China’s rare earth dominance casts shadow over Europe’s ambitious climate targets

As the European Union looks to hit ambitious climate targets, policymakers are getting more vocal about a potential fork in the road: China. In a speech touting the bloc’s “industry strategy” this week, European Commission President Ursula von der Leyen pointed to the scarcity of raw materials needed to power the switch to electric vehicles and green energy sources, much of which are buried in China. “We import lithium for electric cars, platinum to produce clean hydrogen, silicon metal for solar panels,” she said at the Industry Days 2021 event early this week. “Ninety-eight per cent of the rare earth elements we need come from a single supplier: China. This is not sustainable. So we must diversify our supply chains.” China’s plentiful supplies of rare earths have been a bone of contention for years. Its historic export curbs on exporting the minerals have been the subject of challenges at the World Trade Organization from the United States, Japan and others. But with the pandemic exposing the West’s reliance on China for medical goods and personal protective equipment, there has been a spike in concerns of being overreliant in other vital areas. In January, China’s Ministry of Industry and Information Technology proposed export and production curbs on 17 minerals, further stoking anxieties abroad. On Wednesday, US President Joe Biden signed an executive order on supply chain security, part of which read: “From rare earths in our electric motors and generators to the carbon fibre used for aeroplanes – the United States needs to ensure we are not dependent upon foreign sources or single points of failure in times of national emergency.” In Europe, too, as anti-China sentiment runs high, there is recognition of just how dependent its future economic strategy will hinge on the availability of Chinese minerals. “If China were to cut off the tap to the EU, it would create a significant problem, not only for the EU, but also for China,” said David Merriman, manager of the battery and electric vehicle materials division at research firm Roskill. “The EU is a major market for rare earth products and the impact of cutting off [minerals] would likely see a development of a trade war between China and the rest of the world. China holds the cards in this exchange, but would suffer also if it plays its hand,” he said. Brussels has launched a flurry of investment plans and committees designed to shore up supplies, setting up the European Raw Materials Alliance and sponsoring the Global Rare Earth Industry Association (REIA). It allocated €3 billion (US$3.65 billion) of its Covid-19 recovery fund to developing a European rare earth supply chain. Paul Atherley is the chairman of Pensana Rare Earths, a British company planning a rare earth oxide magnet metal processing facility in Saltend, northern England. He hopes to bring 5 to 10 per cent of the world’s supply of neodymium and praseodymium – commonly known as NdPr and vital to the production of magnets for wind turbines and electric vehicles – online for British and EU markets, sourcing from mines in Angola. “It’s quite a big plant, but we need basically 10 Saltends [if Europe is to be self-sufficient], and while our next step would be to expand, there’s no avoiding that this is a major challenge,” Atherley said. China raises rare earth quotas in ‘goodwill trade signal’ to US Part of the issue is that Europe has few rare earth mineral reserves of its own, and the minerals can be dirty and expensive to extract from the ground. Merriman said there were “limited alternatives to source materials in the EU”. While Estonia has significant production capacity at its Silmet facility, much of its output flows to China for processing. “In the short term, you cannot do that [diversify], because with all the mining and processing required, it takes a long time,” said Nabeel Mancheri, secretary general of the REIA in Brussels. “It’s also not a single value chain, it covers all the mining and processing until you make a product ready for the market, like magnets,” he said, adding the issue was now high on policymakers’ agendas. “There is also an issue of scaling up. If you have a lot of demand and already your supply chains are dependent on several companies outside Europe, to scale up in Europe is pretty difficult,” he said. Nor is China resting on its domestic reserves of minerals that are crucial to the future economy. European companies faced fierce competition for mineral reserves around the world, Atherley said. EU unveils new trade policy, warns of measures to blunt ‘negative spillovers’ from China Chinese rare earths giant Shenghe Resources signed an agreement with Australian company RareX earlier this month to partner on projects, with the “potential for Shenghe investment in RareX’s flagship Cummins Range rare earths project” in Australia. The firm also has a large stake in a project to build a processing plant in Greenland. Xiaojing Yang, a researcher of the rare earth mineral industry at Penn State University in the US, urged foreign companies to “carefully handle Chinese investment”. “China’s investment in critical mineral areas usually means strong technical support that the domestic party is in desperate need of,” she said. “So it is not necessarily a bad thing. But the main beneficiary is not so clear at the moment: if this proceeds, will the processed rare earth ores go to China or remain in the EU?”