Dug-Up In China: The World’s Critical Raw Materials
By Hongqiao Liu 15 February, 2017
CWR's Liu on the future of critical raw materials in China, which are key to the world's ICT & green industries
Here stands China: on one hand, it remains the biggest global supplier of rare earths and many other critical raw materials that the world is depending on to feed the tremendous demand from green industries; and on the other hand, the country’s growing domestic demand and shrinking reserves could put its own supply at risk.
Growing domestic demand may mean China changes from a major supplier to a net importer…
…Where will the world source from then?
How China will fill this supply-demand gap in the coming years remains a mystery. What is certain is that the competition for rare earths between China’s domestic market and the global market will only become fiercer. Could China become a net importer of rare earths? Indeed, various intelligence agencies have predicted this could be the case and it is consistent with data from CWR’s report on rare earths. Given this shift, it is worth looking at the supply risk of other critical raw materials that are also predominantly produced in China. Could China become a net importer of these too? If so, where will they come from?
5 Quick Facts about Rare Earths
Critical raw materials and more WTO disputes against China
China is responsible for almost half of the global supply of the most critical raw materials, many which are essential for the ICT sector and the green industry. This includes 69% of natural graphite, a key component for high efficiency rechargeable batteries; 85% of tungsten, a critical metal with wide application in alloy, energy-efficient lighting, radiation shielding and military (also a conflict mineral when produced in Congo Basin); 69% of magnesia and 86% of magnesium, which are widely used in the refractory industry, hydrometallurgy and waste water treatment, and above all, 99% of Heavy Rare Earths and 87% of Light Rare Earths.
China is responsible for almost half of the global supply of the most critical raw materials –
69% of natural graphite, 86% of magnesium…
While the future is full of uncertainty, major critical raw material consumption countries have taken legal action to secure supply today. Similar to the 2012 World Trade Organisation (WTO) case on rare earths, the US and EU in July 2016 filed new disputes against China’s duties and export restriction measures of certain raw materials (WTO dispute 508 & 509). A number of critical raw materials are listed in both, including antimony, cobalt, graphite and magnesia.
Since China joined the WTO, the US and EU, as well as Japan and Mexico have brought a number of trade disputes concerning raw materials produced in China. While most of the materials concerned are critical raw materials predominantly produced in China, such as rare earths and graphite, “conflict minerals” predominantly produced in the Congo Basin have also been included (see table below).
In August 2016, a spokesman from the China’s Ministry of Commerce responded to the July 2016 disputes with a similar argument as to the dispute on rare earths. He argued that relevant policies were “integral components of measures taken to promote the management of exhaustible natural resources and protect the environment with the purpose of achieving sustainable development”.
China has had to remove relevant duties and/or quotas due to WTO rulings…
…all meanwhile, the “true cost” of producing these materials has not been addressed
In historical disputes on raw materials going back to 2009 on Silicon metals, Coke & Bauxite and then in 2012 on Rare Earths, Tungsten & Molybdenum, the WTO has ruled against China. As a result, China has had to remove the relevant import/export duties and/or quotas.
However, these disputes and rulings have failed to address the “true cost” of mining and production of these critical and conflict minerals. As we show in our rare earth report, the toll on China’s environment and people’s health is massive but there is little, if any, compensation. The cheap “cabbage prices”, black market and environmental crimes all contribute to this. These are all swept under the carpet by countries and global companies.
Green mines, cleaner production and more as China set green plans for 13FYP
Since mid-2016, the Chinese government has released a series of 13th Five Year Plans (13FYP) that have direct or indirect implications on rare earths and other critical raw materials discussed in this article. These include:
- Guiding Opinions on Strengthening Environmental and Geological Rehabilitation and Comprehensive Management of Mines
- Development Plan on Rare Earths Industry (2016-2020)
- Development Plan on Non-ferrous Metal Industry (2016-2020)
- National Plan on Mineral Resources (2016-2020)
- National Development Plan on Strategic and Emerging Industry in the 13FYP
- Comprehensive Working Plan on Energy Saving and Emission Reduction in the 13FYP
- State Council’s Notification on Promoting Extended Producer Responsibility
- Guiding Opinions on Strengthening International Cooperation to Enhance the Status of China in Global Value Chain
13FYP points to higher-value manufacturing & circular action for the mineral & metal industry
The overarching tone of these is for green and sustainable development for the mineral and metal industry in the 13FYP. This direction includes upgrading the manufacturing industry to go circular and focus on higher-value manufacturing with lower energy and water intensity. (We will explore the detailed implications of this in our upcoming brief on China’s water safety and green development, so stay tuned)
All of the above is positively moving towards better management of these materials but for a sustainable system the environmental cost must be factored into the price. This is regardless of WTO disputes ruling for or against, ultimately prices are going to go up.
Meanwhile, in the US, President Donald Trump is planning to issue a directive to temporarily suspend the Dodd-Frank rule from 2010 that requires companies to disclose whether their products contain “conflict minerals” from a war-torn part of Africa, according to a leaked draft memo. The memo also lays out a justification for suspending the rule, claiming it has led to “some job loss”. This is a very different path from what China is forging -a more sustainable, responsible and green supply chain. In late 2015, China launched groundbreaking guidelines addressing supply chain due diligence on conflict minerals.
Are we ready for a new era of cleaner & higher priced dug-in-China critical raw materials?
From dug-in-China critical raw materials to made-in-China green products (like rechargeable batteries, permanent magnets and other), China will have an even bigger role to play in the coming wave of trillions of global green investment in renewables, energy-saving and storage in our post-Paris Agreement world. Our clean and smart future should not be built on the sacrifice of China’s water, environment and people’s health. Nonetheless, the Chinese government is moving to change this. Are we ready to embrace a new era of cleaner and higher priced dug-in-China critical raw materials?
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