As a leading producer of graphite, lithium and refined copper, China is increasingly dominant in the supply chains of critical minerals.
These minerals are needed for advanced technology and renewable energy capacity. At the same time, the country’s increasing control, both domestically and internationally, over regions such as Africa raises concerns about diminishing access for Western countries and mining companies.
Jon Harrison, managing director of emerging markets macro strategy at TS Lombard, says China has “progressively tightened its control” over rare earths and critical minerals over the past seven years, from processing to licensing and regulation, resulting in limited access for foreign companies to mining and other technologies.
China’s share of the critical minerals market
According to data from the International Energy Agency (IEA), China is responsible for approximately 80% natural graphite and 60% mined rare earth metalsHowever, the company’s growing dominance in global supply chains is primarily driven by its large refining and processing capabilities.
Amrita Dasgupta, energy and minerals supply chain analyst at the IEA, explains that China is the largest producer of refined copper, lithium, cobalt, graphite and rare earth elements.
According to Dasgupta, the country currently produces 99% of battery graphite, over 60% of lithium chemicals, 40% of refined copper, over 80% of refined rare earth metals for magnets and 70% of refined cobalt. At the same time, the country dominates the end-to-end supply chain for graphite anodes.
An example of China’s increasing control over numerous key mineral markets is the country’s position in the copper, lithium and nickel markets respectively.
Shobhan Dhir, critical minerals analyst at the IEA, notes that China is likely to maintain its dominant position in the refined copper market until 2040, overtaking Peru in global copper mining.
Similarly, IEA Critical Minerals and Methane Analyst Alexandra Hegarty explains that within the nickel market, China is also expected to retain its position as the dominant producer of the refined metal. She highlights the continued Chinese control internationally, stating: “While Indonesia currently accounts for 52% of global mined nickel production, Chinese companies will own 40% of Indonesia’s mined nickel production by 2023.”
Eric Buisson, an analyst at the IEA for critical minerals, zooms in on China’s efforts to increase domestic lithium supply. He notes that China’s share of lithium mining has risen from 6% in 2016 to 17% in 2023. He predicts that China will overtake Chile as the world’s second-largest lithium producer by the mid-2020s.
Internal and external investments
“The importance of critical minerals to China has led to an acceleration of Chinese investment in the mining sector, both domestically and internationally,” said Dhir, adding that Chinese investment in the metals and mining sector related to the Belt and Road Initiative in 2023 reached a decade-high of $19.4 billion (138 billion yuan), up 160% from 2022.
China is also investing significantly in and acquiring foreign mines, particularly in Africa, with $10 billion invested in the first half of 2023.
“In African countries, investment is focused on creating new lithium supply chains. Of the seven lithium assets in Africa expected to start production in 2027, five are at least 50% owned by Chinese companies,” said Hegarty and IEA research associate Yun Young Kim.
What motivates China to invest?
“To understand China’s position in the global critical minerals market, it is important to have some background on China’s strong position in clean energy technology manufacturing,” Dasgupta explains.
Today, China produces two-thirds of the world’s electric vehicles (EVs), 85% of battery cell production, and 90% of global cathode and 98% of anode material production capacity. In addition, China is a leader in the production of solar panels, wind turbines and hydrogen electrolysers.
Francesca Gregory, senior energy transition analyst at GlobalData, explains that China’s focus on renewable energy and battery technology is part of the economic superpower’s strategy to target high-growth industries and drive the next phase of its economic growth. China is expected to allocate a staggering $6 trillion to green investments across its 14and Five-year plan.
“As part of its strategy to become a green technology pioneer, the country has become a critical mineral monolith,” Gregory said.
According to Gregory, China’s strong position is illustrated by its dominant position in lithium and materials in the solar photovoltaic (PV) value chain, with key materials including silicon.
“The importance of lithium to the energy storage and EV markets has raised concerns about future reliance on a single source as geopolitical dynamics remain divided globally,” she notes.
“Lithium will remain indispensable in the longer term. GlobalData estimates that lithium-based energy storage projects will reach 54 gigawatt-hours of capacity by 2030 and that global annual sales of BEVs (battery electric vehicles) are expected to exceed 36 million by 2030.”
While silicon is not a rare mineral, Gregory points out that polysilicon production and solar PV production are also highly concentrated. She adds: “China alone accounts for 80% of the various stages of solar panel production, including raw material processing and polysilicon production.”
Gregory continues: “In a global energy system that has faced significant price volatility due to geopolitics, single-source supply risks within technologies such as solar PV and batteries create the opportunity for new forms of energy dependency.”
Impact on the mining sector
Tom Moerenhout, a researcher at the Center on Global Energy Policy at the Columbia School of International Public Affairs, explains that China’s dominant position in the processing of essential minerals has allowed it to drive prices down below a feasible level, making the rest of the world increasingly dependent on Chinese exports of these minerals.
Stewart Worthy, a partner at Dorsey & Whitney specialising in mergers and acquisitions in the mining and resources sector, explains that Western mining companies are now looking at other strategies to remain competitive, given the significant cost advantages and increasing control over critical minerals in Africa.
“Western mining companies are now looking at the energy transition in the longer term, including the potential introduction of a dual pricing system with a premium for sustainably produced metals,” he says. “It remains to be seen whether this will come to fruition, and if so, what impact, if any, it would have on the operations of Chinese mining companies.”
US-China trade war
China’s increasing dominance not only affects the mining sector, but also plays a major role in the ongoing trade war between China and the US, given the importance of minerals to modern business and technology.
In response to China’s export-driven growth model, in which critical minerals are a key component, the US has increasingly taken measures to decouple itself from the Chinese economy.
Jon Harrison of TS Lombard says China has rarely used its dominant position in the critical mineral supply chain for geopolitical purposes, but that since 2017 it has “progressively tightened its control over rare earths and other critical minerals by imposing licensing and regulatory requirements and restricting foreign companies’ access to mining, processing and related technology”.
He said China’s dominant position in critical mineral supply chains is a response to US measures to restrict China’s access to advanced technologies.
Similarly, Moerenhout notes that while this contributes to the “tit-for-tat games of trade restrictions” between China and the US, its dominance also gives Chinese companies the ability to drive down prices and limit competition from companies outside China to levels that are economically unsustainable for other companies to operate at.
Moerenhout adds that export restrictions have increased in the past year, not only affecting the semiconductor industry but also the battery supply chain and national security supply chains, such as those for the valuable semimetal antimony.
“China’s role as a ‘critical mineral monolith’ supplying the tech industry” was originally created and published by Pronunciationa brand of GlobalData.
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