China Tightens Grip on Critical Minerals as Western Efforts Falter

For the past few years, the West has been trying to break China's grip on minerals critical for defense and green technologies. Despite these efforts, Chinese companies are becoming more dominant. They are expanding operations, supercharging supply, and causing prices to drop, making it hard for challengers to compete.

"China is not just standing still waiting for us to catch up," said Morgan Bazilian, director of the Payne Institute at the Colorado School of Mines. "They are making investments on top of their already massive investments in all aspects of the critical-minerals supply chain."

Take nickel, which is essential for electric vehicle (EV) batteries. Chinese processing plants in the Indonesian archipelago are producing vast quantities of nickel from new and expanding facilities, significantly impacting the market. Meanwhile, Switzerland-based mining giant Glencore is suspending operations at its nickel plant in New Caledonia, concluding it can't survive despite offers of financial help from Paris. The U.K.'s Horizonte Minerals reported last month that investors had pulled out of its Brazilian mine project due to market oversupply.

At least four nickel mines in Western Australia are winding down. Lithium projects in the U.S. and Australia have also been postponed or suspended after a surge in Chinese production at home and in sub-Saharan Africa. The only dedicated cobalt mine in the U.S. suspended operations last year, struggling against a flood of Chinese-produced cobalt from Indonesia and the Democratic Republic of Congo.

Non-Chinese production of refined cobalt declined to its lowest level in 15 years, according to Darton Commodities. The share of lithium mining by Chinese companies has grown from 14% in 2018 to 35% this year, while lithium processing within China has risen from 63% to 70%, according to Fastmarkets.

The rapid expansion of Chinese production has assailed Western producers, who say China's domestic economy can't always absorb the flood of minerals its firms bring to market. Slower-than-expected electric car sales growth in China last year meant fewer takers for China's mineral surge, contributing to the crash in global prices. What's more worrying for Western producers is that there is little sign of a letup.

"It's just the way China does things. They have tended to build more capacity whether it's in aluminum, or cement, or nickel," said William Adams, head of base metals research for Fastmarkets. Chinese companies "all gun for market share, and the consequence for that is you get oversupply."

Western officials are sounding the alarm. Canadian Deputy Prime Minister Chrystia Freeland suggested that China's market flooding might be intentional, aiming to drive Western companies out of business. China's Foreign Ministry did not respond to a request for comment.

Chinese companies are continuing to ramp up, thanks to years of aggressive acquisitions. Zijin Mining, a Chinese state-backed company, plans to increase lithium production significantly this year and next, stemming from its purchase of a premium untapped mine in Argentina.

The mine was discovered in 2015 by Waldo Perez, an Argentinian-born geologist. By 2021, Perez's company, Neo Lithium, decided to sell. The best offers came from Chinese companies, with Zijin's $750 million bid winning. The sale passed a Canadian government review but perturbed conservative lawmakers in Canada and the U.S.

"China has many advantages in the race to lock up minerals," said Constantine Karayannopoulos, Neo Lithium's former chairman. "The Chinese were true believers but the Westerners were not," added Perez, Neo Lithium's chief executive at the time of the sale.

China's miners are deep-pocketed and aggressive, making bets in resource-rich countries long viewed by Western companies as corrupt or unstable. State banks provide financing for power plants and industrial parks abroad, paving the way for further private Chinese investment. China's rapid industrial development has also given its companies decades of experience in efficiently turning raw ore into metals.

In eastern Indonesia, Chinese companies have built a fleet of highly efficient nickel and cobalt plants over the past few years, running on coal power. "The Chinese have this overwhelming competitive advantage now that can't really be addressed," said Jim Lennon, managing director for commodities strategy at Macquarie.

Talon Metals, headquartered in Toronto, controls a rich underground nickel reserve in central Minnesota. The U.S. Energy Department has earmarked more than $100 million for Talon to build a refinery in North Dakota to process ore from Minnesota and elsewhere in North America. Tesla has agreed to buy the nickel for car batteries. However, Talon's share price has dropped significantly due to the influx of Chinese nickel from Indonesia.

Like other Western miners, Talon argues it faces an unfair fight against Chinese companies that receive state financing. "All the Western projects have to meet market-based economic criteria," said Todd Malan, Talon's director of external affairs.

Australia's Queensland Pacific Metals is developing a nickel-processing plant in Australia to refine imported ore from New Caledonia and sell it to General Motors. However, it recently decided to limit further expenditure on the nickel project, citing low prices and challenging market conditions.

China's Belt and Road Initiative has significantly boosted its mineral industry investments. Chinese official lending for mineral projects in developing countries typically offers lower rates than commercial loans, making it harder for Western companies to compete.

Western companies struggle to secure loans, with Western banks reluctant to finance projects in risky mineral-rich countries. The U.S. has introduced legislation offering incentives for electric vehicle manufacturers to buy minerals domestically or from free-trade partners. Starting next year, batteries could be disqualified for subsidies if they contain minerals mined or processed by Chinese companies.

Western miners hope these provisions will drive demand for their minerals and encourage Chinese companies to reduce production. However, some are concerned that carmakers could find workarounds.

"At today's prices, the economics for new greenfield projects, particularly in the West, are not supported," said Kent Masters, CEO of Albemarle, the largest U.S. lithium producer. Masters believes there is no "business case" for a complete Western lithium supply chain unless prices rise.