OVER more than a century, oil companies have developed a vast industrial network to extract, refine and deliver their product to customers around the world. Sourcing the materials needed to build an alternative, less carbon-intensive economy presents a whole new set of challenges.
China has tackled these successfully for more than a decade, making it the undisputed leader in the “critical minerals” used in electric vehicle (EV) batteries, solar panels and wind-turbine magnets. If the US and Europe are going to have a chance at challenging its dominance in such clean technologies, they need to catch up fast.
1. Why ‘critical’ minerals?
Nations have long sought to protect supplies of materials they deem vital to their industrial and military capabilities. About 50 metallic elements and minerals currently meet those criteria in the US and European Union. Most were chosen for their role in building the infrastructure required to reduce carbon emissions blamed for climate change – a mission that is backed by hundreds of billions of dollars in subsidies and tax breaks. Those materials include:
- Lithium, graphite, cobalt, nickel and manganese – used predominantly in EV batteries
- Silicon and tin – EVs, smart grids, power meters and other electronics
- Rare earths – wind-turbine magnets, EVs
- Copper – grids, wind farms, EVs
2. Why is sourcing them a challenge?
While many critical minerals can be found in a raw state in large quantities across the globe, extracting and refining them into a usable form can be costly, technically challenging, energy intensive and polluting. China dominates the entire value chain in many of these products, accounting for more than half of the world’s production of battery metals including lithium, cobalt and manganese, and as much as 100 per cent of rare earths.
Even in less rarefied metals such as copper, forecasts of massive demand growth have sparked a realisation that there might not be enough to go around. In 2023, the EU categorised copper and nickel as critical raw materials for the first time, even though there are plenty of friendly producing nations across the world. Senators are lobbying for the US to do the same for copper.
3. Why is relying on China a problem for Western nations?
Over-dependence on supplies from any single country is something that manufacturers try to avoid, as it leaves them exposed when that country’s industrial output is disrupted by events like power crises, pandemics or social unrest. With China, there is also a febrile relationship with the US to consider, as the tensions risk blowing up into an all-out trade war involving punitive tariffs or export restrictions. Here are some precedents:
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In 2010, China blocked sales of rare earths to Japan, following a dispute over ownership of a group of islands in the East China Sea. The move shook Japan’s electronics sector and threatened to choke off global supplies of high-power magnets produced in Japan employing rare earths from China.
China’s industrial hubs and logistics networks ground to a halt in the early stages of the Covid-19 pandemic, imperilling global supplies of many industrial commodities and sending their prices soaring.
When power curbs slashed Chinese production of silicon, it sent prices for the metalloid up 300 per cent in less than two months in 2021 and caused turmoil for buyers in sectors including carmaking and chemicals.
4. How did China get so dominant?
Its pre-eminence was decades in the making. As early as 1992, former leader Deng Xiaoping was highlighting his country’s potential to lead the world in critical minerals, saying: “The Middle East has oil. China has rare earths.”
As its economic growth accelerated, domestic demand for industrial commodities began to far outstrip local reserves. The country responded with huge investments in mining assets overseas and came gradually to dominate the refining and processing of virtually every industrial commodity, as well as a host of obscure by-products like tellurium, gallium and germanium that are needed in products such as solar panels, lasers, night-vision goggles and computer chips.
Today, it is the leading producer of 20 critical raw materials, as measured by its share of global mined or refined production. In the case of the rare earth element dysprosium, China is responsible for 84 per cent of mined supply and 100 per cent of refined production, according to an EU analysis.
China mines only a small amount of cobalt and nickel, but is by far the largest producer of refined forms of the metals, and Chinese companies have been investing heavily in cobalt and nickel mines in countries such as Congo and Indonesia.
5. What are China’s economic rivals doing about it?
US President Joe Biden’s Inflation Reduction Act, passed in 2022, aims to help the country meet its climate goals through investments in renewables and EVs, curb prices of the raw materials needed for the transition and ease reliance on unreliable or hostile overseas suppliers.
The EU’s Critical Raw Materials Act launched in March aims to ease financing and permitting for new mining and refining projects, and strike trade alliances to reduce the bloc’s dependence on Chinese suppliers.
Washington is working on ad hoc trade pacts to ensure its incentives to boost domestic production do not end up locking friendly suppliers in the EU, and Japan out of the US market. The US and Europe are also looking to set up a “buyers club” to strike supply deals and investment partnerships with producing nations.
At a meeting of Group of Seven nations in April, ministers agreed to commit US$13 billion to fund new mining projects. Germany is planning a similar fund worth as much as two billion euros (S$2.9 billion).
6. Will it work?
With China and other nations with fast-growing economies increasingly restricting exports of industrial raw materials, the US and the EU are rushing to build their own refining capacity. But sourcing the mined product required is more problematic. In Congo, for instance, the US has signed a preliminary agreement to help the country develop an EV supply chain. However, more than half of the country’s cobalt mines are already owned or controlled by Chinese companies.
The sanctioned Israeli billionaire Dan Gertler has interests in the other large-scale mines that are not in Chinese hands. The Congolese government is lobbying to get the US sanctions on Gertler lifted, but doing so would leave the Biden administration open to accusations of double standards.
7. How is China responding to the US push?
Even before any direct response from Beijing, Chinese companies look set to consolidate their grip on key metals such as nickel and cobalt. In lithium, while the US is building out supply networks with free-trade partners such as Canada and Australia, China is consolidating its relationships with African nations that are expected to be among the world’s biggest producers of the metal by the end of the decade.
In rare earths, there are signs that China may seek to forestall the western world’s efforts to build new mining and processing capacity by restricting exports of key technology and equipment. BLOOMBERG
With assistance from Ramsey Al-Rikabi, Annie Lee and Michael J Kavanagh.
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