The leaders of the G7 have created a strategic alliance on critical minerals in a coordinated effort to break China’s oversized control of the metals and minerals and rare earth elements crucial to the defense, automotive, and clean energy industries.
At the G7 summit in Evian, France, the leaders of G7 issued a declaration in which the nations committed “to coordinating efforts within the G7 and with partner countries to establish and develop the necessary processing and industrial capacities for diversification of our critical minerals value chains.”
Without explicitly mentioning China, the declaration stated the urgency of diversifying critical minerals supply from the current high degree of concentration. It also expressed concerns about “the use of non-market policies and practices and economic coercion, including arbitrary export restrictions and retaliatory measures on critical minerals and their related dual-use items, all of which undermine economic security and resilience.”
The G7 leaders committed to “work together with partners to reduce critical dependencies and ensure that attempts or threats to weaponize economic dependencies fail.”
The Western countries also intend to stockpile critical minerals in the industrial or public sectors and, when necessary, share data and alerts on future market stress or supply or demand disruptions with G7 members and like-minded countries.
It is too early to say how the newly forged alliance will tackle China’s dominance across the entire supply chain of critical minerals, from mining to refining.
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Despite major deals and government support in the West for building domestic supply chains, China has raised its market share over the past few years, the International Energy Agency (IEA) warned in a report last year.
China dominates refining for 19 of the 20 minerals the agency has analyzed, holding an average market share of around 70%.
Major risk areas include high supply chain concentration, price volatility, and by-product dependency, the IEA says.
China is also using its dominant position to restrict global supply through export controls in an increasingly protectionist and polarized world.
The rare earth supply chain is among the most highly concentrated across all stages of the value chain, according to analysts at the IEA.
Last year, China held a 59% share of the mining of rare earths, 91% in refining, and a whopping 94% in magnet manufacturing, the agency estimates.
China has significantly strengthened its position in the manufacturing of rare-earth-containing permanent magnets. Two decades ago, China accounted for around 50% of the production of sintered permanent magnets commonly used in cars, wind turbines, industrial motors, data centers, and defense systems.
“This share has risen significantly to 94% today, making China the world’s single largest supplier of the component critical to the manufacturing of the most powerful motors that are used for many cutting-edge applications,” the IEA’s analysts said.
The U.S. and its allies are also moving toward breaking China’s stronghold on the pricing of these minerals.
The United States is developing and pitching to allies a price floor mechanism to protect the rare earths markets and mineral supply from Chinese manipulation and government policies aimed solely at strengthening China’s dominant grip on the global market.
China’s “legal framework governing mineral price reporting gives Beijing the ability to raise and lower prices to favor its economic and national security interests,” the U.S. Congress’ Select Committee on China said in November in a bipartisan investigation examining how Beijing manipulates the critical minerals markets to further its global authoritarian ambitions.
“This legal framework effectively makes it illegal to publish prices that deviate from the PRC government’s wishes,” the investigation has found.
According to the report, “The PRC government, under the Chinese Communist Party (CCP), has engaged in a coordinated, decades-long scheme to control different critical minerals and bend the global market to their will. The PRC’s domination of critical minerals stems from its view of minerals in geostrategic terms, not as typical market commodities.”
The G7 and allies have a lot of work to do, including in financing, to break free from China’s grip on critical minerals.
By Tsvetana Paraskova for Oilprice.com
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