China Controls Minerals That Run the World

SINGAPORE—China’s decision this week to restrict the export of two minerals used in semiconductors, solar panels and missile systems was more than a trade salvo. It was a reminder of its dominant hold over the world’s mineral resources—and a warning of its willingness to use them in its escalating rivalry with the U.S.  

Around two-thirds of the world’s lithium and cobalt—essential for electric cars—is processed in China. The country is the source of nearly 60% of aluminum, also used in EV batteries, and 80% of polysilicon, an ingredient in solar panels. It has an even tighter grip on rare-earth minerals that go into crucial technologies, like making smartphone touch screens and missile-defense systems, accounting for 90% of their refining, according to the International Energy Agency.

Chinese companies also often control processing that isn’t done at home. A significant share of the world’s nickel supply, for instance, comes directly from China, but much of the rest is also in Chinese hands, refined by companies from China in places such as Indonesia and Papua New Guinea.

On Friday, Treasury Secretary Janet Yellen told U.S. businesses in China that the Biden administration was still evaluating Beijing’s decision announced Monday to restrict the export of gallium and germanium, but the move was a reminder of the importance of diversified supply chains.

China’s hold over the world’s minerals gives it the power to potentially disrupt the West’s energy transition, chip manufacturing and defense industries as its great-power rivalry with the U.S. heats up. A Chinese move to restrict exports of, say, lithium or cobalt would hit non-Chinese automakers hard, throwing the production of electric-car batteries into disarray.

Such extreme measures are unlikely in the near term, not least because they would also hurt Chinese businesses, but experts say they aren’t off the table.

“We would be foolish to limit our thinking that that kind of thing is impossible,” said Morgan Bazilian, director of the Payne Institute for Public Policy at the Colorado School of Mines. “If you keep ratcheting up your tit-for-tat, that’s one area it could go.”

Beijing’s restrictions on the export of gallium and germanium followed U.S. steps in October to limit Chinese access to equipment used to make advanced chips. The Chinese curbs are expected to add urgency to Western efforts to develop alternative mineral sources.

The Biden administration has prioritized scaling back U.S. reliance on Chinese minerals, mainly through its signature green-investment program known as the Inflation Reduction Act. The 2022 law provides subsidies for electric-vehicle batteries that contain minerals mined and refined in the U.S. and friendly nations—an effort to build supply chains that don’t run through China. 

On Thursday, President Biden said in a tweet that China has dominated the production of raw materials needed for critical products for too long, and that the U.S. was working with its allies to bring the battery supply chain home.

Another recent law, the Infrastructure Investment and Jobs Act of 2021, provides millions of dollars in grants to advance critical-minerals mining and authorizes federal loans for projects that boost domestic supply of the resources.

Money has begun flowing under various U.S. policies. Ireland-based TechMet, whose projects include nickel and cobalt mining in Brazil, has received $55 million since 2020 from a U.S. agency, the International Development Finance Corp., in exchange for about a 15% stake in the company. This year, TechMet began exporting a nickel product it processes in Brazil for use in Western EVs, and is raising private and public funding to expand its mine.

“It’s a warning shot across the bow of U.S. industries,” TechMet’s chief executive, Brian Menell, said of China’s recent export controls. His company is on board “with the mission of helping to build independent U.S.-aligned supply chains,” he said.

In the U.S., Talon Metals is seeking permits to begin mining nickel in the Minnesota countryside. The Energy Department selected the company for a $114 million grant for a battery-mineral processing facility in North Dakota. That is more than a quarter of the estimated project cost, according to the company.

Building new supply chains can’t happen overnight. Mines take years to develop, with processes to obtain environmental clearances in Western countries adding to long lead times. Trained workers are in short supply. Many ore-rich countries are politically unstable or lacking in environmental credibility, which deters Western companies even as Chinese ones, often backed directly or indirectly by Beijing, are willing to forge ahead.   

Talon Metals, which has an agreement to supply nickel to Tesla, plans to start producing the metal in 2027, provided it receives the necessary environmental permits, the company says. 

“Nobody wants to cut any corners,” said Todd Malan, a Talon spokesman. “I think that governments in the U.S., Canada, and Australia are looking at ways to make things efficient and keep things on schedule.”

As the U.S. and other Western countries seek out new sources of minerals, China is further consolidating its position. Chinese miners have long played an outsize role in extracting and refining cobalt from the Democratic Republic of Congo, the world’s largest source of the EV battery mineral. Over the past couple of years, Chinese companies have extended that control by building plants in Indonesia that, while processing nickel, also recover cobalt from the ore. 

Indonesia nearly quadrupled its cobalt production last year, overtaking Russia to become the world’s second-largest source, with Chinese firms at the helm. Chinese companies are also stepping up efforts to mine and refine lithium in Africa and Latin America.

The doomsday scenario would be an attempt by China to put broad mineral restrictions on Western companies. The biggest move to cut the U.S. off from a key resource was the 1973 oil embargo, which led to long lines at gas pumps and a sharp contraction in the global economy.

The effect of curbs on major minerals wouldn’t likely be as immediate, analysts said, but it would have a lasting impact on businesses and consumers. It would effectively be a supercharged version, analysts said, of the Covid-19 chip crunch that, among other things, hammered the automotive industry and led to long delays in car deliveries.

“It’s clear that China is willing to use export restrictions on minerals and metals,” said Joseph Majkut, director of the energy security and climate change program at the Center for Strategic and International Studies in Washington, D.C. “The question is which metals is China in a strong position to use as a politically and economically significant tool, and what does the U.S. do about it.”

—Brian Spegele in Beijing contributed to this article.

Write to Jon Emont at [email protected]