Rare earth consolidation in China is cause for concern

The world needs more rare earths available. These metals are used in technologies of energy transition such as electric vehicles and wind turbines, in most contemporary electronics, and in some defense applications. In the coming decades, the demand for rare earths is expected to increase between 2 and 8 times compared to current supply.

Rare earths are part of a complex global value chain. Extensive experience is needed to convert mined concentrates into refined, separated, industrially useful oxides. Thanks to an effective long-term investment throughout the rare earth supply chain, China It has achieved between 50% and 60% of the market share in mining and around 90% in the intermediate processing phase.

In recent years, Chinese domestic demand has started to outbid due to the expansion of the electric vehicle and renewable energy markets. Beijing has even started importing crucial heavy rare earths from myanmara source of supply that has been interrupted by the pandemic of COVID-19 and war civil.

When China announced the creation of a new state-owned company, China Rare Earth Group, in January 2022, caused quite a stir. The new mega-firm will control 60-70% of Chinese rare earth production, which translates to 30-40% of world supply.

«China has achieved between 50% and 60% of the market share in mining and around 90% in the intermediate processing phase»

This extraordinary market share is similar to that of the fifty% of global semiconductor manufacturing Taiwan Semiconductor Manufacturing Company. Recent history highlights the problems of such high market concentration. Supply chain issues exacerbated by the pandemic have shown how reliance on a single company or country can be dangerous and create serious problems when the company or country of origin is unable to deliver. The high production concentration and the asymmetric trade dependencies have fueled the use of coercive trade and investment policies around the world.

Countries that depend on imports, such as Japan Y state Joined, have securitized rare earths, along with other minerals that have recently been deemed “critical.” In late 2021, an official from the US Department of Defense commented that the critical materials sector is a “microcosm of the geopolitical forces and geocompetitive that shape the 21st century”.

USA has revitalized the national production of minerals from rare earthsbut it still depends on China for most of the downstream processing and lacks a separate supply chain. Japan, meanwhile, has been forced to invest in diversification for more than a decade. In this case, driven by the ban on exporting rare earths and in the midst of the resurgence of the territorial dispute with Chinese. But Tokyo faces similar challenges to the US in developing an independent supply chain for rare earths. Building a new supply chain can take up to a decade, and most proposed projects fail.

Concern about the supply of rare earths since China it is not unfounded. In the 2000s, China applied restrictions quantitative restrictions on the export of rare earths and in 2010 prohibitions on the export of these materials to Japan. This made importing countries fear that Chinese rare earths could be a tool of techno-nationalism. The WTO spoke out against these restrictions, leading to China to apply production quotas which also restricted supply. In USAstakeholders link these concerns to defense applications of rare earths, linking to Washington’s discourse on competition and economic decoupling with China.

China has been supplying rare earths to the world for three decades. Chinese research and development have increased the efficiency and yield of mining and processing these materials. The greatest vertical integration of China Rare Earth Group it will likely improve the performance of existing mines.

“Critical materials are a microcosm of the geopolitical and geocompetitive forces shaping the 21st century”

The China Rare Earth Group It is the result of the merger of three large mining conglomerates and two research institutes. It will control China’s medium and heavy rare earths, under the supervision of the State Assets Supervision and Administration Commission of the State Council. Another rare earth mega-firm could emerge in the future to control China’s light rare earths.

The main objectives of the new mega-company are rooted in the national political economy, such as market consolidation under the state control, matching supply to demand, emphasis on vertical integration and higher value-added domestic production, and greater price stability. Rare earth prices have increased due to the increase in demand and the restrictions imposed on Chinese producers, especially due to the environmental regulations.

This consolidation is likely to strengthen China’s dominant position in the world market, especially in post-processing. For governments and companies concerned about rare earths as bottlenecks in the supply chain, this news will exacerbate that concern. They should take this opportunity to redouble efforts to to diversify supply chains through market-based approaches and public-private partnerships. Since one of the non-Chinese rare earth supply chains depends on Russian minerals and processing EstonianPolicy makers should wake up to the realities and challenges of broad and resilient diversification.

The countries of the OECD they should diversify even in the absence of geopolitical competition. Diversification and resilience of supply chains are necessary to keep pace with green transition and to respond to the demands of the policies proposed for the Green New Deal. Policy makers should see this merger as a push to meet the challenge of a green energy future.

Article originally published in the Web from the East Asia Forum.