PAYNE INSTITUTE COMMENTARY SERIES: COMMENTARY

By Anna Littlefield, Siddhant Kulkarni, and Simon Lomax

April 3, 2025

Introduction

As U.S. Environmental Protection Agency Administrator Lee Zeldin recently announced plans for the most significant rollback of federal regulations in U.S. history, a critical question emerges: Will delegating power to states foster innovation and economic growth or could it jeopardize essential protections for public health, safety, and the environment?

Zeldin’s push toward deregulation is in line with the shifting decision-making authority back to states, highlighting a long-standing tension in American energy policy-how to balance national environmental goals with local economic realities.

This tension has not been limited to energy policy (see Illinois’ BVO ban), and is often addressed through cooperative federalism, a framework in which federal and state governments share regulatory responsibilities, ideally blending federal oversight with state-level flexibility.  Yet, as America’s energy landscape diversifies, cooperative federalism may not fully capture the potential for collaboration beyond individual states.

Enter ‘cooperative regionalism’- a concept focused on fostering collaboration across regions defined by common resources, shared infrastructure, and economic interests. Cooperative regionalism offers a middle ground between rigid federal policies and fragmented state efforts, presenting an opportunity for tailored solutions that could accelerate the nation’s transition toward a resilient and sustainable energy future.

The Limits of Federal Mandates

Federal mandates seem logical at first glance: set national goals, establish clear targets, and watch as states fall into step.  But as energy policy has shown us, things aren’t that simple.  Take the Clean Power Plan for example- it set sweeping national emissions targets that felt achievable in some states (i.e. California) and entirely unrealistic in others (i.e. West Virginia) based on the carbon-intensity of electricity in those states.

One-size fits-all rules don’t always recognize the immense geographic expanse of the United States, and the resource, and economic diversity that comes with that.  Arizona’s solar potential is wildly different from Iowa’s wind power, which is still different from Oregon’s hydroelectric opportunities.  Ignoring these differences isn’t just impractical – it’s costly.  It can limit innovation, stall investment, and create resistance rather than enthusiasm for evolving energy generation methods.

From Cooperative Federalism to Cooperative Regionalism

Historically, the U.S. tackled federal-versus-state tensions through cooperative federalism, a policy framework where responsibilities were shared.  The idea was to combine the best of both worlds: federal oversight and local flexibility. But cooperative federalism falls short when challenges cross state borders or when opportunities require coordination on a larger, regional scale.

Cooperative regionalism refers to multi-state action designed around shared regional resources, economies, and infrastructure.   This framework doesn’t toss federal oversight aside- it complements it.  Instead of each state reinventing the wheel, states within regions can pool resources and expertise, driving more effective solutions that make sense geographically, economically, and environmentally.

Cooperative Regionalism in Action

The concept isn’t just theoretical.   Across the country, regional collaborations are already taking shape.  Seven projects were selected by the DOE to receive funding for hydrogen hubs, including five projects that cross state lines (the Mid-Atlantic, Appalachian, Midwest, Heartland, and Pacific Northwest Hydrogen Hubs). The fate of these and other projects, supported through the Infrastructure Investment and Jobs Act, are uncertain, but if given the greenlight (i.e. continued federal support) they could significantly advance the U.S. in the clean hydrogen production and transport space.

In the Midwest, the Midcontinent Independent System Operator (MISO) recently approved a major transmission upgrade, connecting wind-rich areas in Iowa, Minnesota, and Illinois. This regional initiative enables states to efficiently distribute renewable energy across state borders, cutting costs, improving reliability, and generating jobs along the way.

Here in the West, the Western Governors Association’s ‘Heat Beneath Our Feet’ initiative, launched by Colorado Governor Jared Polis in 2023, embodies regional cooperation by uniting multiple states to unlock the vast geothermal energy potential beneath their shared landscapes.  Recognizing that geothermal resources extend beyond state lines, this collaboration focuses specifically on addressing regulatory and technological barriers, facilitating the broader deployment of geothermal energy for both electricity generation and heating.

Economic Advantages of State Led Initiatives

When states lead their own energy policy initiatives, the economic payoffs can be substantial.  In Texas, for example, strategic state-level policies have driven massive economic growth around wind energy.   Programs like the Renewable Portfolio Standard (RPS) have attracted long-term investment, while initiative such as the Competitive Renewable Energy Zones (CREZ) have dramatically improved energy transmission infrastructure.  Along with falling technology costs, streamlined permitting and generous tax incentives, these and other policies have made Texas a national leader in wind, solar and energy storage as well as oil and natural gas development.

Many other states have demonstrated the power of state led initiatives – Iowa now generates more than 60% of its electricity from wind, driven by targeted tax incentives and strategic infrastructure investments, Washington passed the Clean Energy Transformation Act (CETA) to boost electric vehicle adoption and rooftop solar installations statewide, even Maine and Vermont are making strides in offshore wind policies, community solar, and net-metering programs. The two clearest success stories- California and Texas- are also the two largest states in the contiguous U.S. Both possess economies, resources, and populations capable of independently sustaining these ambitious policies.  For states with smaller populations, economies, and footprints, a collaborative regional framework could provide the scale, shared resources, and combined strengths necessary to emulate this kind of economic and energy policy success.

Federal Role in a Regionalized Framework

While regional cooperation holds great promise, it still requires direct or indirect federal buy-in.  The federal government can play a key role in coordination, supporting infrastructure projects, clarifying market rules, and providing funding incentives to encourage regional planning.

Importantly, this doesn’t mean heavy-handed mandates or micromanagement from Washington.  Instead, federal leadership means enabling cooperation across borders and ensuring fairness and consistency in energy markets.  Federal policy should provide the stage upon which regional initiatives perform best – or at a minimum, allow states to pursue regional approaches without reflexive assertion of the federal government’s constitutional authority over interstate commerce.

Potential Pitfalls and Challenges

Regional collaboration is promising but not without challenges. Regional approaches risk uneven development, where more resource-rich or economically stronger states dominate, leaving less affluent states behind.   The further risks associated with bureaucratic complexity are too numerous to fully capture, but could include conflicting regulations, permitting delays, tax and cost-share complexities, all areas in which federal input could be useful.

Toward a Resilient Energy Future

Ultimately, cooperative regionalism offers a way to balance flexibility with structure – embracing diversity in geography, resources, and economic strengths while maintaining national goals of improving our energy capacity and security. It is not a new concept, with great examples of regional cooperation nationwide, it is simply a new paradigm.  With the rapid shifts we’re seeing in U.S. energy policy and the evolving power dynamics between states and the federal government, embracing this new paradigm offers the clearest path forward- one that prioritizes economic growth and innovation without sacrificing the environmental goals we can’t afford to miss.

ABOUT THE AUTHORS

Anna Littlefield, Low Carbon Energy Technologies Program Manager
PhD Student, Geology and Geological Engineering, Colorado School of Mines

Anna Littlefield is the Program Manager for Low Carbon Energy Technologies for the Payne Institute at the Colorado School of Mines. As a current PhD student in the Mines geology department, her research focuses on the geochemical impacts of injecting CO2 into the subsurface as well as the overlap of geotechnical considerations with policymaking. Anna joins the Payne Institute with 8 years’ experience in the oil and gas industry, where she worked development, appraisal, exploration, new ventures, and carbon sequestration projects. Her academic background is in hydrogeology with an M.S. in geology from Texas A&M University, and a B.S. in geology from Appalachian State University. Anna is passionate about addressing both the societal and technical challenges of the energy transition and applying her experience to advance this effort.

Siddhant Kulkarni, MS Student, Mineral and Energy Economics, Colorado School of Mines

Siddhant is a student researcher at The Payne Institute at Colorado School of Mines.  Currently pursuing his M.S in Mineral and Energy Economics, his research focuses on the commercial and insurance side of CCS projects and their risk management, as well as government incentive programs and schemes promoting the use of renewable energy. Additionally, he holds a B.S Honors in Economics from Symbiosis School of Economics, Pune. He is dedicated to advancing energy transition to renewables while addressing the various societal challenges that may come with it.

Simon Lomax, Director, Accelerated Methane Reduction Initiative

Simon Lomax is a policy and outreach advisor with the Payne Institute at the Colorado School of Mines. He provides stakeholder engagement and communications support to the Accelerated Methane Reduction Initiative and other research areas at the Institute.

Simon also serves as an advisor to the Energy Emissions Modeling and Data Lab (EEMDL), a joint research initiative of Mines, the University of Texas at Austin and Colorado State University.

Simon has spent 25 years working in journalism, public policy and corporate affairs, with most of his career focused on energy security and the energy transition. He is a former energy and climate reporter for Bloomberg News and Argus Media. Simon also worked directly on cap-and-trade climate legislation as a staffer in the U.S. House of Representatives.

ABOUT THE PAYNE INSTITUTE

The mission of the Payne Institute at Colorado School of Mines is to provide world-class scientific insights, helping to inform and shape public policy on earth resources, energy, and environment. The Institute was established with an endowment from Jim and Arlene Payne and seeks to link the strong scientific and engineering research and expertise at Mines with issues related to public policy and national security.

The Payne Institute Commentary Series offers independent insights and research on a wide range of topics related to energy, natural resources, and environmental policy. The series accommodates three categories namely: Viewpoints, Essays, and Working Papers.

Visit us at www.payneinstitute.mines.edu

FOLLOW US

DISCLAIMER: The opinions, beliefs, and viewpoints expressed in this article are solely those of the author and do not reflect the opinions, beliefs, viewpoints, or official policies of the Payne Institute or the Colorado School of Mines.

PAYNE INSTITUTE STUDENT COMMENTARY SERIES: COMMENTARY

By Sravan Lavudya

April 2, 2025

Introduction

Current Mineral & Metal Exchanges:

The global metal and mineral market has experienced significant growth in recent years, with its market size rising from $8.43 trillion in 2024 to $8.95 trillion in 2025, reflecting a compound annual growth rate (CAGR) of 6.1% (Metal and Mineral Global Market Report, 2025). This growth is evident across various segments, including industrial metals (e.g., copper, aluminum, steel), precious metals (e.g., gold, silver), and minerals (e.g., lithium, cobalt). Key factors driving this growth include rapid industrialization in emerging economies, increased infrastructure development, and ongoing technological advancements in the electronics and renewable energy sectors. While the Asia-Pacific region remains the largest consumer of metals and minerals, other regions are also experiencing significant growth. The future outlook for the metal and mineral market is positive, with continued growth expected, though challenges such as geopolitical risks and supply chain disruptions remain.

Key Metal and Mineral Exchanges

• The London Metal Exchange (LME), the world’s oldest and largest non-ferrous metals exchange, plays a crucial role in the global trading of metals options and future contracts. There is the London Metal Exchange Index (LMEX) which can track the prices of metals that are traded in exchange. where the future contracts are also listed. In LME the contracts are standardized regarding expiration dates and contract size. This can help to choose the contracts on different expiry with the size of lots, which can be in the range of 1 to 65 metric tons, depending on the specific metal involved.

In 2023, the LME reported trading 149 million lots, equivalent to $15 trillion and 3.5 billion tons. The exchange has fully recovered from its 2022 nickel crisis, with 2024 trading activity reaching its highest point since 2015. Average daily volumes surged to 702,639 lots, an 18.4% increase from 2023, with nickel volumes jumping by 58.8% and returning to pre-crisis levels. This resurgence has been driven by increased investor confidence, higher exchange inventories, and a rebound in industrial demand for base metals. The LME offers a wide range of contracts, including physically settled and cash-settled futures for various industrial metals, such as copper, aluminum, zinc, and nickel. It also provides specialized contracts like Monthly Average Futures (MOA), Traded Average Price Options (TAPO), and the LME Index. The LME’s global reach and diverse product offerings make it a key player in setting benchmark prices for industrial metals and managing price risk for market participants.

• The Chicago Mercantile Exchange (CME), the world’s largest financial derivatives exchange, also holds a significant position in global metals trading. According to CME Group, on average it handles 3 billion contracts worth approximately $1 quadrillion annually. The CME Group reported a record average daily volume (ADV) of 5 million contracts in 2024, reflecting growth across all six asset classes, including metals, energy, agriculture, equity index, interest rates, and FX. The metals complex, which trades contracts for metals such as gold, silver, and copper, saw a 10% increase in ADV, reaching 673,000 contracts, driven by heightened demand for precious and base metals. The CME offers a range of risk management tools, such as hedging strategies and margin requirements, to help market participants manage their exposure to price fluctuations. The exchange’s diverse product offerings, global reach, and focus on innovation contribute to its dominance in the derivatives market and influence global commodity prices.

The Shanghai Futures Exchange (SHFE) has rapidly emerged as a major force in global metals trading, particularly in the Asia-Pacific region. It is specialized in metals, energy, and chemical commodity products. 18 future and 12 options are listed. In 2024, Shanghai’s financial market transaction volume reached 365 trillion yuan($50 trillion), with SHFE’s transaction volume surging by 25.0%. China’s government-backed efforts to internationalize its futures markets have been crucial to SHFE’s rapid expansion, including relaxing foreign investment restrictions and introducing yuan-denominated international contracts for metals like copper and nickel. SHFE’s growing strength positions it as a formidable competitor to the LME and CME, particularly in the trading of industrial metals. The exchange’s emphasis on domestic price discovery and its growing influence in the Asia-Pacific region are contributing to its rising prominence in the global metals market.

Chemical markets:

• 1 The chemical industry had made moderate growth in 2024, rapidly increasing year-over-year development since 2023 and it was predicted to continue to rise as the destocking cycle wanes and demand rises across most industries according to the 2025 chemical industry outlook. Chemical companies are focusing on cutting costs and boosting profits to drive revenue growth. They’re also continuing to put money into reducing their decarbonization and developing innovations.

Moreover, chemical market price discovery is not as transparent as the energy commodity market and spot prices are established through over-the-counter (OTC) transactions rather than centralized exchange. Arbitrage traders make this efficient by engaging in arbitrage when this transparency does not exist, leading to a removal of bottlenecks in supply and demand. Digital trading platforms provide a record of prices, while price-reporting agencies such as ICIS and Platts publish benchmarks that help traders track across markets to identify potential arbitrage opportunities.

• 2 In 2025, we expect the industry to continue its recovery, adjusting to new market drivers while balancing short- and long-term goals. Chemical companies have revealed cost-reduction strategies and begun to raise margins to bolster revenue growth further. At the same time, they continue to invest in decarbonization and innovation. We anticipate that the industry will continue to recover in 2025, adapting to new market drivers while finding a balance between short- and long-term objectives. Globally, chemical production is projected to increase by 3.4% in 2024 and 3.5% in 2025, according to the American Chemistry Council (ACC). Adding to this positive outlook, a MarketsandMarkets report (PCI article) forecasts the global chemical industry to grow from $6,182 billion in 2024 to $6,324 billion in 2025, a 2.3% increase.

While Asia is experiencing strong growth, European producers are facing challenges due to high energy costs. The industry is navigating complex pricing structures, including formula pricing for long-term contracts and spot pricing for immediate transactions. Overall, the chemical market is adapting to shifting global dynamics, emphasizing sustainability and innovation while managing economic uncertainties.

Here’s an example of an Overview of Market Structures:

Key Takeaways

=> Metal and Chemical Markets, though different in structure, are interconnected and influenced by global economics, with chemicals facing unique supply and trading challenges.

=> Arbitrage of both markets, metal has immediate and price driven but with chemical delay and cost driven.

=> Currency risk and trade policies reshaping mineral/metal and chemical supply chains.

=> Both metal and chemical markets in 2025 face a critical juncture, demanding strategic choices between embracing digitized transparency to enhance efficiency or risking increased fragmentation due to regulatory and trade policy pressures.

Functioning and Trade of Metal and Chemical Markets

Where both markets are fundamental to the industrial economies, their function and trade in distinct ways are different in their physical properties, supply, and demand. When it comes to metals such as copper and gold they can be stored indefinitely and reused but many chemicals have limited shelf lives, requiring precise logistics and inventory management. Even with their differences, both markets are influenced by similar factors like global economics, supply-demand, and some macroeconomic conditions like GDP, inflation, and interest rates.

When it comes to mineral and metal investment demand takes a better part, particularly in precious metals like gold, which can act as a hedge against inflation and economic instability. Industrial metals like aluminum and copper can show in manufacturing demands with the price movements reflecting trends in industries. Minerals like Lithium and Cobalt can act in both markets.  When it comes to the chemical market, they are initially driven by industrial consumption like petrochemical forming Especially chemicals that serve high-value applications in pharmaceuticals electronics and agriculture, Operating under more constraints and regulatory scrutiny, and pricing volatility because of raw material dependencies.

Supply Dynamics differ significantly across the markets. Metals gain price stability from Recyclability, where the secondary sources and scrap mitigation rely on new production from mines, which can moderate price volatility. Chemical supply, However, relies heavily on primary production Due to some consumptions and degradations, their production is closely linked to volatile oil and gas markets That means crude oil price fluctuation directly impacts petrochemical costs. Meanwhile, metal prices are influenced by mining output and broader economic factors, chemical prices are directly tied to crude oil fluctuations.

The contrasting trading mechanisms highlight the challenges faced by the chemical industries. Minerals and metals traded on centralized exchanges benefit from future contracts to facilitate transparent price discovery. In contrast, the chemical sector relies heavily on over-the-counter (OTC) agreements and long-term contracts with pricing often reliant on industry benchmarks and negotiated terms. Although both sectors are undergoing digitalization the chemical industry’s product diversity makes it inherently less standardized than the metal market.

Despite their divergent characteristics, both markets share significant interconnections. Chemical processes are integral to metal production, such as refining, alloying, and surface treatments. Similarly, metals are vital for catalysts, equipment, and infrastructure within the chemical industry.

Cross-Market Arbitrage

Global traders capitalize on price discrepancies across interconnected commodity markets by simultaneously buying low and selling high. Metal arbitrage, leveraging transparent exchange-traded prices, exerts an immediate impact through rapid price adjustments and investment shifts. Conversely, chemical arbitrage, operating within a less transparent OTC framework, influences markets more gradually via feedstock cost adjustments and regulatory effects. These structural differences reveal contrasting impact mechanisms: metal arbitrage’s immediacy versus chemical arbitrage’s gradual, yet substantial, influence.

Impact Comparison: How Metals Arbitrage Affects Chemicals and Vice Versa

Metal arbitrage exerts a more immediate and visible influence on chemical markets than vice versa. This disparity arises from metal markets’ direct feedstock cost volatility, exchange-traded pricing, and investor speculation, leading to rapid chemical market reactions. Chemical arbitrage, while impactful, operates with delayed and complex adjustments, primarily through feedstock pricing and regulatory shifts. However, both sectors are interconnected: metal arbitrage drives swift chemical market changes via transparency and logistics, while chemical arbitrage shapes metal production costs through gradual shifts in feedstock and energy dynamics.

Differences in LME forward curves pricing mechanisms, CME brand restrictions, and SHFE settlement rules fundamentally shape world metal supply and demand. It impacts chemical market costs and supply chain stability through inventory flows, arbitrage opportunities, and financialization. Cross-market spreads and volatility have further intensified with the 2024 geopolitical sanctions. As a result, companies must implement dynamic hedging strategies to manage risks associated with regional price differences.

The graph illustrates cross-market arbitrage between metal futures (LME, CME, SHFE copper & nickel) and chemical markets (sulfuric acid & nickel sulfate).

This graph illustrates the direct impact of metal arbitrage on chemical pricing, specifically examining copper/sulfuric acid and nickel/nickel sulfate dynamics. Arbitrage opportunities in copper (price discrepancies exceeding $200/mt) trigger shifts in smelting activity, leading to fluctuations in sulfuric acid supply and thus its price, as sulfuric acid is a byproduct of copper smelting. Similarly, nickel arbitrage (discrepancies above $1,000/mt) influences nickel sulfate pricing due to changes in nickel metal availability for chemical processing. The shaded gray area represents a ‘high volatility event,’ likely the LME nickel short squeeze of March 2022, where a concentration of short positions and geopolitical tensions caused unprecedented price spikes, disrupting nickel sulfate markets and highlighting the sensitivity of chemical pricing to external market shocks. These relationships underscore the necessity for industries to closely monitor arbitrage thresholds and implement dynamic hedging strategies to mitigate risks associated with cross-market price correlations.

Transient arbitrage opportunities persist within the LME, CME, and SHFE copper futures markets, driven by regional supply-demand imbalances. Sulfuric acid pricing demonstrably correlates with copper smelting activities, and nickel sulfate prices are clearly influenced by nickel arbitrage. These cross-market divergences create significant challenges for industrial pricing. Effective strategies necessitate dynamic, responsive pricing models to mitigate inherent market risks. Neglecting these correlations could lead to substantial cost vulnerabilities, making proactive risk management essential for businesses operating within these interconnected markets.

Currency Risk

Currency exchange rate volatility introduces significant risks and arbitrage opportunities within international mineral, metal, and chemical markets. The shift towards USD denomination in exchanges like the LME, previously dominated by GBP, exemplifies how currency fluctuations create price discrepancies across global trading platforms, impacting commodities such as copper, gold, and silver. These differentials necessitate sophisticated hedging strategies and drive arbitrage activities. Similarly, in chemical markets, international trade in petrochemicals, agrochemicals, and specialty chemicals is acutely sensitive to currency risk, directly influencing raw material costs, export competitiveness, and overall profitability. The interplay between exchange rate volatility and commodity pricing underscores the critical importance of robust financial risk management for market participants across these sectors.

Interactions between mineral/metal exchanges and chemical markets

The reconfiguration of mineral/metal exchanges and chemical supply chains is significantly influenced by currency risks and trade policy interventions. U.S. tariffs, exemplified by the 25% duty on Chinese aluminum, and EU sanctions against Russian metals have fragmented global markets, evidenced by the substantial 62% shift of LME copper stocks to SHFE, resulting in regional price disparities. The dominance of the USD, coupled with Federal Reserve rate policies, amplifies cost pressures, as demonstrated by the 8% reduction in Chinese copper imports following a 10% USD appreciation in 2024. Commodity-linked currencies, such as the AUD and ZAR, exhibit heightened vulnerability to metal price fluctuations, with a $100/ton copper decline triggering a 3.2% AUD depreciation. Chemical markets are concurrently impacted by dual pressures: aluminum tariffs raising U.S. polyethylene costs by $120/ton and sanctions diverting Russian nickel, leading to a €30/ton increase in EU catalyst expenses. Central bank strategic gold accumulation, notably China’s addition of 55 tonnes in 2024, serves as a hedge against currency instability, stabilizing currencies like the RUB amid sanctions. Consequently, effective risk mitigation necessitates the implementation of robust hedging strategies, including RMB-denominated contracts, and supply chain diversification, exemplified by EU sourcing from Canada. The increasing contribution of tariffs and forex volatility to 65% of chemical margin volatility underscores the imperative for agile and proactive risk management frameworks.

How Metal and Chemical Markets are Changing in 2025

The global trade of metals and chemicals is seeing big changes. Metal markets are generally strong, with lots of trading happening, especially in places like the London Metal Exchange (LME). Even though copper prices dipped slightly by 1.86% to $9,907 per ton in March 2025, the LME still sees about $15 billion in copper trading every day. Other metals like zinc and aluminum are trading steadily around $2,900 to $2,600 per ton. Gold is doing especially well, with prices jumping 27% in 2024, as people buy it to protect their money during times of uncertainty. New exchanges, like the one in Singapore, are trying to make it easier to buy and sell gold in Asia.

The market for metals used in batteries is also picking up. Indonesia is producing more nickel, which is helping the LME, and new ways of trading lithium are making its price less unstable, reducing price swings by 18% compared to last year. Big investors, like insurance companies in China, are putting money into copper mining because they think demand will grow as we use more green energy. They are acquiring more than 5% of the stakes in these companies.

Chemical markets, however, are facing more challenges. Even though global chemical production is increasing, and companies are making 12-15% more profit, most chemical trading happens privately, not on public exchanges (85-90% of trades). New taxes in Europe on products that create a lot of carbon, adding €50 per ton to ammonia costs, are making things more expensive. This is leading to big price differences between regions, like when 62% of displaced Russian copper moved from Europe to China, creating a $900 per ton price gap.

To deal with these problems, companies are trying new things. Some are using blockchain technology to make trading more transparent, and others are investing in green energy to reduce the impact of carbon taxes.

In 2025, metal markets are using their strong trading activity to handle price changes, while chemical markets are trying to adapt by moving production closer to where things are sold and using new technologies. Both sectors are facing pressure to become more transparent and sustainable, and they’ll need to choose between embracing new digital ways of doing business or risk becoming more divided.

Conclusion

In conclusion, this analysis has delineated the functional and trade distinctions between mineral and metal exchanges and chemical markets. While both sectors are indispensable to global industrial economies, their operational characteristics diverge significantly, impacting market dynamics and efficiencies. Metal exchanges, exemplified by the London Metal Exchange (LME) with its 149 million lots traded in 2023 (equivalent to $15 trillion), and the Chicago Mercantile Exchange (CME) which handles 3 billion contracts worth approximately $1 quadrillion annually, are characterized by standardized contracts, transparent price discovery, and high liquidity. These exchanges facilitate robust price formation and risk management through instruments like futures and options. The LME, for instance, saw average daily volumes surge to 702,639 lots in 2024, an 18.4% increase from the previous year. Conversely, where 85-90% of trades occur over-the-counter, chemical markets navigate complexities arising from product heterogeneity, variable liquidity, and less transparent pricing mechanisms, often relying on negotiated terms and industry benchmarks.

Despite these structural differences, the interconnectivity between these markets is crucial. As demonstrated by the impact of metal arbitrage on chemical pricing, with copper arbitrage above $200/mt leading to a 30% drop in sulfuric acid prices and nickel arbitrage over $1,000/mt resulting in a 15% spike in nickel sulfate prices, price discrepancies in one market can trigger substantial price adjustments in the other. Furthermore, currency exchange rate volatility, as seen with a 10% USD appreciation leading to an 8% reduction in Chinese copper imports, and trade policy interventions, such as the 25% U.S. tariff on Chinese aluminum, exert significant influence on both sectors, reshaping supply chains and creating regional price disparities, such as the $900/ton price gap for copper between Europe and China.

Looking ahead to 2025, both metal and chemical markets face critical junctures. The ongoing digitalization of trade, with initiatives like blockchain technology being explored to enhance transparency in chemical trading, coupled with increasing demands for sustainability and navigating geopolitical complexities, necessitates strategic adaptation. The extent to which these markets embrace technological advancements to enhance efficiency and manage risks associated with cross-market correlations and currency fluctuations will ultimately determine their future resilience and competitiveness in the global economy.

ABOUT THE AUTHOR

Sravan Lavudya
Grad Student, Mineral and Energy Economics, Colorado School of Mines

Sravan Lavudya, a mining engineer and Mineral and Energy Economics graduate student at the Colorado School of Mines, focuses on critical minerals and sustainable innovation for a resilient and responsible resource sector.

ABOUT THE PAYNE INSTITUTE

The mission of the Payne Institute at Colorado School of Mines is to provide world-class scientific insights, helping to inform and shape public policy on earth resources, energy, and environment. The Institute was established with an endowment from Jim and Arlene Payne and seeks to link the strong scientific and engineering research and expertise at Mines with issues related to public policy and national security.

The Payne Institute Commentary Series offers independent insights and research on a wide range of topics related to energy, natural resources, and environmental policy. The series accommodates three categories namely: Viewpoints, Essays, and Working Papers.

Visit us at www.payneinstitute.mines.edu

FOLLOW US

DISCLAIMER: The opinions, beliefs, and viewpoints expressed in this article are solely those of the author and do not reflect the opinions, beliefs, viewpoints, or official policies of the Payne Institute or the Colorado School of Mines.

PAYNE INSTITUTE COMMENTARY SERIES: COMMENTARY

By Mikhail Zhizhin

April 2, 2025

On April 1, 2025, a significant gas pipeline explosion occurred in Putra Heights, a suburb of Kuala Lumpur, Malaysia, resulting in a massive fireball that injured at least 145 individuals, including three children. The explosion caused flames to soar up to 20 stories high and created a large crater near a residential neighborhood. Health Minister Dzulkefly Ahmad reported that 104 people are receiving treatment, some for second and third-degree burns, in public and private hospitals. The fire also damaged 190 houses and 148 vehicles. Authorities have designated a 290-meter area around the site as off-limits, and investigations into the cause are ongoing. Prime Minister Anwar Ibrahim has assured that the government and Petronas will be responsible for repairing the damaged homes, a process expected to take several months.

Satellite-based thermal anomaly detection systems, such as the Visible Infrared Imaging Radiometer Suite (VIIRS) Nightfire (VNF), are instrumental in identifying and monitoring such incidents. VNF specializes in detecting and characterizing high-temperature events, including gas flares and industrial fires, by capturing nighttime infrared emissions. In the case of the Putra Heights explosion, VNF data detected with three satellites Suomi NPP, NOAA-20 and NOAA-21 provides the fire’s intensity, temperature typical for natural gas fires, duration, and spatial extent, contributing to a comprehensive analysis of the incident’s impact.

https://apnews.com/article/malaysia-putra-heights-selangor-fire-9e11b47ba0bb2b87cf9271a4de43d4f5

https://www.cnn.com/2025/04/01/asia/burst-gas-pipe-fire-malaysia-intl-hnk/index.html

https://www.fireengineering.com/firefighting/gas-fire-in-malaysia-injures-more-than-100-people-and-damages-49-houses/

https://theedgemalaysia.com/node/749930

ABOUT THE AUTHOR

Mikhail Zhizhin
Research Associate, Earth Observation Group, Payne Institute for Public Policy, Colorado School of Mines

Mikhail Zhizhin, M.Science in mathematics from the Moscow State University in 1984, Ph.D. in computational seismology and pattern recognition from the Russian Acad. Sci. in 1992. Research positions from 1987 to 2012 in geophysics, space research and nuclear physics at Russian Acad. Sci., later at NOAA and CU Boulder. Currently he is a researcher at the Earth Observation Group at Colorado School of Mines. His applied research fields evolved from high performance computing in seismology, geodynamics, terrestrial and space weather to deep learning in remote sensing. He is developing new machine learning algorithms to better understand the Nature with Big Data.

ABOUT THE PAYNE INSTITUTE

The mission of the Payne Institute at Colorado School of Mines is to provide world-class scientific insights, helping to inform and shape public policy on earth resources, energy, and environment. The Institute was established with an endowment from Jim and Arlene Payne and seeks to link the strong scientific and engineering research and expertise at Mines with issues related to public policy and national security.

The Payne Institute Commentary Series offers independent insights and research on a wide range of topics related to energy, natural resources, and environmental policy. The series accommodates three categories namely: Viewpoints, Essays, and Working Papers.

Visit us at www.payneinstitute.mines.edu

FOLLOW US

DISCLAIMER: The opinions, beliefs, and viewpoints expressed in this article are solely those of the author and do not reflect the opinions, beliefs, viewpoints, or official policies of the Payne Institute or the Colorado School of Mines.