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Out of sight of the average citizen, an intense battle is taking place between China and the United States (and the broader West). This battle is about the control of critical raw materials. What exactly is going on?
Critical Raw Materials Such as cobalt, lithium, nickel, copper and rare earths are indispensable in our modern economy. The production of smartphones, medical devices and basically everything that contains a chip and battery is not possible without these raw materials. They are also vital for the Defence industry in the production of advanced weapon systems.
The technologies that are driving the energy transition, including electric vehicles (EVs), wind turbines and solar panels, are also completely dependent on these raw materials. Without sufficient access to minerals, the West cannot achieve its 'green ambitions'. It International Energy Agency (IEA) predicts that the demand for minerals for green energy will be up to six times higher in 2040 than in 2020 due to the energy transition. The demand for minerals for use in EVs and battery storage will grow at least 30 times during that period. Lithium is growing the fastest, with demand set to increase by more than 40 times by 2040. The demand for graphite, cobalt and nickel is growing by 20 to 25 times. The expansion of electricity networks also means that the demand for copper for the electricity network more than doubles in the same period.
Growth in demand for minerals, 2040 compared to 2020 (source: IEA )
Earlier we wrote that the Chinese are becoming more and more dominant in the field of gold and silver. China is also currently fighting the battle for critical raw materials. win. The country has steadily built its position as a global leader in the mining and processing of critical raw materials over the past few decades.
Beijing composed currently about 60% of global rare earth production and processes nearly 90% of global output. Although China is not always the largest producer of raw materials for batteries, it often controls their processing. China's share of refining is about 35% for nickel and 50 to 70% for lithium and cobalt. Chinese companies have also made significant investments in foreign assets. As a result, Beijing has significant influence in the mining and manufacturing sectors in countries such as the Democratic Republic of Congo (DRC) and Indonesia.
This gives China a strategic advantage and makes the West vulnerable to supply chain disruptions, as China can control market prices and availability. It's more than just a possibility; the Chinese government has repeatedly used its control as a geopolitical tool. In December, China Export of technologies for the production of rare earth magnets, and previously the use of Export restrictions set to gallium and germanium.
The United States and its allies have recognized the need to reduce their dependence on Chinese critical minerals. Biden has taken several measures to boost domestic production and processing. For example, the Inflation Reduction Act introduced, which provides subsidies for the production of EV batteries using minerals extracted and processed in the U.S. or in friendly countries. In addition, strategic partnerships are an important part of the Western strategy to secure the supply of critical minerals.
The Chinese government lent African countries more than 2000 to 2022 $160 billion for infrastructure projects through their 'Belt and Road Initiative'. That amount has decreased dramatically in recent years. In 2022, China borrowed only a small amount $1 billion to African countries compared to $8.5 billion in 2019. The U.S. is now trying to take advantage of this. In December 2022, the U.S. signed a trilateral Memorandum of Understanding with the DRC and Zambia. This agreement aims to develop a full value chain, from mineral mining to battery production.
Cobalt production in the DRC (source: Carnegie Endowment)
The DRC and Zambia are among the world leaders in the production of certain critical minerals. The DRC produces nearly 70 percent of the world's cobalt in Katanga province, and Zambia is one of Africa's largest copper producers. An important project to become less dependent on China is therefore also aimed at those countries.
This project includes Investment in the construction and improvement of a railway line in the 'Lobito Corridor'. The mineral-rich areas in the hard-to-reach interior of the DRC and Zambia will be connected to the Angolan port on the Atlantic Ocean. This railway line will significantly reduce the transport time from the Katanga province and increase the export opportunities. The West wants economic growth in the entire region Stimulate and develop.
Lobito Corridor railway (source: U.S. Chamber of Commerce)
The battle for critical minerals is a critical part of the broader geopolitical battle between the United States and China. Beijing is currently dominant and is trying to maintain its position. The West wants to reduce dependence on China for critical raw materials and is working hard to build its own supply chains. Projects such as in the Lobito Corridor and the development of the relations with African countries are an important step in this direction, but China seems to remain the dominant player in this market for the time being.
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On behalf of Holland Gold, Paul Buitink interviews various economists and experts in the macroeconomic field. The aim of the podcast is to provide the viewer with a better picture and guidance in an increasingly rapidly changing macroeconomic and monetary landscape. Click here to subscribe.
