America Trails In Global Race For Rare Earth Elements

The global competition for critical minerals is heating up and the US isn’t winning. Among these critical minerals is a subset known as rare earth elements (REEs) which are vital to everything from the energy transition to national defense. On March 4th Tesla TSLA -0.9% announced its partnership with a nickel mine in New Caledonia. The announcement comes amidst emerging rumors that China will impose export limits on rare earths metals. What’s the connection?

While they aren’t considered rare earth elements themselves, nickel, lithium and cobalt are critical to EV production. They work in tandem with rare earth elements to make today’s electric vehicles run efficiently. Electric vehicles use from 100-150% more of these vital metals and REEs than cars with internal combustion engines.

What’s more, these materials are essential for technologies from wind turbines to cell phones to fighter jets – America’s advanced F-35 fighter needs 417 kg of rare earths to operate, according to a Congressional Research report. All the minerals mentioned are included in the Department of Energy’s list of 35 critical minerals which are essential to the economy and national security.

In spite of the minerals’ ubiquitous role in modern technology, their production is astonishingly concentrated. China leads in every link of the world’s REE supply chain – from production to refining – in addition to having a firm foothold in the supply of critical nickel, lithium and cobalt. Government policy to capture the global market share, abundant supplies, low-cost labor, and lax environmental laws are behind China’s massive lead in the industry.

While the extraction of these minerals is dispersed across countries, all roads lead to China. The Asian giant has a near-monopoly position in transforming these raw materials into usable products, controlling roughly 80% of the world’s rare earth production capacity, 43% of exports, and nearly 90% of refining. Beyond REEs, China also leads global refining capacity for lithium, cobalt and nickel, accounting for 61%, 72%, and 16% respectively. The People’s Republic only trails Russia in nickel refining capacity, which holds 20% of the world total.

Given China’s dominant position, it is able to move the market as it desires. In 2010, a maritime incident with Japan caused Beijing to retaliate by restricting exports to that country, crippling Japan’s electronic industry. Chinese export quota restrictions in 2011 caused a seven-fold spike in the price of some REEs, leaving US and European electronics manufacturers similarly reeling.

The fear of being cut off from these critical minerals is shared by governments and companies alike. Tesla CEO Elon Musk tweeted in February that “nickel is our biggest concern for scaling lithium-ion cell production," adding that nickel production in the US is "objectively very lame."

US nickel production was virtually nonexistent in 2020, accounting for less than 1% of the world total. In fact, the US is 50-100% dependent on imports for 28 of the 35 minerals on the critical minerals list. Although REE deposits have been identified in 19 states, there is only one active mine in the US. Some 95% of America’s REE imports come from China. This is a strategic vulnerability.

This fact isn’t lost on the US government. In April 2020 the Pentagon announced it would aid in funding the development of California’s Mountain Pass mine— once owned by bankrupted US miner Molycorp but now under the auspices of MP Materials. On February 24th President Biden issued an executive order on vital supply chains, which proposed the commissioning of reports on rare earth elements and critical minerals. American and Canadian companies are in the process of developing alternative methods of sourcing REEs, such as extracting them from radioactive monazite sands.

While closing the strategic minerals gap with China is a top priority for the US, it is not the only reason to develop domestic supply chains. The Biden administration’s ambitious decarbonization goals could also be jeopardized by America’s lack of domestic REE production.

On the campaign trail, Biden pledged to deploy 500,000 EV charging outlets and make all new buses zero emissions by 2030. Regulations like these, and California’s order to require 100% zero-emission car sales by 2030, could put major strain on the supply of critical minerals. BloombergNEF expects that EVs will account for 42% of US vehicles by 2040.

As Europe ramps up its energy transition and more countries join the march toward decarbonization, competition for critical minerals will become fierce. EV sales grew by an estimated 33% globally in 2020 from the year prior — even during an unprecedented economic crisis. Wood McKenzie forecasts that there will be 100 million EVs on the road in 2030 and 400 million by 2040.

To make all these EVs and batteries, production of critical minerals and REEs will need to ramp up dramatically. Lithium faces the steepest hike in demand, with an estimated six-fold increase coming from the battery sector by 2030. Demand growth for nickel is expected to rise from around 100,000 tonnes in 2020 to 2.6 million tonnes by 2040. Demand for cobalt is expected to expand by 6.8% per year through 2030.

While it is encouraging that the world’s enthusiasm for decarbonization is growing, the push for ever more and cleaner tech products threatens to put strain on governments and companies alike — unless it’s China we’re talking about. China will likely remain firmly ensconced as the world’s dominant player in rare earth and critical mineral supply chains for years to come, even as countries like the US, Japan and the EU seek to extend government support to break up their reliance on China.

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Link: https://www.forbes.com/sites/arielcohen/2021/03/11/america-trails-in-global-race-for-rare-earth-elements/?sh=7c514ff11845