China is the dominant player when it comes to refining critical minerals and rare earths, effectively leveraging its state-backed firms, low-cost work force and lax environmental standards to gain a stranglehold on global markets.CHINA STRINGER NETWORK/Reuters
Robert Muggah is a principal of SecDev Group and co-founder of the Igarape Institute.
It all began with a bureaucratic assignment on Jan. 12, 1830.
Lord Ellenborough – then the president of the Board of Control, the top British official charged with managing colonial Indian affairs in London – instructed India’s governor-general, Lord William Bentinck, to pursue a new trade route to Bukhara, a major hub of Central Asian trade. That directive sparked a fierce competition between Victorian Britain and Tsarist Russia, both of which sought to control South Asia and Africa, giving rise to decades of diplomatic and occasionally military conflict.
The rivalry was immortalized by British writer Rudyard Kipling as the Great Game, and it went on to shape geopolitics for much of the rest of the 19th and early 20th centuries.
Almost 200 years later, on Sept. 7, 2010, a Chinese trawler called Minjinyu 5179 collided with two Japanese coast guard ships patrolling the disputed Senkaku Islands in the East China Sea. Shortly after Japan detained the captain and crew of the fishing boat, China imposed a two-month suspension on exports to the country of rare earths, a group of 15 crucial elements used in everything from magnets to catalytic converters and batteries. At the time, Japan imported half of China’s rare-earth exports.
That incident may appear disconnected from the Great Game, but history is instructive in the potential gravity of minor-seeming events and individual decisions. Although the captain of Minjinyu 5179 was released two weeks after the incident, it touched off a diplomatic row that not only soured bilateral relations between China and Japan, but also jeopardized the former’s reputation as a secure supplier of strategically important minerals. In the process, Western countries started to rethink their own supply chain vulnerabilities – and now, a new Great Game is afoot.
The latest iteration of the game gathered steam with the signing of the Paris Agreement in 2015. Adopted by more than 190 countries, the pact obliges countries to reduce greenhouse gases and rapidly transition away from hydrocarbons to renewable energy, all in the expectation of keeping global warming well under 2 C compared to preindustrial levels.
In order to achieve the agreement’s targets by 2050, more than 60 per cent of installed power capacity will need to come from a combination of solar plants, wind farms, hydropower, bioenergy, geothermal reservoirs and batteries to power electric vehicles. But scaling these climate-friendly technologies comes with a catch: a sixfold increase in the sourcing of so-called critical minerals such as nickel, copper, lithium and cobalt as well as rare earths, by some estimates.
And so while the effort to move away from oil, gas and coal to low-carbon energy sources is essential, it has also unleashed powerful destabilizing forces. Countries are scrambling to secure the minerals needed to power the green transition; competition among major powers to control supply chains could trigger new global security risks.
Today, China is far and away the dominant player when it comes to refining those critical minerals and rare earths, effectively leveraging its state-backed firms, low-cost work force and lax environmental standards to gain a stranglehold on global markets. As a result, the country now refines 40 per cent of the world’s copper, 59 per cent of its lithium, 68 per cent of nickel and 73 per cent of cobalt. It is also the world’s largest producer of green technologies at the downstream end of the supply chain, including a majority share of the electrolytes, cathodes and anodes needed for electric-vehicle batteries, solar panels and hydrogen fuel cells.
China has clear first-mover advantages in processing and manufacturing, and it maintains a tight grip on the global supply chain of rare earths, though it has declined from a peak of 95 per cent in 2010 (just before the spat with Japan) to around 60 per cent today. While omnipresent, though, it does not yet dominate the exploration and extraction of critical minerals such as cobalt, lithium or nickel. Beijing-backed firms are busily scouring international markets for raw materials, from Argentina, Bolivia and Chile to the Democratic Republic of Congo, South Africa and Zambia, but the competition is fierce.
Russia is another vital player when it comes to critical minerals and rare earths. It is not only among the top producers of palladium, scandium, titanium and nickel but also home to one of the largest reserves of rare-earth minerals in the world. After annexing Crimea in 2014 and launching its invasion of Ukraine last February, Russia also effectively controls an increasing amount of that country’s mineral wealth, including a significant share of its lithium deposits. However, Western sanctions have recently slowed Russian production and processing of critical minerals and rare earths, reinforcing the primacy of China in global supply chains.
The U.S. and Western Europe have lagged behind in building out their own critical-mineral and rare-earth supply chains. The U.S., for example, is 100 per cent net import-dependent for 17 minerals, and more than 50 per cent reliant on an additional 30 of them. Europe, meanwhile, depends on China for 98 per cent of its rare-earth supplies.
Most Western countries face major hurdles when it comes to accelerating domestic and international production and processing of critical minerals and rare earths, including the high costs of capital investments, long lead times to build out mines and refineries, and stronger environmental and labour standards compared to countries such as China and Russia.
Even so, virtually all of them are now in the game, hastily updating and amending mining regulations and actively exploring ways to accelerate access to raw commodities, refining and manufacturing. Supply chain disruptions during the COVID-19 pandemic, the war in Ukraine and rising tensions with China – including Chinese threats to curb rare-earth exports to the U.S. – have all served as a wake-up call.
President Joe Biden issued an executive order in early 2021 to review the U.S.’s domestic critical-mineral supply chains. Then, with bipartisan support, the Biden administration invoked the Defense Production Act in June this year, allocating roughly US$500-million to fast-track domestic production around certain energy technologies, including for clean energy.
The U.S. Department of the Interior also simultaneously announced that it would invest US$74-million in 30 states to map out domestic critical-mineral potential. And the recent Inflation Reduction Act is also intended to jump-start investment in critical-mineral supply chains, requiring certain minerals to be sourced from friendly partners and parts of batteries to be built at home. These directives, tax breaks and subsidies are likely to generate benefits for allied mining countries, including Canada.
Meanwhile, the European Union launched its critical raw materials action plan in 2020. As in the U.S., the strategy is informed by growing concern over the region’s overwhelming reliance on China for its critical minerals. It is also motivated by a recognition that, to hit its 2050 targets, Europe will require 60 times more lithium than is currently available for electric vehicles and energy storage.
As part of its plan, the EU launched a strategic partnership with Ukraine to diversify critical-mineral and rare-earth supplies in 2021, though these efforts were thwarted by Russia’s invasion earlier this year. The EU and Canada also forged a new strategic partnership in 2021, ostensibly to build more integrated and resilient raw-material value chains.
Both the U.S. and EU are simultaneously fostering multilateral co-operation to “friend-shore” supply chains. In June, the U.S.-led Minerals Security Partnership – described as a “metallic NATO” – brought together allies such as Australia, Canada, Finland, Japan, South Korea, Sweden and Britain to energize co-operation and investment for producing, processing and recycling critical minerals. It mirrors the EU-led European Raw Materials Alliance that was set up in 2020, which refocuses attention on scaling up both rare-earth and magnet value chains.
Although Canada arrived late to the contest, it will have a consequential role to play in what is shaping up to be one of the defining struggles of our era. Prime Minister Justin Trudeau’s government only started crafting a critical-minerals strategy in 2021, when it released a list that prioritized 31 minerals, especially cobalt, coltan, copper, graphite, lithium and rare earths. After commissioning studies, the federal government launched public consultations this year to define priorities and start bolstering supply chains.
The 2022 federal budget allocated up to $3.8-billion precisely to expand exploration and provide tax credits for critical-mineral exploration, invest in responsible mineral processing and recycling, expand partnerships and court foreign investors. In order to catch up with China, Canada’s stated goal is to expand critical-mineral and rare-earth supplies, build out refining capacities and work with allies, including through a joint action plan for critical minerals signed with the U.S. in 2020 and a newly minted partnership this month with Germany.
While the road ahead is uncertain, there are grounds for cautious optimism that Canada can achieve its goals. The country already produces 60 minerals and metals that are in high global demand, and it is also home to an estimated 14 million tonnes of rare-earth oxides. Although Canada has some of the largest known rare-earths reserves in the world, it is not yet a major producer. But it is making progress, including opening its first rare-earths mining demo in the Northwest Territories in 2021 – only the second such facility in North America.
And despite its slow entry into the rare-earth industry and criticism from rights groups over its mining practices abroad, Canada has global influence when it comes to mining. More than half of the world’s publicly listed mining and mineral-exploration companies are based in the country, with a combined market capitalization of more than $500-billion and a presence in at least 100 countries.
Canada and its partners still face major obstacles to meet their ambitions, including from China. In acquisitions that were recently questioned by a bipartisan parliamentary committee on industry and technology, China has been quietly buying up key mines in Canada, including some that produce high-grade lithium and cesium along with gold and other base metals.
To be sure, domestic mining investments by state-owned firms in authoritarian countries should come under greater scrutiny in the future. Fundamentally, Canada will need to broaden its conception of what constitutes national security in relation to critical minerals and rare earths. Along with improving its human-rights and environmental record at home and overseas, it must also ramp up downstream processing and manufacturing capabilities.
To achieve more strategic autonomy amid the new Great Game, Canada must build more predictable and sustainable supply chains and take a more pro-active global role in driving the global shift to renewable energy. It is well-placed to do so, as it benefits from world-class industrial and metallurgical processing expertise; comparatively robust environmental, social and governance standards; and a dynamic culture of public-private partnerships.
There are positive signs that the federal government, together with industry, investors and universities, is stepping up. Provinces such as Ontario and Quebec, meanwhile, are also taking strategic positions on critical minerals. Notwithstanding China’s firm grip on global supply chains of critical minerals and especially rare earths, Canada and its allies can support a more predictable green transition.
This is one game that Canada can and must help the whole world win.
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