China lets EU catch up in commodity race – POLITICO

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There aren’t many places on Earth as removed from the political intrigues of the rain-soaked European Union headquarters in Brussels as Chile’s Salar de Atacama.

Its rugged, otherworldly landscape west of the Andes Mountains spans 1,200 square miles of salars, marked by rocky outcrops and overshadowed by volcanoes. But this desert, 11,000 kilometers from the Belgian capital, now holds the riches that European leaders desperately need.

Mining companies, operating in the Salar, raise salt water from underground lakes and evaporate it in giant basins, then process the resulting solution to extract its wealth: lithium.

The soft, silvery metal is classified by the EU as a “critical raw material” – one of a group considered vital for the transition from fossil fuels to cleaner energy. Often referred to as “white gold” due to its high global demand, lithium is a key component of the rechargeable batteries needed for electric cars and the power grid storage facilities that will be essential as Europe transitions to wind and in the sun.

By 2050, the EU estimates its demand for lithium will be 57 times greater than it is today, and raw materials will soon be as important as oil and gas. There’s just one problem: Europe doesn’t have much; China does.

Europe’s lack of a reliable fossil fuel supply has left it dangerously vulnerable over the past year as Russia cut off gas supplies in retaliation for war sanctions in Ukraine.

The fear in Brussels now is that China could use its dominant role in commodity supply chains to exert similar pressure in the future.

“We need to start moving now to avoid replacing one addiction with another,” EU Industry Commissioner Thierry Breton told POLITICO. “We had a (geopolitical) dependence on fossil fuels, and if we don’t act now, we will have a dependence on critical raw materials.”

This time, the Europeans are not relying on chance.

In December, EU trade negotiators struck a new deal with Chile, which analysts say has the world’s most abundant supply of high-grade lithium. The following month, German Chancellor Olaf Scholz stopped in Santiago as part of a four-day South American tour, returning with a “renewed German-Chilean partnership on mining, raw materials and circular economy”.

Brussels must define this month a strategy for securing its supplies of lithium, rare earths and other key minerals. The Critical Raw Materials Act will include a plan to increase EU mining and refining capacity. It will also aim to give EU countries a roadmap to navigate this new international power struggle over minerals.

A new group of countries is taking on an outsized role in clean energy policy. Chile and Australia are major players in lithium, while the Democratic Republic of Congo produces 70% of the world’s cobalt. Most importantly, when it comes to commodity supply chains, China dominates.

China is the export destination for 85% of Australia’s lithium, where the raw material is refined into useful components | Ezequiel Becerra/AFP via Getty Images

It is the export destination for 85% of Australian lithium, where the raw material is refined into useful components. In 2020, Chinese companies own or finance 15 of the 19 cobalt mines in the DRC.

Even in Chile, where lithium production is dominated by the American mining company Albemarle and the Chilean company SQM, you cannot escape Beijing. Chinese mining company Tianqi owns more than a fifth of SQM’s shares. “They already have a foot in the door,” said Daniel Jimenez, market analyst and former vice president of Chilean chemicals and mining company SQM. “They already have a certain advantage.”

catch china

China’s dominance has been in the making for a long time. The strategic importance of rare earths – a group of metallic elements needed for permanent magnets in everything from wind turbines to electric car motors – was identified by Beijing as early as the 1980s. Europe and the United States are now trying to catch up, said Jane Nakano, a former adviser to the US Department of Energy and now a senior fellow at the Center for Strategic and International Studies. “But all are behind China.”

Beijing controls 60% of the world’s rare earth production, but its strong position isn’t just a blessing of geography. China also dominates in terms of battery and solar panel manufacturing and, crucially, is the world leader in refining key raw materials. It is the industrial process by which minerals are purified into usable components for use not only in China, but in export destinations around the world, including Europe.

“At the moment, China has a monopoly of about 80 to 90 percent on lithium refining,” Breton said. “And of course it’s very addictive.” The same goes for rare earths. To go with its 60% share of global reserves, China holds an even larger 90% share of global rare earth processing capacity and produces virtually all – 98% – of the EU’s permanent magnets.

The EU’s experience of Russian gas blackmail in 2022 highlighted the dangers to its clean energy supply chain. What if, for example, China invaded Taiwan? Could Beijing threaten to cut off rare earth supplies to Europe? What would that do to Europe’s emerging green industries, its electric car makers, its energy security and even its net zero climate goals?

The idea is not so far-fetched. In 2010, China briefly halted rare earth exports to Japan amid tensions over the disputed islands – a warning shot often cited by analysts as a sign that commodity supply chains could be used as a geopolitical weapon.

But despite the red flag, the EU’s dependence on China for raw materials remains “even higher than oil and gas dependence on the Gulf region ever has.” summer,” said Frank Umbach, a former German government adviser and director of research at King’s College. European Center for Energy and Resource Security. “We have already, in my opinion, lost a lot of time.”

Diversification of the offer

The Brussels law on critical raw materials is designed to help Europe make up for lost ground.

Along with its measures to boost mining, refining and recycling in the EU, the law also aims to prepare European countries for disruptions to their supply of critical raw materials, according to a bill obtained by POLITICO.

This could involve storage, for example. More than that, it will put international alliances at the center of efforts to reduce dependence on China. The act will provide formal EU support for “strategic partnerships” with resource-rich third countries to “diversify (the EU’s) supply of strategic raw materials”, the draft document says.

Monitoring raw material supply chains to create an early warning system for possible shortages will also be essential, said a Commission official familiar with preparations for its publication.

“Monitoring is not something that we have done proactively and that is one of the key things,” the official said, adding that the law will likely also contain an action plan for responses to the crisis. EU-wide when potential shortages are identified.

“If we find that we are overly dependent on a particular part or a particular raw material from just one or two suppliers, then either from the EU or from other trading partners we can start filling those gaps. “, said the official.

But Europe cannot be self-sufficient. While Portugal has large lithium reserves and Sweden recently announced the potential for a large deposit of rare earth metals, Europe only has around 30% of its critical raw material needs available. within its own borders, according to Breton.

With mining operations taking 10 to 15 years, the importance of international partnerships to counter China is obvious. “Obviously we have to start creating alliances,” Breton said.

The EU is already in talks with Washington about forming a “club” of critical raw materials and the new law is expected to step up efforts to ensure Europe’s security through a wider international supply chain. The Commission is in regular talks with the United States, Japan and Canada on this issue, according to the official quoted above.

Joe Biden and European Commission President Ursula von der Leyen held talks ahead of release of critical minerals deal legislation that will help both sides build resilient supply chains for vehicle batteries electrical.

“Geology is the main asset in many cases, but strategy should not be understated,” said Anna-Michelle Asimakopoulou, a centre-right MEP on the European Parliament’s trade committee.

In Africa, China has already made the extraction of raw materials a key pillar of its “Belt and Road” investment strategy. The EU may find it more difficult to compete there with its own recently emerged “Global Gateway” investment programme.

“I hope the US and Europe can play a much bigger role as credible alternatives ‘to investment in mining projects’ so countries don’t go to China,” said Jacob Gunter from the Mercator Institute for Chinese Studies based in Germany.

Because right now, he says, China is “the only choice”.

Barbara Moens contributed reporting.


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