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We need China’s critical minerals technology, not their metals

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In 2010, the interdiction of a Chinese fishing boat by a Japanese naval vessel near the Senkaku Islands caused rare earth oxide prices to skyrocket. China retaliated by banning rare earth exports to Japan, causing a panic in the rare earths market. A similar situation almost occurred in 2019 when China threatened to cut exports of critical commodities essential to Americaโ€™s defense, energy, electronics, and auto sectors. The dependence of the US on foreign countries for critical metals used in various industries has become a concern.

Chinaโ€™s restrictions on the export of gallium and germanium compounds, essential materials for solar power, fiberoptics, military night-vision goggles, mobile phones, satellite communications, and semiconductors, have raised further alarm. As a global leader in germanium production and exporter of gallium, Chinaโ€™s actions have led to a disruption in the supply chain, with no shipments of these compounds reaching the US in August. The restrictions, under the pretext of national security, are widely believed to be retaliation for US restrictions on chip and semiconductor exports to China.

Recognizing the need to maintain the domestic supply chain, President Biden signed the bipartisan Chips and Science Act in August, aiming to bolster US competitiveness in semiconductor manufacturing and science research. The act provides billions of dollars in investment and tax credits for US companies engaged in computer chip production and semiconductor manufacturing.

The Issue of Insecurity of Supply

The concentration of supply for critical minerals has intensified, despite efforts by the US and Europe to diversify and reduce reliance on China. The International Energy Agencyโ€™s Critical Minerals Market Review identifies nickel and cobalt, crucial components of electric vehicle batteries, as highly concentrated supply sources. The majority of cobalt comes from the Democratic Republic of the Congo, while nickel production is heavily reliant on Indonesia. Chinaโ€™s control over mineral processing has established it as the dominant force in the battery metals supply chain.

To address the threats posed by possible restrictions or embargoes on critical minerals, the US and Canada must focus on exploring and mining these metals domestically. The creation of a โ€œmine to magnetโ€ electric vehicle supply chain in North America is essential to ensure national security and meet the growing demand for these metals.

Chinaโ€™s Dominance in the Market

Chinaโ€™s dominance in the electric vehicle industry is undeniable. It is the leading global producer of lithium and lithium-ion batteries, accounting for roughly 60% of the worldโ€™s lithium chemical supply in 2022 and producing three-quarters of all lithium-ion batteries. China also holds a significant share of cobalt production through its operations in the Democratic Republic of the Congo. Moreover, the country has a firm grip on the rare earth elements and graphite, necessary materials for wind turbines, EV motors, and anodes in EV batteries.

Reducing Reliance on China

To reduce dependence on China and ensure a resilient supply chain, the United States has taken steps towards โ€œfriend-shoringโ€ with like-minded nations. This strategy aims to source raw materials and manufacture goods from countries with shared values and at a similar stage of development. The goal is to prevent less-aligned nations from exploiting their advantages in critical minerals, technologies, or products. The United States has already signed cooperation agreements with Japan and is working towards a similar deal with the European Union, focusing on critical minerals for electric vehicle batteries.

However, friend-shoring has its downsides, including the potential creation of antagonistic blocks and negative impacts on global growth. Nevertheless, synchronizing trade practices on critical minerals among Western nations has become a priority to reduce Chinaโ€™s influence on the global supply chain.

The Importance of Minerals Security Partnership

The Minerals Security Partnership (MSP) serves as a collective effort among several countries, including the United States, Canada, Australia, Finland, France, Germany, Japan, South Korea, Sweden, the United Kingdom, and the European Commission, to ensure responsible critical mineral supply chains. As part of the partnership, investment from governments and the private sector is encouraged to support strategic opportunities adhering to high environmental, social, and governance standards.

While working with countries like China may be uncomfortable for some, the Ford-CATL agreement exemplifies a viable path to reduce critical minerals dependency on China while collaborating on technological advancements. The licensing of Chinese battery technology, as demonstrated by Fordโ€™s partnership with CATL, enables the United States to advance its electric vehicle ambitions while maintaining control over domestic production. Such collaborations hold promise for securing a stable supply of critical minerals.

Conclusion

Addressing the issue of critical minerals supply chain requires a balanced approach. While reducing reliance on China is crucial, complete decoupling is not feasible nor highly practical. The United States must seize opportunities for collaboration, such as the Ford-CATL agreement, to leverage Chinaโ€™s technological advancements, particularly in mineral processing, while simultaneously developing its domestic mining sector. By adopting such a strategy and fostering partnerships with like-minded nations, the United States can secure its critical minerals supply chain and ensure national security in key industries.

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