China’s dominance of rare earth metals has left Britain strategically vulnerable
4 min read
With the Glasgow agreement reached and the UK’s Net Zero Strategy published, we must now turn our attention to delivery. The market is already speeding towards new net-zero industries, encouraged by government policy but mostly spurred by the constant demand for better technology, like renewable energy and electric vehicles.
However, many of the new net zero industries rely on what has been termed “critical minerals”. Lithium, cobalt, and rare earth metals, for example, are found in wind turbines and battery-powered cars, as they are in other modern technologies like smartphones and televisions.
They are called “critical” minerals because they are irreplaceable ingredients which are at high risk of supply chain disruption. Today, the risk comes from China’s dominance of international supply chains. Though lithium and rare earths can actually be found in plentiful supply all over the world, China has built up a dominant grip on their supply chains since the 1980s, particularly in refining.
Deng Xiaoping famously said that “the middle east has oil, China has rare earths”. Decades of outsourcing industry to China with the prediction that economic growth and prosperity would lead to democratisation, led to Beijing achieving a 95 per cent dominance of rare earth metals by 2011. The world was rudely woken up to this fact when it reduced its export quota in response to a dispute with Japan over the Senkaku Islands, which made global prices soar by a factor of four.
The situation has not improved much since then. Although US and Japanese investments drove their market share of rare earth oxide mining down 97 per cent to 58 per cent, China still accounts for 91 per cent of processed rare earths as well the majority of world capacity to refine lithium (66 per cent) and cobalt (70 per cent), and for manufacturing electric vehicle batteries (78 per cent). This is changing – but too slowly.
We should consider building more refining capacity here in the UK in our freeports and industrial clusters
In March, I led an adjournment debate in the Commons to highlight the issue to the government. I was therefore very pleased to see that the Net Zero Strategy included a commitment to publishing a Critical Minerals Strategy next year. This strategy must set out a roadmap to diversify our supply chains, reduce dependence on China and move towards a more strategically and environmentally sustainable arrangement.
But the scale of the challenge requires new ideas and thinking, which is why the Council on Geostrategy’s new report on the options for the UK on critical minerals is so welcome. It highlights the strategic vulnerability faced by the UK and its allies in China’s dominance of critical mineral supply chains - in particular the processing of metal oxides - and contributes to the UK’s thinking on how to both make our economy more resilient but also grow it and those of other free and open nations.
The economic opportunity is considerable: the International Energy Agency has predicted a sixfold increase in demand for these minerals should the world achieve the goals set out in the Paris Agreement with revenues from them overtaking those from coal by 2040.
This diversification is already happening. Australia, home to 40 per cent of the world’s lithium supply, and Canada, ranked fourth in the world for cobalt with reserves worth $277 million, are seeking new partners. The US is seeking to build an end-to-end domestic lithium battery supply chain. Japan has forged a new partnership to capitalise on Vietnam’s reserves of rare earths.
For its part, the UK is already seeking to onshore more of the supply chain. The government has invested in lithium extraction pilot schemes in Cornwall through the £900 million Getting Building Fund, £318 million into the Faraday battery challenge, and £500 million into the Automotive Transformation Fund. We should, as the Council recommends, consider building more refining capacity here in the UK in our freeports and industrial clusters.
Increasing clean trade with our friends across the world also opens up new alternative routes for developing the emerging economies. We should develop stronger links with countries in Latin America for lithium, the Democratic Republic of the Congo for cobalt, and India and Vietnam for rare earths. This would help us mitigate climate change by helping these countries to leapfrog over fossil fuel dependency, while also countering the influence of China in the developing world.
Sourcing critical minerals for our net zero transition is undoubtedly a challenge. It is undeniable that, at this moment at least, China holds the cards in many of the supply chains which form the foundation of the global economy. This is a result of decades of Western sleepwalking on this matter, but we are now waking up. We should take this opportunity to bring new jobs to the UK, our friends and allies, while addressing critical imbalances in the global economy.
Alexander Stafford is the Conservative MP for Rother Valley.
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