China Has Built Up Its Dominance in Global Markets for Rare Earths

by Wall Street Rebel - Michael London | 05/16/2023 9:49 AM
China Has Built Up Its Dominance in Global Markets for Rare Earths


Although China has substantial reserves of rare earth elements that can be mined, other nations such as the United States, Canada, Australia, and Japan also possess noteworthy reserves of these elements. Decades ago, China was more committed to mining these resources than other nations.


It is worth mentioning that rare earth elements are not as rare as their name implies. The set of 17 metals is pivotal in producing various commodities that drive the worldwide economy. These commodities comprise a range of products such as smartphones, electric vehicles, military weapons systems, aircraft engines, wind turbines, and other similar items. Due to their crucial role in strategically important sectors, rare earths have been compared to "the new oil."

In 1992, Deng Xiaoping, the former leader of China, made a statement that China has rare earths and the Middle East has oil.

Many people believe that the U.S. government has permitted China to manage the difficult and ecologically risky tasks of mining and refining rare earth elements at a reduced expense. This is done to offer U.S. manufacturers reasonably priced rare earth materials.

It is acknowledged that the former Chinese president's statement about China's possession of significant rare earth element reserves is true. It is important to note that several other countries, including the United States, Canada, Australia, and Japan, also have substantial deposits of these elements.

After Deng's announcement, China lawfully partnered with foreign corporations that specialized in extracting rare earth minerals from nearby rock formations and purifying them. The manufacturing operations were then moved to the mainland.

Many believe that the U.S. government has assigned the responsibility of rare earth mining and refining to China because it is commonly perceived as a difficult and environmentally risky process.

The field of materials science is a popular choice among students. China has established two research and development centers for rare earth over the last three decades. These centers are in Changchun, which is in the Jilin Province, and Baotou, in Inner Mongolia. The laboratory at Peking University, which focuses on rare earth materials chemistry and applications, is staffed by a team of dedicated researchers committed to discovering and patenting new uses for rare earths.

At the same time, the Bureau of Mines, an American agency that implemented similar industrial policies to improve the competitiveness of the United States, lost its funding in 1996 and now only exists in name.

In today's world, producing batteries for electric vehicles is a highly significant competition. Countries that can produce these batteries will likely experience substantial economic and geopolitical advantages for a long time.

China's control over the complete rare earth elements supply chain is arguably more important than its significant share of rare earth mining production. The first step in the supply chain is the extraction of raw rare earth ores, such as bastnasite and monazite. The midstream stage of the rare earth supply chain pertains to separating and processing rare earth oxides, metals, and alloys. The next step in the chain involves using these midstream products to create a variety of items, including magnets, batteries, and motors.

China is currently the only winner.

In December 2021, the State-Owned Assets Supervision and Administration Commission of China authorized the establishment of the China Rare Earth Group. The process entailed merging three of China's major state-owned enterprises in the rare earth industry, part of the "Big 6," into one large conglomerate. The behemoth company has significant control over a quarter of the world's mineral-bearing rare earth elements. China is also dominant in this area, producing around 60% of the world's rare earths. This gives China substantial pricing power and influence over the global supply, which the Chinese central planners control.

Despite the significant investment from Western nations, China has made remarkable progress in various fields, such as mining rare minerals, engineering education, and establishing large-scale factories. This has placed China ahead of other nations in these areas. It may take several decades for the rest of the world to catch up and close the gap.

According to estimates by Benchmark Minerals, a consulting group, China is expected to produce more than double the number of batteries compared to the combined production of all other countries by 2030.

This article details the extensive steps taken by China to regulate all aspects of lithium-ion battery production, from the extraction of raw materials from underground reserves to the final assembly of vehicles. The article explores the factors that are expected to sustain these strategic advantages.

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The use of rare minerals in electric vehicles is significantly higher, about six times more, compared to traditional automobiles. This is mainly due to the battery component. China has the authority to determine the order and pricing of distribution for these minerals, and their allocation is subject to China's discretion.

Although China has limited subterranean reserves of crucial components, the country has adopted a persistent approach to secure a cost-effective and consistent source through acquisitions. Thanks to government aid, Chinese corporations have acquired ownership stakes in mining companies on five continents.

The Democratic Republic of Congo possesses a substantial amount of the world's cobalt reserves, a rare resource crucial for manufacturing the most commonly utilized form of battery. Notably, a significant percentage of cobalt mines in the area are under the ownership of Chinese entities. In certain cases, American corporations could not keep up with the competition and had to sell their mines to Chinese companies.

As a result, China has a significant presence in the cobalt mining industry, controlling 41 percent of it globally. China also dominates the lithium mining industry, crucial for storing electric charge in batteries.

Nickel, manganese, and graphite are abundant resources globally, but their battery usage is currently limited. China's continued supply of these minerals has given it a competitive advantage. According to projections by CRU Group, a consulting firm, China's investments in Indonesia are expected to make it the leading controller of nickel by 2027.

China is responsible for the majority of graphite extraction. The cost of producing graphite by U.S. manufacturers is considerably higher.

Western nations own mines abroad and are striving to keep up with China. The company has been slow in expanding its internal manufacturing capabilities. Investors have hesitated to allocate funds to nations with political instability or suboptimal labor standards.

It can take more than 20 years to achieve full production for a newly established mine. Despite the United States' investment in exploiting its substantial lithium reserves, various local and environmental concerns have surrounded the endeavor.

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Irrespective of which entity is responsible for extracting minerals, a considerable amount of the resources extracted are transported to China to be refined into materials suitable for battery production.

Once the ore is extracted from the earth, it undergoes a process of pulverization. After that, it is subjected to thermal and chemical treatment to separate the mineral compounds. The procedure is inefficient and lacks resourcefulness. The cobalt extraction process generates around 860 units of waste rock for each unit of refined cobalt powder produced.

The process of refining necessitates a significant quantity of energy. The production of battery minerals requires three to four times more energy input than steel or copper production. Achieving the best lithium configuration requires a sequence of thermal treatments that involve heating, steaming, and drying. The Chinese government has provided affordable land and energy to its enterprises, enabling them to refine minerals at a larger scale and lower cost than their counterparts. As a consequence, refineries in other areas have been forced to close.

It has been discovered that grinding graphite leads to the release of air pollutants. The process of refining is frequently associated with environmental contamination, and Chinese refineries are known to enjoy relatively relaxed ecological standards. Nickel processing inevitably generates toxic waste, which must be disposed of in specialized structures in the ocean or underground. Specialists have stated that using sustainable processing techniques for battery minerals increases expenses.

At present, the processing capacity of the United States is limited. The construction of a refinery generally requires two to five years. Training workers and making necessary adjustments to equipment can take extra time. In 2016, the first lithium refinery in Australia, which has partial ownership by Chinese investors, was granted authorization. However, it was not until the previous year that it successfully generated lithium of battery-grade quality.

China has become the leading producer of batteries, thanks in part to their ability to efficiently produce battery components at a lower cost.

The cathode, serving as the battery's positive terminal, is considered the most crucial constituent. Out of all the materials used in batteries, cathodes are the most challenging and require significant energy. Until recently, the most commonly used cathode was the NMC cathode, a mixture of nickel, cobalt, and manganese. Using this specific formula, a battery can store significant electrical energy in a limited space. This allows an electric vehicle to have a longer operational range with greater efficiency.

China has invested in a cost-effective alternative that has already captured 50% of the cathode market. The cathodes known as LFP, short for lithium iron phosphate, use iron and phosphate instead of nickel, manganese, and cobalt, as they are easily obtainable.

Using LFP allows Western nations to overcome obstacles in the supply of minerals. China is responsible for the majority of the global production of LFP.

Currently, the United States only produces NMC variant cathodes, which comprise just 1% of the global output. American companies are increasingly interested in utilizing LFP technology. To create LFP efficiently, these companies must collaborate with Chinese counterparts with the necessary expertise in this field.

Most of the supplementary parts of the battery are produced by companies based in China. They significantly impact the production of anodes, which function as the cathodic endpoint of a battery. China is currently the top seller of separators, which are used as a protective layer between the cathode and anode to prevent short-circuiting. The use of electrolytes mainly made up of lithium salts and solvents, is crucial for promoting conductivity. It is worth noting that the top four global producers of electrolytes are located in China.

Chinese-manufactured batteries power almost all the electric vehicles currently operating on Chinese roads, rendering China the global leader in electric vehicle adoption. Chinese battery manufacturers CATL and BYD have become the world's largest, surpassing their Japanese and South Korean counterparts. In 2015, the government of Beijing implemented measures aimed at impeding foreign competitors and augmenting consumer demand.

After a gap of eight years, the Biden administration is currently trying to implement a similar strategy to promote the development of batteries in the United States.

Even though the business requires significant capital expenditures and operates on narrow profit margins, Chinese enterprises have a significant advantage due to their extensive experience and state funding accumulated over the years.

Assembling batteries is a complex process that demands specialized technical knowledge. To manufacture it, thin metal sheets about one-fifth the thickness of a human hair are used to attach cathode and anode materials. Afterward, these items are vertically arranged with layers infused with electrolytic substances and then coiled. It is recommended to carry out the entire process in environments specifically designed to reduce the presence of airborne particles and moisture.

According to Heiner Heimes, a professor at RWTH Aachen University in Germany, China can build battery factories at a significantly lower cost compared to North American or European countries. The main reasons are the lower labor costs and the higher concentration of equipment manufacturers in China.

Investors from the United States are cautious when investing in the electric vehicle industry. Conventional automobiles remain profitable, so American workers must develop new skills. However, there is a possibility that the government may stop providing incentives for the electric vehicle industry during the next presidential election cycle.

China has spent over $130 billion on research incentives, government contracts, and consumer subsidies, according to the Center for Strategic and International Studies. Tax breaks, reduced registration fees, preferred parking, and an extensive charging network are just some of the perks for electric car purchasers in China. China has invested heavily in order to become a global leader in manufacturing, machinery, and consumer goods.

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According to experts, achieving self-reliance in the battery supply chain is arduous for any nation, regardless of its cost-effective labor or potential collaborations with international partners. Many businesses worldwide may consider forming partnerships with manufacturers in China to enter or expand their presence in the industry.


                       How dependent is the United States on China for rare earth products?


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