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Understanding ESG
China, US race for renewable’s critical minerals
Latin American, African sources, Asia-Pacific partnerships key to supply-chain security
Leo Tang 14 Jun 2024

In an era of energy transition, the race for renewable infrastructure, in essence, is a race for critical minerals; and, as a result, countries like China and the US are building their strategic supply-chain networks and looking abroad to secure a stable supply of these minerals for years to come.

As the world races towards its goal of net-zero carbon emissions, and countries strive to meet the ambitious target set at last year’s UN climate conference COP28 of tripling existing renewable capacity by 2030, the demand for renewable technologies is growing at an unprecedented pace and, so too, is the demand for the minerals they require.

Adding to this is the fact that, compared with traditional energy infrastructures, renewable-related products consume more minerals in their manufacturing and functional operations. For example, a typical electric car, the International Energy Agency (IEA) estimates, requires six times the mineral input of a conventional car and an onshore wind plant requires nine times more mineral resources than those of a gas-fired plant.

Of the myriad minerals on earth, several stand out in the system-wide energy transition, with copper, cobalt, lithium, nickel, graphite and rare earths being the most common mineral inputs used in processing renewable parts and components. Due to their prominence in renewable energies, they are also grouped and referred to as the “critical or transition minerals” by industry practitioners.

Like other commodities, critical minerals are also prone to price fluctuations. The IEA Energy Transition Mineral Price Index shows that between January 2020 and April 2024 the price of critical minerals has experienced several peaks and troughs. With the baseline price index in January 2020 set at 100, the lowest price level was reached in April and May 2020 at 91, and it went up as high as 311 in March 2022, then went down again and levelled at around 120 in 2024.

In addition, within the families of critical minerals, battery metals like lithium and nickel and rare earth elements faced greater price variability during the period than did base metals like copper.

Overtime, the supply of these minerals is uncertain as their demand is guaranteed to grow. And notably, the production of critical minerals is highly concentrated geographically and hence naturally entangled in geopolitics. For example, the Democratic Republic of Congo supplies 70% of cobalt today, according to the IEA, while China supplies 60% of rare earth elements and Indonesia, 40% of nickel, with Australia accounting for 55% and Chile 25% of lithium mining.

Due to this concentration, concerns about the supply of critical minerals have arisen, prompting countries leading the way in energy transition, such as China and the US, to take strategic action through investments and partnerships to ensure the security of their supply chains.  

China eyes Latin America, Africa

As the world’s leading country for energy transition, China has a huge appetite for critical minerals to support its ability to manufacture solar panels, wind turbines and electrical vehicles (EVs).

When sourcing supplies of critical minerals, Africa and Latin America are the most sought-after markets for China; and, over the past decade, it has been heavily investing in these regions through its Belt and Road Initiative. Lithium is one of the favourite asset classes for Chinese investors to acquire in these regions.

Most recently, according to S&P Capital IQ database, Ganfeng Lithium, one of China’s major lithium companies, this May signed a US$342.7 million agreement with Leo Lithium, an Australian lithium company, to acquire a 40% stake in its lithium mine in Mali, west Africa.  

In Latin America, China is sourcing lithium from Argentina, Chile and Bolivia. In June 2023, China’s leading battery company CATL signed a joint venture agreement worth US$1.4 billion with Bolivian state-owned company Yacimientos de Litio Bolivianos to develop lithium mining and a refinery.  

In Argentina, a deal between Chinese battery component producer CNGR and Australia’s Lithium Energy is in the pipeline. The deal, announced in April 2024, targets the acquisition of a 90% stake in Argentina’s Solaroz lithium project for US$63 million.

US targets Asia-Pacific partnerships

While China is expanding its footprint for critical minerals in Africa and Latin America, the US is also consolidating its critical minerals supply chain in the Asia-Pacific region. Compared with China, the focus of the US is more on the downstream of the supply chain.

In North Asia, the US and Japan in March 2024 signed a critical minerals agreement covering five key minerals – cobalt, graphite, lithium, manganese and nickel – related to EV battery production that allows both countries to have more collaborative policies with regard to critical minerals and EV manufacturing supply chains.

While Japan does not have abundant critical mineral reserves, it possesses strong capabilities in mineral processing and EV battery production, with brands like Panasonic having a strong presence in global EV manufacturing.

In Southeast Asia, numerous partnership agreements between the US and local governments were made to solidify the critical minerals supply chain. Along this line, for example, in November 2023, the US and Indonesia agreed to develop a “critical minerals action plan” that will be further developed into a critical minerals agreement. And, in April 2024, the US, Japan and the Philippines also cooperated in strengthening the nickel supply chain to compete with China’s influence in the region.

Outlook in net-zero world

The race for securing critical minerals will continue as the world shifts to renewable energy systems. And there will be, according to the IEA, a significant gap between prospective supply and demand for copper and lithium by 2035, as well as a need for approximately US$800 billion of investment in mining to get the world on track to successfully limit global temperature to a 1.5 degree Celsius increase by 2040.

Apart from the market forces, the process of mining critical minerals, as analyzed in an IEA report, also faces serious sustainability management issues like worker safety, waste generation, and water consumption and discharge. This interdependence of critical minerals and energy transition through renewables, the report notes, represents a vital juncture for the industry’s long-term development.

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