk more about this is the FT’s commodities correspondent Harry Dempsey. Hey, Harry.

Harry Dempsey
Hi, there.

Sonja Hutson
How are these resource-rich countries handling the demand?

Harry Dempsey
The demand for minerals like lithium, it’s gonna triple by 2030. And that has governments thinking, “Wow, you know, we need to really ensure we secure our fair share of this deal when mining companies come in and they extract the resources and we don’t just want those resources to go to the west, go to China”. And so a lot of those countries are demanding that when there is inbound investment that there is the processing of those minerals and then even more, that demanding that there is things like battery plants built in that country. And Indonesia has been the poster boy for this kind of demands put on inbound investors and they banned raw nickel exports, which has helped them to build the processing industry and eventually attract even more investment in battery plants for electric cars.

Sonja Hutson
So Harry, what’s been the impact on local economies in Chile, the Democratic Republic of Congo and Indonesia?

Harry Dempsey
I think the picture really varies depending on where you look. Somewhere like Chile, it has completely transformed the economy there off the back of copper. And now they have lithium, which is also powering the country ahead. So for example, they had their first surplus in their government accounts for about a decade, thanks to lithium. But in places like the DRC, it’s not as clear-cut. People are a lot more cautious because of the country’s reputation around things like child labour, human rights, conflict out there. For somewhere like Indonesia, it really does look like that is gonna transform the country and bring a whole host of different manufacturing industries on board, which will provide prosperity for a lot of people.

Sonja Hutson
You know, there have been scrambles for natural resources in the past. What’s making this rush for battery minerals different from what we’ve seen in the past?

Harry Dempsey
Well, I think one of the things that makes it different is the speed at which it’s happening. I mean, we’ve got these goals set by governments. For example, in Europe, they want to phase out combustion engine vehicles that use petrol or diesel by 2035. And the thing that will replace them is electric cars. And so we need to do in 10 years what we did with the oil industry in 150. And because of that there is potentially massive leverage for the resource-producing nations. But I think the flip side, one thing that I . . . you’d want to consider with this is, well, the battery metals themselves, they aren’t inflationary in the same way that oil and gas is. And therefore that does make me question sort of to what degree will they hold geopolitical power in the same way that somebody like Saudi Arabia does?

Sonja Hutson
Harry Dempsey is a commodities correspondent for the FT. Thanks, Harry.

Harry Dempsey
Thanks.

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Sonja Hutson
You can read more on all these stories at FT.com for free when you click the links in our show notes. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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