The historic Inflation Reduction Act (IRA) of 2022 took bold steps towards promoting U.S. production of critical minerals, with a dual-pronged goal of supporting a rapid energy transition and lessening U.S. reliance on China and Russia, two countries the U.S. the Department of Energy has tagged “foreign entity of concern” (FEOC). According to the United States Geological Survey, China accounts for 70% of global rare earth mining and 90% of refined output.
Unfortunately, decoupling from China’s sprawling renewable energy sector is proving to be easier said than done with the country tightening its grip on the industry. The Middle Kingdom is using its overwhelming dominance in rare earth elements (REE’s) and critical clean energy minerals to kick out Western competitors and protect its market share.
Chinese producers have been flooding the markets with REE and battery metals like lithium, leading to big price crashes and making it untenable for competitors to continue operations. Since last year, lithium is down by more than 80 percent, while nickel and cobalt have both tumbled over 40 percent.
In response, miners from Australia to Canada have been forced to cut production, pull back on investment plans and initiate layoffs. Even larger producers such as Las Vegas, Nevada-based rare earths miner MP Materials (NYSE:MP) and its Australian peer Lynas Rare Earths (OTCPK:LYSCF) (OTCPK:LYSDY) are barely hanging on, and their shares have crashed spectacularly.
And, the Chinese government is doing everything in its power to thwart attempts by Western governments at independence. Since 2006, Beijing has controlled its supply of rare earths through the quota system.
Last year, China issued three batches of rare earth output quotas, the first time it issued three quotas in a single year since it started the quota system. The total quota for 2023 clocked in at a record high of 255,000 tons, good for a scorching 21.4% Y/Y increase. Beijing has also significantly tightened rules guiding exports of several critical metals and minerals. Last year, it banned the export of technology to make rare earth magnets, escalating an earlier ban on export of technology to extract and separate critical materials.
Back in 2022, China's commerce ministry sought public opinion on a potential ban on export of technology to prepare neodymium-iron-boron magnets, samarium-cobalt magnets and cerium magnets ostensibly to protect national security and public interest.
"China is driven to maintain its market dominance. This is now a race," Don Swartz, CEO of American Rare Earths (ARR.AX), has told Reuters.
‘‘The global nickel situation is dire and it is, in my view, an extreme threat to national/international security as well as the environment. I'm saddened to see the closure of many of WA's nickel assets (First Quantum Minerals, Wyloo, BHP, Panoramic Resources Limited) and BHP's review of their NiWest operations. This is an extremely negative development for supply chain security and for the environment - it will only serve to tighten the grip of (dirty) Indonesian nickel on the market and further concentrate critical metal supplies into the hands of FEOC,’’ Ashley Zumwalt-Forbes, deputy director of the DoE’s Batteries and Critical Materials department, has lamented on LinkedIn.
And, even the Biden administration has conceded that decoupling from China is a tall order,
“This is not about China. We are perfectly happy to work with them on this and right now we purchase many of the minerals from Chinese companies. It’s about diversifying. The world needs them to be involved--the broader picture is climate change, and we’re not going to solve the climate crisis without the involvement of the PRC,” Jose Fernandez, the U.S. undersecretary for economic growth and the environment, told a briefing in New York last year.
Nordic Cooperation Could Be The Answer
Thankfully, all's not lost. Nordic countries and U.S. allies, particularly Greenland, Norway, Sweden, and Finland, are rich in nickel, cobalt, lithium and graphite, which remain largely unexploited. According to the Nordic Council of Ministers, the Nordic bedrock hosts over 43 million tons of economically viable deposits of rare earth minerals. Bloomberg New Energy Finance has ranked Finland, Sweden, and Norway among the top eight countries favorable for critical minerals and battery supply chain development.
Even better, the U.S. and its allies have laid the groundwork that makes future supply deals possible. In June 2022, the United States and its G7 partners launched the Partnership for Global Infrastructure and Investment (PGII) aimed at building clean energy supply chains by friend-shoring clean energy supply chains.
According to Net Zero Industrial Policy Lab at Johns Hopkins University, partnerships among democratic states would be able to produce enough minerals to enable the world to limit warming to 1.5 degrees Celsius. However, meeting these targets would require extraordinary technological and financial cooperation.
By Alex Kimani for Oilprice.com
