In 2024, governments around the world will take protectionist measures that disrupt the flow of critical minerals, increasing price volatility and reshaping downstream supply chains.
Critical minerals sit upstream of virtually every sector that will drive growth, innovation, and national security in the 21st century, from clean energy to advanced computing, biotechnology, transportation, and defense. Extraction of these essential raw materials is asymmetrically distributed across geographies, with single countries mining at least half of the world's lithium (Australia), cobalt (the Democratic Republic of Congo), nickel (Indonesia), and rare earth elements (China). Meanwhile, around 60% to 90% of most critical minerals are processed and refined in China.
The highly concentrated nature of critical mineral mining, processing, and refining makes mineral supply chains vulnerable to bottlenecks and chokepoints. But not all critical minerals are created equal. Some like gallium and germanium—used in semiconductors and solar panels—can be partly swapped for other elements in the event of a supply crunch. Yet others like lithium and graphite—“battery metals” essential to the production of electric vehicles—are less substitutable. The most vulnerable supply chains are for the niche, illiquid, and Chinese-dominated rare earth metals such as neodymium and dysprosium, required in everything from consumer electronics to high-tech defense applications.
Demand for critical minerals has surged in recent years as advanced economies such as the United States and the European Union have begun subsidizing domestic manufacturing to boost their advanced computing and clean energy sectors amid their growing tech competition with China. Yet these countries' ability to meet the surging demand for minerals created by these industrial policies is being complicated by their dependence on Chinese-controlled minerals. That is a strategic vulnerability so deep that the Pentagon has taken the unprecedented step of directly financing mining and refining operations. US-aligned nations have also entered into multilateral deals such as the Minerals Security Partnership intended to scale up supplies domestically and from friendly trade partners. In both cases, however, long lead times for new mining and refining projects ensure these efforts won't fix their supply vulnerabilities soon.
Making matters worse for themselves, the US and the EU have also enacted import restrictions in an attempt to reduce their dependence on China and promote cleaner supply chains. The problem with this strategy is that stringent mineral origin mandates in the US and clean supply chain laws in Europe—the former focused on national security and the latter on human rights, environmental, and sustainability standards—limit their procurement of critical minerals to geopolitically acceptable sources, exacerbating supply challenges and increasing price volatility.
As the US and Europe scramble to secure minerals, the governments of many producer nations are imposing a growing number of export restrictions on these minerals. Nations sitting atop raw material deposits—largely but not exclusively developing countries—see a once-in-a-generation opportunity to leverage their position in the world's most important supply chains to attract investment, create jobs, retain profits, move up the value chain, and gain foreign policy leverage. These include established critical minerals players such as Australia, Canada, Chile, the Democratic Republic of Congo, Indonesia, and Zambia, as well as countries with underdeveloped mineral deposits in sub-Saharan Africa, South Asia, and the Middle East. Many of them have begun and will continue to impose export measures on raw mineral ores that create market inefficiencies, increase price volatility, and risk undermining private investment and production. Most consequentially, China is fine-tuning an export control regime to weaponize its mineral dominance in the hopes of gaining leverage in its expanding tech competition with the United States and its allies. Last year, Beijing imposed export restrictions on gallium, germanium, and graphite, and in late December the government enacted export bans on machinery used to refine and separate rare earth elements.
This year, competing pressures from critical minerals importers and exporters will become acute as governments intensify their use of industrial policies and trade restrictions.
On the importer side, a wave of new EV gigafactories will come online across North America and Europe in 2024 with operations that are subject to strict sourcing requirements. The new US Treasury rules that took effect on 1 January enforcing restrictions on subsidy eligibility for EV supply chains, aimed squarely at countering Beijing's dominance of battery metal supply chains, will test America's ability to procure non-Chinese minerals and related products.
On the exporter side, China will begin enforcing the export licensing requirements for graphite it set up last year in response to US export controls on its semiconductor industry. Rare earth elements could be next. President Joko Widodo (Jokowi) could extend Indonesia's banner export restrictions on nickel to other metals such as copper in the run-up to this year's presidential election; while Jokowi is not running again, the frontrunner in the race to succeed him, Prabowo Subianto, would further Jakarta's resource nationalism if elected. And in sub-Saharan Africa, Tanzania will enact a ban on raw lithium exports, Nigeria will enforce the export ban on mineral ores it passed last year, and Ghana will consider similar policies. These moves will restrict the flow of critical minerals and could disrupt important supply chains, such as those of Western EV battery manufacturers in the event of a Chinese graphite export ban.
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