The conflict in Ukraine was a rude awakening for Europe. Europe became aware of its vulnerabilities in the energy sector. Dependence on Russian gas had a profound impact on the economies of European countries, with energy costs beginning to soar in 2021. This trend was amplified by the outbreak of war in Ukraine. Sanctions against Russia had an important economic and social impact, but Europe could find alternative sources of gas supply, in particular American LNG.
However, another far more serious type of dependence is around the corner. Critical raw materials (CRMs) are not only essential to our daily lives but also to our national security and defense. They are critical owing to :
– their economic importance in strategic sectors
– their supply chain risks
– great complexity to substitute them
What’s more, their recycling rate is sometimes very low, especially for rare earths. Geographical constraints have to be taken into account too. Indeed, the oil and gas markets are determined by their plurality and diversity of players. For example, OPEC has 13 member countries, to which must be added 10 other OPEC+ member countries. However, the situation is completely different for critical raw materials. In fact, the CRM market is characterized by the small number of producing players, leading to quasi-monopolies or even monopolies for some of them. Thus, in the event of shortages or export restrictions, CRM supply could prove complex due to the small number of players involved.
In its 2023 report, the European Commission states that China is the main supplier of 21 CRMs, in particular rare earths, gallium, natural graphite, germanium… It implies that there are sometimes no other supplier countries than China, even though these materials are essential to the energy transition and to sectors such as national defense. These CRMs take on a strategic character when they are destined for the defense, digital or renewable energy sectors. The geopolitical factor could pose a threat in the event of serious tensions or conflict with Beijing. It’s worth remembering that in September 2010, during a dispute with Japan in the China Sea, China suspended its exports of rare earths to the latter in order to put pressure and to obtain the release of a trawler captain. Europe, handicapped by its low CRM production, is not immune to Chinese retaliatory measures, and may be the collateral victim of the trade war between the United States and China. On July 3, 2023, China decided to impose restrictions on gallium and germanium exports from August onwards. This is clearly a retaliatory measure against Washington’s policy of blacklisting numerous Chinese companies in order to restrict semiconductor exports to China and prevent it from gaining access to American technologies. Europe will be impacted by China’s decision, as both minerals are considered critical by the European Union.
Access to CRMs is already crucial in a context of energy transition, whereas their need is expected to increase sharply. For example, the need for natural graphite is set to increase 25-fold by 2040. Graphite is essential to the manufacture of lithium-ion batteries, as it is a vital component of the battery anode. The same applies, to varying degrees, to all CRMs. Will global production be able to increase sufficiently to meet the growing needs of the energy transition? Will Europe be able to catch up and avoid even greater dependence on renewable energies?
The main threat in the CRM field is Chinese. Beijing recognized the importance of CRMs very early and built a long-term strategy around them. It has gradually built up an ecosystem around critical raw materials and rare earths, and now controls the entire CRM value chain.
The criticality of CRMs is not only linked to whether or not countries have mining resources. However essential it may be to have these ressources, it is not enough to control the entire value chain for critical minerals. Mastery of the various mineral processing technologies is also essential. With the possible depletion of resources combined with a sharp rise in demand for CRMs, competition for access to mines and mastery of the various refining and processing stages will be crucial issues in the future. This is an additional problem for Europe. Not only does Europe have few mining and production sites, but it is also completely dominated by China when it comes to processing and refining.
What’s more, long before Europe, China realized that it was essential to secure its CRM supplies, as it could not produce all the materials it needed. So, some twenty years ago, it began to implement a investment policy in foreign countries. This strategy was reinforced in 2015 with the introduction of the Made in China 2025 plan, which aimed to make China a manufacturing superpower in ten industrial sectors, including batteries for electric cars, thereby boosting Chinese international investment, particularly (but not only) in cobalt and lithium mines. Thus, the South African Institute of International Affairs estimates that China invested around $58 billion between 2005 and 2017 in the mining and energy sectors alone in Sub-Saharan Africa.
China’s strategy revolves around acquisitions, taking stakes in mines or providing infrastructure in exchange for exploiting raw materials. This has enabled Beijing to secure its supply of minerals essential to new technologies, and give it an even more dominant position in the world market. To assert its dominance in CRMs, China uses state-owned or private companies close to the Chinese Communist Party. In addition, China has relocated its processing industries, which in just a few decades has enabled the country to go from being a simple rare earths producer to become the world’s leading supplier of permanent magnets.
Cobalt and lithium are perfect examples of China’s strategy. Firstly, cobalt is indispensable in the manufacture of rechargeable batteries of all kinds. It improves the performance of batteries used in smartphones, connected objects and laptops, and plays an important role in electric vehicles. The Democratic Republic of Congo, the world’s leading cobalt producer, has been the target of Chinese investment in the country’s mining sector, and 15 of the country’s 19 cobalt-producing mines are now owned by Chinese companies. China’s strategy has proved successful, in particular with the purchase in 2016 of US group Freeport-Mc Moran’s shares in the Tenke Fungurume cobalt and copper mine by China Molybdenum Company (CMOC) for $2.65 billion. China also has a stranglehold on cobalt refining. It has doubled its refining capacity to 140,000 tons by 2022, compared with just 40,000 tons in the rest of the world. What is more, despite a number of disputes with the Congolese state, CMOC is set to begin cobalt production in the Kisanfu mine, which is expected to become the world’s largest cobalt mine, with an announced output of 30,000 tons a year.
China’s dominance also extends to lithium. Beijing now refines 60% of the world’s lithium on its own soil, and controls 60% of global battery component manufacturing. Moreover, of the 200 mega-battery factories planned worldwide by 2030, some will be in Europe and the USA, but 148 will be in China. The paradox is that China produces only 16% of the world’s lithium, but refines two-thirds of the world’s production on its own territory, enabling it to produce 75% of the world’s lithium batteries. To do so, it uses its acquisitions or stakes in mines in Chile, Bolivia, Australia and, more recently, Argentina. Two Chinese companies, Tianqi and Ganfeng, control a third of lithium’s world production. Several African countries, in particular Zimbabwe and more recently Mali, have also been targeted by Beijing. This strengthening of China’s position in lithium will enable Beijing to become a hegemonic player in the production of batteries and electric cars, to the detriment of Europe, which is lagging far behind but has nonetheless woken up.
European countries cannot compete on equal terms with China in the field of CRMs. China is not bound by European environmental standards, which hinder the opening of mines for the extraction and production of CRMS. It should be remembered that activities linked to rare earths and other critical materials, mainly the extraction, separation and production stages, have an extremely negative impact on the environment due to the pollution generated and the high consumption of water and energy. The problem of social acceptability is therefore extremely serious and needs to be taken into account. There are plans to open mines in Sweden, Portugal and France, but will they see the light of day, or will they be abandoned in the face of the emergence of increasingly violent environmental movements? In other countries, such as China, there is little debate about environmental standards. As a reminder, in the 80s, France refined 50% of the rare earths market at its Rhône Poulenc site in La Rochelle. But media and social pressure at the time led to the closure of the site, and China took over the refining activities. More recently, Rio Tinto’s Jadar project in Serbia was finally abandoned due to strong public opposition. For the time being, fears for the environment remain strongest, despite Europe’s urgent need to remedy its shortcomings in CRMs. Today, Europe is increasingly dependent on China and time is an additional obstacle for Europe. Even if mines were allowed to open in order to extract and produce critical minerals, it would take at least ten years from the discovery of a vein to the opening and the start of mining operations. What’s more, the closure of mines in Europe has resulted in a loss of skilled manpower that will take a long time to replenish.
However, it would be wrong to say that Europe is unaware of its CRM dependency problems. In 2008, the European Commission set up the Raw Materials Initiative to assess European dependency and plan a strategy for diversifying supplies. Several reports were subsequently published by this institution, analyzing Europe’s CRM requirements between 2011 and 2023. In the meantime, the number of CRMs studied has risen from 14 in 2011 to 30 in 2020, due in part to renewed international tensions and the emphasis on energy transition. But the new centerpiece of the European strategy was unveiled on March 16, 2023 with the Critical Raw Materials Act, which aims to secure critical materials supply chains in order to preserve Europe’s strategic autonomy in a much-deteriorated international geopolitical context with the war in Ukraine and growing rivalry between China and the USA. According to the Critical Raw Materials Act, objectives to be achieved by 2030 are as follows:
- At least 10% of the EU’s annual consumption for extraction,
- At least 40% of the EU’s annual consumption for processing,
- At least 15% of the EU’s annual consumption for recycling,
- Not more than 65% of the Union’s annual consumption of each strategic raw material at any relevant stage of processing from a single third country.
We can therefore observe a desire to build an industrial ecosystem around CRM with all segments of the value chain. The emphasis is on processing and refining activities rather than extraction. Nevertheless, environmental constraints remain, and the development of mining activity is proving delicate and complex to implement. What is more, the European effort on refining may not be enough to compete efficiently with China. Beijing has invested massively in refining-related research, and also exercises dominance in the field of patents. Thus, since 2014, China has been responsible for nearly 80% of patents for rare earth refining worldwide, and around 60% for titanium and manganese.
Europe prefers to focus on recycling, but this is technologically complex and subject to the financial factor of profitability. What’s more, the recycling rate for rare earths is extremely low as it is estimated at 1% on average. Solutions have already been envisaged in the past. In 2012, Solvay developed a system for recycling the rare earths found in low-energy light bulbs. This was at a time when their price was very high due to the crisis between China and Japan. But in 2016, prices fell again, and the French company’s process was discontinued as it was insufficiently profitable.
In the lithium battery sector, however, things are moving more quickly. Several recycling plants have been set up in Scandinavia, including Fortum in Finland and Stena Recycling in Sweden. Both plants claim to be able to recycle 95% of the materials found in batteries. In addition, a gigafactory project by Glencore and Canadian company Li-Cycle should see the light of day in Italy in a few years’ time.
However, it should not be forgotten that recycling is not sufficient to replace the extraction and processing of CRMs. The first reason has to do with the sustainability of the products used in the energy transition. Electric batteries currently have a lifespan of around ten years, while wind turbines have a lifespan of around 30 years. As a result, it takes many years before they can be recycled. What’s more, the rate of growth in demand for CRMs is extremely high, and far outstrips the possibilities of recycling.
Innovation could be one of the solutions to decreasing the need for CRMs and thus reducing dependence on Beijing. This requires the development of research projects to encourage innovation. One example is the French government, which, as part of its France 2030 plan, launched a research program in January 2023 to develop twelve projects with the Scientific Research National Center (CNRS) and the Atomic Energy Commission (CEA). One of the projects focuses on sodium-ion battery technology, which could greatly reduce our dependence on China for critical raw minerals. This new type of battery should start being produced in northern France by the Tiamat company as early as 2025. However, even though substitution can both reduce European dependence on China and the price of CRMs in certain areas such as electric vehicles, it is important to note that this is often at the expense of performance. For instance, sodium-ion and lithium-iron-phosphate (LFP) batteries have so far had a shorter range than lithium-ion batteries. Moreover, substitution is not possible in strategic industries. These include defense and national security, where lower performance can’t be afforded. Civil and military industries have different needs and different performance requirements. It will therefore be extremely difficult for European countries to shake off their dependence on China when it comes to national security. In the event of geopolitical tensions with China, Europe could be impacted by sharp price rises for some CRMs, or even a shortage if Beijing again decides to restrict or halt the export of some of them. But, European countries need CRMs to preserve their national security, whatever the cost may be.
Despite all the measures recently announced with the Raw Critical Materials Act, Europe will have to find alternatives to recycling in order to secure its CRM supply chain. Similarly, more resources will have to be allocated to innovation. Thanks to an effective strategy pursued over the past twenty years, China has succeeded in mastering the entire value chain for many CRMs, even those for which it had little or no domestic supply. Europe has been warned and is faced with a difficult choice in which the strategic stakes are likely to come up against environmental standards. Opening mines, however polluting they may be, will be essential but not sufficient. Europe will have to be much more active in obtaining more equity stakes in mines situated in Africa, Asia and Latin America. Brussels practices friendshoring and has partnerships with countries with which it shares the same democratic values (Australia for lithium, for example). But that won’t be enough. Partnerships with other countries will have to be considered, even if human rights are not respected there. Plurality and diversity of partners will be essential for Europe. If we are to survive in an increasingly hostile environment, with an increasingly powerful and uncompromising China, we will have to make difficult choices to cope with possible shortages of CRMs, for which Beijing would have a hegemonic position. If we don’t or can’t, so we’re in for a rude awakening.