Last month, White House national security adviser Jake Sullivan revealed that the U.S. is working with allies to build a standardized international marketplace for metals and minerals in a bid to make the West less dependent on China.
“Critical minerals are another example. That sector is marked by extreme price volatility, widespread corruption, weak labor and environmental protections, and heavy concentration in the PRC, which artificially drops prices to keep competitors out of the marketplace. If we and our partners fail to invest, the PRC’s domination of these and other supply chains will only grow, and that will leave us increasingly dependent on a country that has demonstrated its willingness to weaponize such dependencies,” Sullivan said.
Well, it appears that beating China’s hegemony in critical minerals and rare earths is easier said than done. According to Kent Masters, CEO at Albemarle Corp. (NYSE:ALB), attracting investments into the sector is going to be an uphill battle amid the ongoing lithium and rare earths price crash.
‘‘Were trying to pivot to the west . . . the prices we see in the market don’t really allow us to do that,” Masters told the Financial Times, adding that the US was “absolutely” at risk of losing the race to compete with China on lithium.
“At the current price level, new entrants are not being incentivised to enter the market,” said Adam Megginson, a senior analyst at Benchmark Mineral Intelligence.
Masters has pointed out that whereas the Inflation Reduction Act (IRA) includes tax credits to encourage the sourcing of non-Chinese sourced materials and domestic production, the law has so far failed to accelerate the buildout of a supply chain down to the minerals sector.
Lithium prices have been cut by nearly 50% over the past year, with lithium carbonate currently trading at CNY 72,500 ($10,017) per tonne, close to the three-year low of CNY 71,500 ($9,880) they hit in September, as the economic stimulus from the Chinese government momentarily countered persistent oversupply concerns. Lithium carbonate prices plunged 80% in 2023 driven by the flood of new supply relative to dwindling demand for new electric vehicles, the main use for lithium. Still, market players expect global supply to soar by nearly 50% this year, as hopes of eventual balance in the market drove the race to secure battery metals drove China to expand projects in Africa while Chile signaled it would aim to double output over the next decade.
Adding to the bearish pressure are growing tariffs on China’s renewable energy products. Recently, the Office of the U.S. Trade Representative (USTR) finalized its plan to raise tariffs on a slew of Chinese goods, largely adopting hikes it first proposed in May. The expanded tariffs mainly target strategic product categories, including electric vehicles, batteries, solar cells, semiconductors and critical minerals.
Source: Trading Economics
Albemarle reported a much larger than expected Q3 adjusted loss thanks to the lithium price crash. The giant lithium producer swung to a net loss of $1.11B, or $9.45/share, from a net profit of $302.5M, or $2.57/share, in the year-earlier quarter, while revenues fell more than $1B to $1.35B, even as volumes of lithium sold rose from prior-year levels.
Albemarle announced plans to cut its global workforce by 6%-7%, affecting ~15% of its non-manufacturing workforce, as part of efforts to save $300M-$400M annually, following measures rolled out earlier this year that saved $100M.
The rare earths sector is going through a comparable downcycle.
‘‘The market this year was depressed. I think even a casual observer would have seen that. It had the lowest sustained prices since 2020 and slower demand growth than we have seen over the past 4 years. In this difficult market, Lynas has delivered an EBITDA of $132.1 million and maintained a very strong balance sheet. Whilst this outcome was a reduction versus the prior year when prices were much more favorable, it reflected our continuing focus on capturing cost efficiencies across the business,’’ Australian rare earth miner Lynas Rare Earths Ltd (OTCPK:LYSCF)(ASX:LYC) CEO Amanda Lacaze said during an earlier company’s earnings call.
Friendshoring Critical Minerals
China accounted for 70% of the world mine production of rare earths in 2022, with the U.S. importing nearly three-quarters of its rare earth supply from the Middle Kingdom. That leaves the country in a particularly precarious position, a point that was aptly driven home a couple of years ago at the height of tensions and trade wars between the two countries.
Luckily for the U.S. and its Western allies, there’s a way out. The Nordic countries, particularly Greenland, Norway, Sweden, and Finland, are rich in a variety of rare earth elements (REEs) including cobalt, nickel, lithium and graphite, and nickel which remain largely unexploited. According to the Nordic Council of Ministers, the Nordic bedrock hosts over 43 million tons of economically viable deposits of rare earth minerals. Finland, Sweden, and Norway are among the top eight countries favorable for critical minerals and battery supply chain development as per Bloomberg New Energy Finance. Further, Nordic governments have a history of commitment to low-impact, sustainable mining practices, making them ideal for industries looking for responsibly sourced minerals.
Previously, Reuters reported that the European Union has kicked off the process of choosing between eight bidders that supply its 9-million-euro joint purchasing platform for critical minerals and energy. The bloc mooted the idea of pooling together buying orders in a bid to achieve more favorable deals and prices for critical minerals shortly after Russia invaded Ukraine in 2022. The EU aims to finalize a contract by the end of the year, following which it will develop sections of the platform for individual products early next year.
