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Idea in brief:
Imagine a world where the production of electric vehicles (EVs) grinds to a halt due to a shortage of critical minerals essential for their batteries. These minerals, crucial for many modern industries, navigate a complex global supply maze, often disrupted by geopolitical tensions and policy shifts. The American Geoscience Institute defines critical minerals as resources integral to the economy, with their availability prone to disruption. This post explores how geopolitics and policies intersect with the critical mineral supply chains, a nexus pivotal for both technological innovation and global economic resilience.
The Global Supply Chain of Critical Minerals
The global supply chain of critical minerals involves multiple stages, from miners to refineries to another 5 intermediaries before ending up in retail investor. Different countries possess varying degrees of reserves for these minerals, and the supply chain relies heavily on international trade and cooperation. However, geopolitical factors and policies can significantly impact the smooth functioning of this supply chain.
In recent years, global supply chains have experienced significant disruptions. The COVID-19 pandemic, the Ukraine war, and the Israel and Hamas conflict have all highlighted the fragility of critical supply chains. These events underscore how disturbances in distant regions can have direct and negative repercussions locally.
In today's interconnected world, the availability and accessibility of critical minerals have become crucial for various industries. The critical mineral supply chains have become a hotspot due to their pivotal role in fueling the green energy transition, fortifying defence systems, and enabling high-tech innovations. However, ensuring a steady supply of these minerals has become increasingly challenging due to the complex web of geopolitics and policies that shape their supply chains.
Geopolitics
Geopolitics plays a significant role in determining the availability of critical minerals. Many of these minerals are concentrated in a handful of countries, leading to concerns over geopolitical risks and potential disruptions. For instance, a significant majority, between 85% to 90% of the world's refining capacity for rare earth elements, along with a substantial portion of the processing for other key minerals such as cobalt, nickel, and lithium—which are vital for electric vehicle batteries—are controlled by China. This concentration of supply can create vulnerability for other countries that rely on these minerals for their industries.
Historical instances of export curbs by China on critical minerals have ignited apprehensions regarding supply chain security across the globe. The latest curb is on graphite product which are critical in electric vehicle (EV) battery anodes - possibly to reassert its manufacturing dominance.
Effects on Businesses
The restriction of supply by China affects companies in major industries including EV and rare earth. For example, MP Materials and Lynas, the two largest rare earth companies outside China, have been struggling to refine rare earth elements due to China's export controls on critical minerals like gallium and germanium.
Export restrictions from other countries
Concurrently, numerous nations have reciprocated with their own set of export control measures giving rise to resource nationalism. According to the OECD, there has been a notable expansion, over five-fold, in global export restrictions on crucial materials in the past ten years, indicating a wider global movement towards safeguarding critical mineral supply chains.
Examples of such bans are Indonesia banning the export the raw nickel ore in 2020 to attract investments. In June 2023, Namibia rich in their uranium supply, enacted a prohibition on the export of raw critical minerals, aiming to enhance their value prior to exportation. The proposed legislation encompasses a rise in royalty rates, the incorporation of provisions from the mining charter, and the introduction of a windfall tax.
A few months back, Ghana known for their lithium deposits, implemented its Green Minerals Policy which imposes limitations on raw mineral exports.
Policies
Policies also play a crucial role in shaping critical mineral supply chains. Policy decisions made by countries can dramatically impact the availability and accessibility of these minerals. The Ukraine-Russia war and the subsequent energy predicament have illustrated the dangers of excessive dependence for supplies of raw materials.
For instance, the United States, recognizing the strategic importance of critical minerals, has recently taken steps to strengthen its domestic supply chain. The country has identified critical minerals as essential for its economic and national security and has implemented policies to encourage domestic production, research, and development.
One key example is the $32 million Bipartisan Infrastructure Law program launched by the U.S. Department of Energy (DOE). The program aims to encourage domestic production of critical minerals and materials by supporting front-end engineering design (FEED) studies which produce rare earth elements from domestic coal-based resources.
The European Union (EU) is paralleling efforts by the United States to reinforce its own critical mineral supply chains. The EU has accelerated its initiatives to secure a steady supply of these essential resources. The draft Critical Raw Materials Act, for example, is a testament to the EU's commitment to enhancing the production and supply of critical minerals within its borders. The Act is designed to guarantee that no single non-EU country supplies over 65% of the Union's yearly consumption of any given raw material.
Trade Agreements and Cooperation
International trade agreements and cooperation can play a significant role in shaping the critical minerals supply chain. Some notable developments are Indonesia proposing a trade deal for critical minerals (nickel) with the United States. This deal would enable Indonesian exports to be covered under the U.S. Inflation Reduction Act, enabling a strategic alignment in the critical minerals sector.
Another major movement is the 'Partnership for Resilient and Inclusive Supply-chain Enhancement' (RISE), spearheaded jointly by Japan and the World Bank, is designed to bolster emerging markets that extract critical minerals. RISE aims to provide financial and technological support to enhance their capabilities in processing and adding value to these minerals. With a particular emphasis on the 'midstream' (mineral processing and refining) and 'downstream' (component manufacturing and assembly) segments of the clean energy product supply chain, the G7 anticipates this initiative will stabilize material supply and reduce geo-economic risks associated with supply chains.
Besides the RISE initiative, Japan has expanded its critical mineral supply chains beyond emerging economies. It has expanded to bilateral trade agreements on battery minerals with the United States in March 2023. The agreement is intended to diversify key supply chains and strengthen the economic relationship between the two countries.
These agreements and collaborations reflect a global effort to secure critical mineral supply chains amidst a backdrop of rising geopolitical tensions and increasing demand for these minerals in various high-tech and green energy applications. Countries are increasingly recognizing the need for diversified sources and strategic partnerships to ensure a steady and secure supply of critical minerals.
What’s next for Businesses?
With the ever-evolving geopolitical tensions and policy changes, it's critical for businesses such as mining companies to stay informed and actively track the changes. Utilizing media and issue-monitoring tools can provide businesses with real-time insights and intelligence to proactively address concerns. As seen above, navigating challenges for critical minerals supply chains requires collective efforts - hence active engagement with stakeholders is especially critical. Utilizing a stakeholder platform with a custom dataset can provide insights into forging relationships with the key critical stakeholders. The stakeholder management platform offers multi-faceted benefits including streamlining compliance and reporting, aiding in proactive risk management, and informing decision-making with diverse insights.
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