According to the International Energy Agency (IEA), “Critical minerals, which are essential for a range of clean energy technologies, have risen up the policy agenda in recent years due to increasing demand, volatile price movements, supply chain bottlenecks, and geopolitical concerns.”[1] The geopolitical concerns primarily involve China. Back in 1992, one of China’s more enlightened leaders, Deng Xiaoping, stated rare earths are as important to China as oil is to the Middle East.[2] Despite international concerns about China’s dominant position, journalist Jon Emont reports China is winning the critical minerals competition. He explains, “For the past few years, the West has been trying to break China’s grip on minerals that are critical for defense and green technologies. Despite their efforts, Chinese companies are becoming more dominant, not less. They are expanding operations, supercharging supply, and causing prices to drop. Their challengers can’t compete.”[3] Earlier this year, Jennifer Granholm, U.S. Energy Secretary, told reporters that she is “very concerned” about China’s dominance of the global critical minerals supply chain. She stated, “It’s one of the pieces of the supply chain that we’re very concerned about in the United States. … We do not want to be over-reliant on countries whose values we may not share.”[4] She added, “It also means that we will be partnering with friends, like Australia, like Canada, and it’s one of the subjects that we are raising [with] the International Energy Agency. … [We] want to ensure that we have a critical stockpile of critical minerals and that we are allowed to diversify the supplies of those stockpiles. Both internationally and domestically.”
Taking the Long View
As Emont noted, one way China is maintaining its dominant position is by flooding the market with critical minerals to undercut the profitability of competitors. The IEA’s Global Critical Minerals Outlook 2024 report notes, “The main reason for price declines has been a strong increase in supply and ample inventories of technologies made with critical minerals. From Africa to Indonesia and the People’s Republic of China, the ramp-up of new supply outpaced demand growth over the past two years. Together with an inventory overhang in the downstream sector (e.g., battery cells, cathodes) and a correction of overly steep price rises in 2021-2022, this produced downward pressure on prices.” According to Emont, China’s pursuit for dominance in the critical minerals sector is unrelenting. He writes, “What’s more worrying for Western producers is that there is little sign of a letup. ‘It’s just the way China does things. They have tended to build more capacity whether it’s in aluminum, or cement, or nickel,’ said William Adams, head of base metals research for Fastmarkets. Chinese companies ‘all gun for market share, and the consequence for that is you get oversupply.’”
Supply chain journalist Kate Magill reports, “The Biden administration has made the growth of the U.S. critical mineral supply chain a critical aspect of its clean energy transition policy, including billions of dollars in funding and loans for lithium and other battery material projects. Those efforts, however, have yet to slow China’s dominance in the industry. The country still controls 85% of global battery cell production capacity, and over half of all lithium and cobalt processing still takes place there.”[5] Despite current oversupplies of some critical minerals, the IEA warns we shouldn’t be complacent. Its Global Critical Minerals Outlook 2024 report explains, “Today’s well-supplied market may not be a good guide for the future, as demand for critical minerals continues to rise.” Magill adds, “Mineral demand for clean energy technologies is set to double by 2030, based on today’s global policy settings.”[5] The IEA report concludes, “There is a significant gap between prospective supply and demand for copper and lithium: Anticipated mine supply from announced projects meets only 70% of copper and 50% of lithium requirements. Balances for nickel and cobalt look tight relative to confirmed projects. … Graphite and rare earth elements may not face supply volume issues but are among the most problematic in terms of market concentration: over 90% of battery-grade graphite and 77% of refined rare earths in 2030 originate from China.”
The Search for Critical Minerals
The rest of the world understands the dangers posed by allowing China to dominate the critical minerals market. As a result, nations are searching for new supplies of those minerals. Journalist Ralph Jennings reports, “As more countries find caches of rare earth minerals, China’s status as the world’s top exporter is being challenged. The metals are essential raw materials for tech, and demand is growing — but China’s share of the global share is getting smaller as countries diversify.”[6] Jennings observes that one place countries are looking for critical minerals is on the ocean floor. He writes, “Increased offshore exploration for rare earth minerals — essential components in hot items such as hybrid vehicles and smartphone screens — could be chipping away at China’s status as the world’s top supplier.” Surprisingly, the United States is not one of those countries.
A report by CBS News “60 Minutes” notes, “Hundreds of former national security, military and political leaders are calling on the Senate to ratify the United Nations’ Law of the Sea, warning … in a letter to lawmakers that China is taking advantage of America’s absence from the treaty. Countries that ratified the Law of the Sea treaty are now rushing to stake claims on the international seabed for deep sea mining. At stake are trillions of dollars worth of strategic minerals strewn on the ocean floor, essential for the next generation of electronics. China has five exploration sites, 90,000 square miles — the most of any country. The U.S. has none. It is blocked from the race because of the Senate’s refusal to ratify the Law of the Sea.”[7] John Bellinger, a lawyer and former legal adviser to former President George W. Bush, told 60 Minutes, “We are not only not at the table, but we’re off the field. The United States probably has got the most to gain of any country in the world if it were party to the Law of the Sea Convention, and conversely, we actually probably have the most to lose by not being part of it.” As the 60 Minutes report noted, “To avoid a free-for-all, 168 countries, including China, have signed onto the United Nations Law of the Sea treaty, which divides the international seabed.” The point is: You can’t win the game, if you’re not in the game. And the United States is not in the game. The economic and security consequences of not playing are significant. The 60 Minutes report concludes, “With seabed mining starting as early as next year, China is in place to dominate it. China already controls a near monopoly of critical minerals on land. Now it wants to extend that control to the ocean floor. If it succeeds, there are national security fears the U.S. could end up even more dependent on China for these critical minerals.”
Concluding Thoughts
No country, including the United States, will prosper in the years ahead if its critical mineral supply chain is not secure. Currently, only China can confidently claim to have a secure supply chain. Emont reports, “China has many advantages in the race to lock up minerals. Its miners are deep-pocketed and aggressive, making bets in resource-rich countries that Western companies have long viewed as corrupt or unstable, such as Indonesia, Mali, Bolivia and Zimbabwe. State banks provide financing for power plants and industrial parks abroad, paving the way for further private Chinese investment. China’s rapid industrial development also means its companies have spent decades fine-tuning the art of turning raw ore into metals. They can set up new facilities quickly and cheaply.” Being late to the game is not a good position. The IEA report concludes, “Long-term security of supply is typically a question of adequate investment, but in the case of critical minerals it is not only the adequacy of supply that matters but also the diversity. It can be very challenging for new entrants to gain a foothold in markets with well-established incumbents.” And the most well-established incumbent is China.
Footnotes
[1] Staff, “Global Critical Minerals Outlook 2024,” International Energy Agency, May 2024.
[2] Patti Waldmeir and Peter Smith, “China predicts rare earths shortage,” Financial Times, 3 September 2009.
[3] Jon Emont, “China Is Winning the Minerals War,” The Wall Street Journal, 21 May 2024.
[4] Staff, “Energy Chief: U.S. ‘Very Concerned’ About China’s Dominance of Critical Minerals,” SupplyChainBrain, 15 February 2024.
[5] Kate Magill, “A critical mineral inventory glut masks long-term supply constraints,” Supply Chain Dive, 21 May 2024.
[6] Ralph Jennings, “China’s king-of-the-hill status shaky as offshore exploration diversifies rare earth supply chain,” South China Morning Post, 21 April 2024.
[7] Bill Whitaker, Aliza Chasan, Heather Abbott, and LaCrai Scott, “National security leaders worry about U.S. failure to ratify Law of the Sea treaty,” CBS News 60 Minutes, 24 March 2024.
