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Resilient Rare Earths: Pathways for the G20

The economic logic of globalization has resulted in a redistribution of global wealth, but it has also led to an overconcentration of supply chains in certain geographic areas, such as rare earth (RE) supply chains. Supply chain monopolies are valuable instruments for exploiting a country’s unilateral dependence on the international economy in order to achieve its political and military goals. The excessive concentration of the RE supply chain has also been weaponized and used for both benign political influence and coercive political leverage. RE are concentrated in certain countries. This Brief addresses the problem of preventing the monopolization of RE by any country for the G20. RE is not just a matter of controlling a critical resource, it is equally about creating resilient supply chains that enable shared benefits for the world and are essential to the G20 agenda.

1. Challenge

Supported by

Monopoly problem

The rare earth elements (REEs) are the 17 elements in the periodic table, its “largest chemically coherent group”, which exhibit a range of “electronic, magnetic, optical and catalytic properties”. Technologically, to use the words of a former vice minister of China’s Ministry of Land and Resources, REEs are the “vitamins” of the fourth industrial revolution. From magnets and batteries used in windmills and electric vehicles, to coating silicon wafers used to manufacture semiconductor chips and solar cells, to increasing the efficiency of light bulbs and precision-guided munitions, REEs enable modern technology. Their contribution to the global economy is enormous, with over $7 trillion worth of high-tech finished products requiring REEs.

A smooth, efficient, and sustainable supply of REEs is critical to a country’s economic growth, technological transformation, and national security, but it is equally critical to solving some of the world’s most pressing problems, such as climate change and renewable energy. On first impression, this should not be a significant concern. Unlike other raw materials, such as oil, which are mostly concentrated among OPEC countries, REEs are found in mineral deposits such as Bastnesite and Monazite, which are relatively more geographically dispersed.

However, REE supply chains are highly geographically concentrated, mainly in China. From mines to metals, Beijing dominates the REE supply chain. China mined only 70 percent of the world’s renewable energy deposits in 2022, down from more than 90 percent in 2010. However, it has processed more than 80 percent of RE into mixed oxides and 90 percent of oxide separation into metals. RE extraction, refining to oxides and separation to metals also require huge amounts of seed capital and very high turnaround times for new mines, and entail serious environmental hazards during mining and processing.

These unique characteristics of REE supply chains make them susceptible to monopolies rather than market competition. Such over-concentration of REE supply chains has remained a prominent concern of the G20 since 2010. In October 2010, during the run-up to the fifth G20 meeting in Seoul, a large but diverse group of businesses and corporate entities across the Americas, Europe and Asia appealed to the world’s most prominent multilateral group to solve bottlenecks in the supply of rare earth minerals.[8] The appeal follows an export embargo imposed by China following the Senkaku Island crisis with Japan in September 2010. Beijing then controlled nearly 97 percent of the world’s REE production.

Monopolizing REE supply chains is highly problematic for several reasons. First, this overdependence on a single source of REE does not bode well for supply chain resilience. The excessive concentration of supply chains in certain geographic areas was one of the defining characteristics of post-Cold War globalization, where states readily agreed to a division of labor and production based on economic efficiency and in search of economic interdependence. External shocks like the COVID-19 pandemic have exposed the low resilience of such overcrowded value chains.

Second, and more importantly, economic globalization has occurred in the shadow of extreme global military and economic concentration of power, i.e. US unipolarity. The Washington Consensus was supported by a liberal political transformation around the world, where states embraced an “outward-looking model” emphasizing “access to global markets, capital and technology” for which global supply chains are “well suited”. As Ethel Sollingen explains, the model required domestic stability, regional cooperation, and “minimizing, to the greatest extent possible, external geopolitical and geoeconomic tensions that compromise those synergies.”

2. The role of the G20

The REE monopoly and its geoeconomic and geopolitical implications

The largest known REE ore reserves are located in the People’s Republic of China (PRC). However, rather than just “geography of reserves”, several other factors are responsible for why Beijing has dominated REE supply chains.

First, until the 1950s, India, Brazil and South Africa were the largest producers of rare earth minerals. However, Indian and Brazilian REE minerals were monazite deposits, which contain high concentrations of radioactive thorium. Although the proportion of more useful Heavy Rare Earth Elements (HREE) is two to three times higher in monazite than in Bastnesite, the issue of using thorium extracted during the process and dispersal of radioactive waste has made it economically unviable and environmentally more so. dangerous. As interest in thorium as a nuclear fuel waned, along with increased scrutiny of nuclear waste management in the 1960s, China’s rich reserves in Bastnaesite deposits gained more traction in the global REE ore industry. Second, growing environmental concerns and labor costs in the US led to the closure of the Mountain Pass mine in California—one of the largest Bastnaesite deposits—which was the largest producer of global REEs until the 1980s.

Beijing, however, took this opportunity to strengthen its position in the REE market. The abundance of Bastnesite ore was only useful to the extent of the availability of cheap labor, non-existent environmental standards and non-acceptance of International Atomic Energy Agency (IAEA) regulations. In the 1980s and 1990s, Beijing nearly phased out REEs by driving down their prices. China declared REE as a “protected and strategic mineral” in 1990. Chinese state-owned enterprises controlled the entire REE mining industry, and foreign firms could only operate through joint ventures with state-owned refining and metallurgical enterprises.

Such joint ventures have enabled public firms to obtain the necessary technology and patents for REE metallurgy from foreign firms. In 1983, China filed its first RE patent, and by 2019, it had registered over 25,000 patents, compared to 9,810 in the US. American liberalism is entirely responsible for China’s current technological dominance, such as the US Congress granting China “…most-favored-nation trade status, opening…the door to the exchange of goods, knowledge and technology between the two nations.. .” and between China and other industrialized countries. What differentiates China’s dominance of the REE supply chain compared to the oil market is its control over REE processing and separation.

Monopolies are built on consolidation and centralization. Public enterprises in China’s RE business have experienced greater integration over the past few decades. In 2015, China restructured its rare earth industry into six public firms; by 2016, these six firms were responsible for 99.9 percent of the country’s renewable energy production. Beijing further consolidated its rare earth industry by establishing China Rare Earth Group, combining the assets of Aluminum Corp. of China, China Minmetals and Ganzhou Rare Earth Group. The new entity controls 70 percent of all renewable energy production in the country, helping to stabilize production and supply chains, as well as influencing prices. Only national security concerns in the US and Australia stifled China’s efforts.

However, China’s economic rule over its dominance of rare earths does not end with the production of RE oxides and metals, it has also actively used its monopoly on RE to control the production of their applications. The development of REE-based downstream industries is a primary strategic goal that is consistent with the Made in China 2025 program. The constant supply of REEs has been used to relocate foreign high-tech industries to China. For example, REEs are a key component of permanent magnets that use trace amounts of REEs, such as samarium and neodymium. These magnets are super lightweight and more efficient compared to non-REE magnets and have multiple applications, ranging from electric vehicles and wind turbines to precision-guided munitions, guided missile systems and radars.

The most prominent case of forced disruption of REE supply chains was China’s REE supply embargo against Japan following the seizure of Chinese fishing trawlers by the Japanese Coast Guard (JCG) and subsequent collision with a JCG vessel in September 2010. The Chinese government has suspended shipments of REM to Japanese industry. At the time of the 2010 Sino-Japanese fishing incident over the Japanese-controlled but Chinese-claimed Senkaku Islands in the East China Sea (ECS), China controlled over 95 percent of the world’s REE production and Beijing imposed an embargo against Tokyo. This episode gave a hint of things to come, namely the growing weaponization of trade by a major power like China. This has brought home to Japan their real vulnerability to Chinese coercion in the REE area, which is critical to the performance of their industry, particularly in the robotics and semiconductor sectors.

3. Recommendations of the G20

In the last decade, REEs have acquired a strategic dimension for most G20 countries, and their continued supply has become a matter of economic survival and national security. However, even with a host of national, regional and multilateral initiatives, the problem of geographic overconcentration and the accompanying geopolitics of supply chains remains unresolved. Excessive concentration in a particular geographic area not only makes supply chains vulnerable to exogenous shocks, as was the case during the pandemic, but also opens up opportunities for deliberate manipulation, such as embargoes for geopolitical purposes. Price fluctuations between 2010 and 2013 testify to such monopoly problems. Beijing’s REE embargo boosted REE prices in 2010-11. As Western countries plan to invest in alternative sources, Beijing has reopened supplies and manipulated prices, neutralizing any market alternatives to or from consolidation.

Over the past decade, many bilateral or plurilateral initiatives have emerged with the aim of diversifying and reforming global supply chains of critical minerals. Existing initiatives, however, need to become inclusive in their search for an alternative vertically integrated structure from rare earth mining to manufacturing. Any move to reconfigure global supply chains also involves significant planning, coordination and addressing of cost and efficiency issues by the world’s leading economies, namely the G20 countries. The existing narrative of China vis-à-vis the rest (mostly OECD members) can hardly contribute to making rare earth stocks more robust, resilient and, more importantly, predictable. In this regard, the intervention and leadership of the G20 can go a long way in solving the current supply chain problems and creating confidence to revitalize international cooperation.

The G20 should collectively address the problem of REE monopolies and the resulting supply chain disruptions. G20 countries should take the following initiatives to build resilient REE supply chains.

1. The G20 REE Fund: The massive consolidation of REE production capacity and market capitalization in one particular geographic region and a few state-owned firms has virtually made all new mining investments around the world economically unviable. REE mining requires significant capital investment and long threshold periods, which can be quickly breached through price manipulation. Several new mining projects around the world have fallen prey to such predatory policies. The G20, or at least a coalition of like-minded countries within the group, should establish a resource fund for capital investment in promising alternative mineral deposits around the world. Japan’s contribution to this effort should be recognized and monitored. A US$250 million investment by the Japan National Oil, Gas and Metals Corporation (JOGMEC) has been critical to the operational viability of Australia’s Linas Corporation. JOGMEC and Toyota Tsuho Corporation have partnered with Indian public sector companies to mine and process India’s REE deposits. The Mineral Security Initiative (MSI), established by ten Western countries and the EU in June 2022, must take the lead in establishing such a fund.

2. Create an international REE bank: To protect against geopolitical and geoeconomic coercion through REE trade embargoes, the G20 countries should work together to create an international REE bank from which countries can draw emergency supplies in the event of trade blockades. Such an REE bank can build on the historical experience of the IAEA’s establishment of a nuclear fuel bank and would greatly help to reduce the effect of any REE supply blockades on a targeted state. It would also discourage the imposition of embargoes and blockades, given that the effect of such measures could be countered in the short term. This should also be inappropriate for the PRC, as the REE Bank enables a more consensual and cooperative multilateral mechanism that addresses China’s concerns as much as other G20 countries and beyond to resolve or mitigate supply-side issues. In the long run, market forces do not allow for the continued imposition of sanctions, as was evident during the 2010 incident. Strategic stockpiling of REEs should not only occur at the national level, but the G20 should offer a more multilateral response to the threat of economic and political coercion through the deliberate disruption of REE supply chains.

3. Developing affordable and sustainable technology to extract REE from monazite ore: Monazite ores are abundant in India, Australia and Brazil. Their HREE content is also significantly higher than Bastnesite ore. However, the use of accumulated thorium and the management of radioactive waste did not allow significant exploitation of monazite ores for the production of REE. The G20 countries, along with the IAEA, must cooperate in funding research and finding ways to use thorium, including for nuclear power generation. Company Energy Fuel Inc. based in Colorado has begun mining monazite ores, and REE separation will take place at Neo Performance Materials’ European facility. Interested G20 countries such as India and Australia, which have large deposits of monazite, as well as the USA, France and Japan, which have historically been involved in thorium nuclear energy research, should cooperate in the exploitation of REE deposits in monazite ores.

4. Strengthen market mechanisms and standards: The G20 should emphasize market-based global trade in critical raw materials based on WTO free trade norms and passionate exceptions to the extent possible. The G20-led technology alliance must coordinate research for new process innovations to increase processing capacity and diversify demand for minerals. The G20, in this way, can address potential concerns about the weaponization of the supply chain and set a model for international cooperation and stability. By creating “many roads and many belts” of cooperation, the G20 must lead by example and serve the purpose of its existence. The 1973 oil crisis provides a key lesson for the current situation, requiring the G20 to establish a rare earth institute modeled after the International Energy Agency (IEA). Such an institute can present timely demand and supply forecasts for critical raw materials. As well as IEA members’ oil reserves for emergency situations (90 days), the G20 should secure stocks of strategically important raw materials. The G20 should consider developing standards for products and processes, including the extraction and refining of materials and sustainable, ethical mining codes.

5. Develop technological alternatives for replacement and recycling: Technological solutions for long-term resilience and sustainability should focus on replacement or substitution of REEs and their recycling. Both replacement and recycling were prominently discussed during trilateral workshops between the EU, the US and Japan following China’s 2010 embargo on REE exports. Although direct substitution (element-for-element substitution) of REEs is not yet technologically feasible, reducing the amount of REEs used in a particular application by using innovative technology (also called element-for-element substitution), using alternative categories of materials (grade substitution -for-grade), and designing new systems to perform at the same level as replacement REE systems (system-for-system replacement) has shown some progress. Even today, only 1 percent of REE is recycled. However, materials scientists hope that in the next decade, nearly a quarter of the world’s REE needs can be met through recycling. G20 countries should collectivize their efforts in promoting REE recycling.

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