CRITICAL METALSChinese Rare Earth Consolidation a Cause for Concern
The world needs more readily available rare earth metals. Over the coming decades, demand for rare earths is forecasted to increase by two to eight times over current supply. Through effective long-term investment across the rare earth supply chain, China has earned some 50–60 per cent of the mining market share and around 90 per cent in the intermediate processing stage.
The world needs more readily available rare earth metals. These metals are used in energy transition technologies such as electric vehicles and wind turbines, in most contemporary electronic gadgets, and in some defense applications. Over the coming decades, demand for rare earths is forecasted to increase by two to eight times over current supply.
Rare earths are part of a complex global value chain. Considerable expertise is needed to turn mined concentrates into refined, separated and industrially useful oxides. Through effective long-term investment across the rare earth supply chain, China has earned some 50–60 per cent of the mining market share and around 90 per cent in the intermediate processing stage.
In recent years, Chinese internal demand has started to outstrip supply due to the expanding electronic vehicle and renewable energy markets. China has even started to import crucial heavy rare earths from Myanmar, a supply source that has been disrupted by the COVID-19 pandemic and civil conflict.
When China announced the creation of a new state-owned enterprise China Rare Earth Group in January 2022, it caused tremors. The new ‘megafirm’ will control 60–70 per cent of Chinese rare earth production, which translates to 30–40 per cent of global supply.
This extraordinary market share is similar to Taiwan Semiconductor Manufacturing Company’s 50 percent share of global semiconductor fabrication. Recent history highlights problems with such high market concentration. Supply chain issues exacerbated by the pandemic have showed how reliance on single firms or countries can be disruptive and difficult to resolve when the source firm or country cannot deliver. High concentration of production and asymmetric trade dependencies have facilitated the use of economically coercive trade and investment policies around the world.
Import-reliant countries such as Japan and the United States have securitized rare earths, along with other minerals that have recently been deemed ‘critical’. In late 2021, a US Department of Defense official commented that the critical materials sector is a ‘microcosm for the geopolitical and geo-competitive forces shaping the 21st-century’.
