China the new hegemony – Panorama

It’s written as energy transition but reads as metal-based transition. The metals needed to build low-carbon technologies. It is the dark side of green technologies (but also the fundamental element of digital technologies), which are intrinsically linked to “dirty” metals. A zero-emissions global economy, if it materializes, will not only be carbon neutral, it will also consume far fewer raw materials. To get there though, it will take quite a few critical raw materials. An example? A vehicle with a combustion engine requires 50 kg, an electric vehicle four times more. An offshore wind farm requires 13 times more mineral resources than a gas plant of the same capacity.

In the coming decades, mining supply chains will drive new fortunes. If there is no doubt that the abundance of fossil fuel deposits has enriched nations such as Saudi Arabia, the UAE, the United States or Norway, to name just a few – less well known are the oil reserves in Guyana where recent exploration indicates that in 2028 the state South American will be able to produce 1.2 million barrels daily or 1.1% of the world crude volume; Looking ahead, more lasting wealth can be gained by exporting billions of tons of metals and rare earths that the world sorely needs to build low-carbon technologies. Transition metals are found in photovoltaic panels, wind turbines, batteries for electric mobility and energy conservation, in alternator magnets and in electrolysers for hydrogen production, and are also indispensable for information and communication technologies . The global map of the geopolitics of the energy world is being redrawn, transforming some smaller and historically underdeveloped countries into superpowers of the raw materials of the green transition. Chile and Peru already supply most of the copper. Such is the hunger for the first metal historically worked by man, that a Canadian mining industry is ready to invest 7 billion dollars in a mega-project even in an unstable area such as the border between Pakistan and Iran. Congo establishes itself as the main producer of cobalt which is not found in its pure state but is a by-product of copper or nickel extraction. A characteristic that has allowed Indonesia, producer of half of the world’s nickel, another essential raw material for electric car batteries, to also become one of the main suppliers of cobalt. Leveraging this supremacy, the Jakarta government has banned the export of any raw materials. When the European Union challenged the application of these protectionist measures at the WTO, it was countered by the Indonesian investment minister that their export ban is nothing more than a modern replication of the economic measures used in the past by Western economies to consolidate their industrial development: from banning raw wool exports to stimulate the British textile industry to import tariffs to bolster US domestic production in the 19th and 20th centuries.

The impact of this metallic transition, the constraints on the supply of critical minerals and the risk of abuse of the dominant position of the new masters of rare metals, are the themes investigated in the well-documented essay “China the new hegemony. The war of rare metals” by Giovanni Brussato (Guerini and Associates, 2024). The mining engineer’s detailed analysis exposes three sets of problems. First dilemma. Now that in the next 25 years we are preparing to extract more copper than we have extracted since the Bronze Age, it is fair to ask ourselves whether the availability of the necessary raw materials is sufficient?The peak production reached in 2012 is only a fraction of the metal production required to meet climate goals. According to estimates by the International Energy Agency, IEA, to achieve carbon neutrality the demand for green metals will have to increase at least 6 times by 2040. We are definitely off track.

Basic exploration is an expensive endeavor with an estimated success rate of less than 1%. Over the past twelve years, the crisis in the sector has pushed mining companies to focus on the development of already proven geological deposits rather than mineral exploration in new areas. Of the 224 copper deposits discovered between 1990 and 2020, only 15 were found in the penultimate five-year period (2010-2015) and only one between 2015 and 2020. The productivity of sites with copper contents lower than 0.5 is also decreasing %. Furthermore, gold continues to monopolize almost half of the total global mineral exploration budget, while copper represents 24%, nickel and lithium each 6%, and rare earths 1%. The second issue raised by the author concerns the ability of the mining industry, today clearly undercapitalised, to be able to extract and refine these resources. China’s dominance in the processing of so-called “technological metals” and indirect control of mines in several African countries has produced friction between the Middle Kingdom and the West. Finally the latter has grasped the strategic link between the extractive mining industry and national security.

It seems incredible but as Brussato points out, the concentration in the production and reserves of the supply chain of the metals necessary for the green transition is far greater than that of the increasingly traded raw material in the world: oil. For some minerals and refined metals, European countries come to depend on China for over 75%. Yet, no one has so far hypothesized assigning the mandate to guarantee the security of supply of critical metals to a supranational body, as the IAE was established after the oil shock of 1973. Even if belatedly, the United States and Europe have resolved to adopt measures to regain possession, if not of the entire mine-to-market supply chain, at least as a fallback for suppliers from countries allied with friend-shoring initiatives. However, in addition to going against the principles of free trade, a two-bloc world would lead to a potential loss of 5% of global economic output over the next 10 to 20 years, equivalent to around $4.4 trillion.To guarantee availability and security to the strategic supply chain for renewable energy and electric mobility in the EU, the Critical Raw Materials Act came into force on 23 May, a European regulation which, among other things, sets the objective of extracting at least the 10% of the European Union’s annual demand for rare earths by 2030. The recent news of the discovery in Norway of the largest continental deposit of highly valuable rare earth elements could represent a turning point in breaking China’s dominance of these. The game of extraction and transformation of rare metals is still to be played. But as the author asks, is public opinion ready to accept the less sexy side of the green transition?

(Review by Patrizia Feletig)