By Girish Linganna
China’s recent move to limit the export of two minerals crucial for semiconductors, solar panels, and missile systems serves as a significant reminder of its strong control over global mineral resources. This action also serves as a warning, indicating China’s readiness to utilize these resources as part of its growing competition and tensions with the United States.
China holds a significant position in the global supply chain for essential minerals used in electric vehicles (EVs) and renewable energy. Approximately two-thirds of the world’s lithium and cobalt, vital for EV batteries, undergo processing in China. The country is also a major source, accounting for nearly 60% of aluminum used in EV batteries and 80% of polysilicon found in solar panels. Additionally, China has a dominant control over rare-earth minerals used in critical technologies such as smartphone touch screens and missile-defense systems, with around 90% of their refining attributed to China, as per the International Energy Agency.
Chinese companies have a strong influence over various processing activities that occur outside of China. For example, a significant portion of the global nickel supply originates from China. Additionally, many Chinese companies have control over the refining process in other countries like Indonesia and Papua New Guinea.
Friday, Janet Yellen, the Treasury Secretary, informed American businesses operating in China that the Biden administration was still assessing China’s recent announcement to limit gallium and germanium exports. However, this decision served as a reminder of the significance of having diverse supply chains.
China’s control over global minerals grants it the ability to potentially disrupt the West’s energy transition, chip manufacturing, and defense sectors as its rivalry with the U.S. intensifies. If China were to restrict exports of essential minerals like lithium or cobalt, it would significantly impact non-Chinese automakers, leading to turmoil in the production of electric vehicle batteries.
Implementing extreme measures is improbable in the near future, primarily because they would also have adverse effects on Chinese businesses. However, experts assert that such measures cannot be completely ruled out as a possibility.
According to an expert from the Colorado School of Mines, it would be unwise to believe that such a scenario is impossible. The expert suggests that if the escalating exchange of retaliatory actions continues, the situation could potentially lead to that outcome.
Following the United States’ actions in October to restrict Chinese access to equipment utilized in the production of advanced chips, Beijing has now imposed limitations on the export of gallium and germanium. These restrictions from China are anticipated to accelerate Western initiatives aimed at finding alternative mineral sources.
Gallium and germanium are essential elements in chip manufacturing. Gallium is used in creating high-speed transistors, while germanium acts as a semiconductor material. Both minerals contribute to the performance and efficiency of chips, enabling faster processing speeds and improved electronic devices.
The Biden administration has made it a priority to reduce the United States’ dependence on Chinese minerals, particularly through the Inflation Reduction Act, a key green investment program. This law, enacted in 2022, offers subsidies for electric vehicle batteries that utilize minerals sourced and processed within the U.S. and allied countries. The aim is to establish alternative supply chains that are not reliant on China.
In a recent tweet, President Biden expressed concern about China’s longstanding dominance in the production of essential raw materials and highlighted the United States’ efforts, in collaboration with its allies, to bring the battery supply chain back to the country.
The Infrastructure Investment and Jobs Act of 2021, a recent legislation, allocates substantial funding in the form of grants to promote the mining of critical minerals. It also authorizes federal loans for projects aimed at enhancing the domestic supply of these essential resources.
Under several U.S. policies, funds have been provided to support various initiatives. For instance, TechMet, an Ireland-based company involved in nickel and cobalt mining in Brazil, received $55 million since 2020 from the International Development Finance Corporation (IDFC), an American agency. In return, the IDFC acquired approximately a 15% stake in TechMet. Recently, TechMet started exporting a nickel product processed in Brazil for use in electric vehicles (EVs) in Western countries. The company is also seeking additional funding, both private and public, to expand its mining operations.
China’s export controls are seen as a warning to U.S. industries, according to Brian Menell, the CEO of TechMet. He believes that his company’s objective is to assist in the development of self-reliant supply chains aligned with the United States.
Talon Metals in the United States is in the process of obtaining permits to start nickel mining in rural Minnesota. The company has been chosen by the Energy Department to receive a $114 million grant for a battery-mineral processing facility in North Dakota. This grant covers over 25% of the total project cost, as reported by the company.
Establishing new supply chains is a time-consuming process that cannot be accomplished quickly. Developing mines requires several years, and obtaining environmental clearances in Western countries further extends the lead time. The scarcity of skilled workers poses a challenge. Additionally, many countries abundant in ores face political instability or lack environmental credibility, discouraging Western companies from engaging, while Chinese companies, often supported by Beijing, are more willing to proceed.
Talon Metals intends to commence nickel production in 2027, subject to obtaining the required environmental permits, according to the company. Talon Metals has a supply agreement with Tesla for nickel.
According to Todd Malan, a spokesperson for Talon, there is a strong commitment to maintaining high standards and not taking any shortcuts. He believes that governments in the United States, Canada, and Australia are exploring ways to streamline processes and ensure timely execution of projects.
While the United States and other Western nations search for alternative mineral sources, China continues to strengthen its dominance. Chinese mining companies have traditionally held significant influence in the extraction and refining of cobalt from the Democratic Republic of Congo, which is the world’s primary supplier of this mineral for EV batteries. In recent years, Chinese companies have expanded their control by constructing facilities in Indonesia that not only process nickel but also extract cobalt from the ore.
Indonesia experienced a substantial increase in cobalt production, nearly quadrupling its output in the previous year. As a result, it surpassed Russia and emerged as the world’s second-largest cobalt source, primarily driven by Chinese firms. Additionally, Chinese companies are intensifying their activities in mining and refining lithium in both Africa and Latin America.
A potential worst-case scenario would involve China imposing wide-ranging restrictions on minerals for Western companies. The most significant example of a move to restrict a vital resource from the United States was the 1973 oil embargo. This resulted in long queues at gas stations and a significant downturn in the global economy.
In 1973, the oil embargo imposed by certain countries restricted the supply of oil to the United States. This action had severe consequences, leading to long queues at gas stations and a significant impact on the global economy.
According to analysts, restrictions on key minerals may not have an immediate impact but would have long-term consequences for businesses and consumers. It would essentially exacerbate the effects of the chip shortage caused by the Covid-19 pandemic, which severely impacted the automotive industry and resulted in significant delays in car deliveries.
Joseph Majkut, director of the energy security and climate change program at the Center for Strategic and International Studies, highlights China’s readiness to employ export restrictions on minerals and metals. The concern lies in identifying the metals China holds significant leverage over and determining the appropriate response from the United States. (IPA Service)