The Rare Metals War is a recently published book in 2020 by investigative journalist and author Guillaume Pitron. The book revolves around Rare Earth Metals (which we shall discuss in a bit below), the darker side of clean energy and digital technologies and new geo-politcal issues around concentration risk and supply chains. According to Guillaume, rare earth metals sit at the very cross-roads of clean energy, technology and the upcoming China v/s the Western World geopolitical fight.
We should start by examining what are rare earths / rare metals (RE). RE's are a group of metals that are not as rare as the word suggests. In total RE metals are seventeen in number also called Lanthanides.They are found in moderate quantities but largely in association with abundant minerals like iron and are hard to extract and refine. There are very few standalone RE mines like copper or iron ore mines for instance. RE are soft, malleable, solid, iron/silver grey in colour and highly reactive at high temperatures. RE uses are varied and find application in super alloys, catalysts, industrial applications, batteries but most importantly in high performance magnets in the technology space.
As the world pushes to decarbonise, there is a greater emphasis on electrification. The world is pushing to replace hydrocarbon combustion with electricity. Magnets therefore find massive applications ranging from motors used in Electric Vehicles (EV)s, wind turbines and in smart devices like handphones.
The world is on the cusp of another industrial revolution. As the book argues, the first great shift occured with the use of coal by England resulting in the steam engine. This enabled the prime mover to move away from animals and humans to a natural resource (coal) and boost productivity. Coal was followed by oil & natural gas which further enhanced productivity and radically upended our lives. However, given the environmental impact of hydrocarbons, the world is once again moving to another revolution which is the confluence of clean energy and high technology.
The country that dominates the production, extraction, refining and consumption of RE is not England or Europe or the US but is China. China has achieved scale in RE mining and production. Production of RE is environmentally challenging as it involves crushing a large amount of source rock, then refining the same using acids and purifying using copious amounts of water. Some RE mines have radioactive Thorium and Uranium as by-products making disposal tricky for the mine owners. Despite the challenges of extracting RE, their use and demand continues to grow and China exhibits a vice like grip over them.
The Dark Side of Green & Digital Technologies
Chapter 2 is a critical chapter in this book and a must read. This chapter highlights a key learning to consider whilst evaluating current v/s future technologies whether its clean power generation, smart grids or EVs.
Taking EVs as an example, it is unarguable that EVs are way cleaner than gasoline cars due to the absence of hydrocarbon combustion. However, it is important to peel away the layers to get a holistic perspective. EVs are driven by batteries that require cobalt, copper, lithium, aluminium, nickel, manganese, graphite etc. They also have an electrical motor that needs copper windings and RE magnets. As a consequence, an EV requires a lot more metal than an gasoline car although over a lifetime it still beats the gasoline car due to the absence of hydrocarbon combustion.
The key takeaways from this chapter would therefore be the importance of end to end analysis of new age products. It is not sufficient to consider the emissions impact from the point of purchase only but to consider the entire product lifecycle from manufacture to use and also disposal.
Likewise, a lot of renewable power generation like wind turbines and solar panels need significant amount of minerals plus steel and concrete as compared to the more traditional generation sources like natural gas fired plants. What therefore should be avoided is replacing emissions in urban settings and increasing emissions and ecological issues in key mining locations. Finally the impact of recycling should be considered in sufficient detail. Whilst recycling is fundamental and efforts to enhance recycling rates are to be lauded, recycling can become energy intensive especially when it comes to trace elements like RE.
China and RE
China was not the leader in RE. America, Australia, the EU and Japan were leaders in the extraction, refining and consumption of RE for a long while (China's market share then was below 10%). But by the 80s and definitely by the 90s the winds of industrialisation began to change and China gained ascendency. Guillaume elaborates why this happened and a number of factors come into play to explain this.
Firstly, environmental norms in the West & Japan started to tighten up considerably. Mountain Pass, the then largest RE mine in the world and located in the US faced considerable headwinds from environmental issues. This impacted profitability and the operations of the mine.
On the other hand, China in 80s and 90s was keen to rapidly industrialise. China made forays into RE mining, building scale and turning a blind eye to the environmental aspects of RE mining. As a result RE prices in China fell and ex China mining of RE shuttered including in the US, France and Australia.
This was actually welcomed by the West at that time who felt that it was a masterstroke to 'export' polluting industries to the global South like China and maintain a clean environment at home.
With the advent of globalisations, supply chains went global. End consumers cared little where the products originated from and where basic heavy industries were located. There was greater focus on lean supply chains and efficiency from a cost perspective rather than the origin of goods or resilience of supply chains. All this seemed like a win win situation which could only get better.
However, things turned out a bit differently!
From Dominance To Power Projection
After consolidating production, enhancing supply chains and capturing more of the value add, China felt confident to assert its domination over key raw materials. First it established export quotas that reduced RE exports year on year thus curbing non Chinese consumtpion and encouraging consumption at home.
Then came the infamous incident with RE and Japan in 2010 that put the world on notice. Because of a dispute with Japan linked to fishing and ownership of the Senkaku islands in 2010, China 'cut off' RE deliveries to Japan. Japan which was heavily dependent on RE imports from China was hugely impacted. RE prices sky rocketed in the global market. The US, EU and Japan filed WTO complaints against China. Years later the embargo by the Chinese was termed illegal but the damage had been done. With a RE market share of more than 90%, China had an oversized hand to play when it came to RE.
The US, EU and Japan commissioned detailed studies on their import vulnerabilities with respect to critical minerals. All these countries concluded that China plays a vital role in the supply chains in many minerals (not just RE) which is a cause of deep concern for all of them. Since the 2010, various attempts have been made to establish RE mining and refining outside of China but it has been met with muted success. The ability to decouple and establish a supply chain for RE independent of China has not yet fully materialised.
As of today whilst RE mining has restarted in the US and Australia, China still has more than 60% market share for RE mining. More impressively its market share for refining and processing RE stands at around 85%! This is a decade after the west and Japan decided that supply chains for RE were overly concentrated in China.
Not Pausing At Mining & Refining
A defining feature of China's dominance in RE has been its ability to develop and master the world beyond just RE mining and refining. As the book demonstrates, export bans and quotas have been adopted by many countries around the world. Yet few countries, if any, have developed expertise across the value chain for the respective mineral.
China on the other hand has developed the same and the world of high performance magnets brings us to the next pivotal moment in China's quest for domination. Whilst the west was focussed on reducing polluting industries at home and driving down costs, China was focussed on upping the ante in high tech manufacturing.
The origins of China's march towards manufacturing dominance and technological upgrades is captured in their five year planning policy documents. These planning documents set the targets and the stage which in turn provides the impetus for Chinese companies, including the SOEs, to set their own goals and aspirations. Many of these policy documents have focussed on the importance of RE mining but also the need to go beyond just mining and refining RE.
The Magnequench saga best exemplifies how this approach unfolds on the ground with the Chinese making a concerted effort to secure patents, know how and knowledge in the high tech magnet world. RE play a pivotal role in the manufacture of high tech magnets which in turn drives the digital and new energy world.
In 1995, the Chinese state in conjunction with Chinese SOEs made a bid for Magnequench, a leading cutting edge magnet manufacturer, with sole aim to understand the technology behind high tech magnets. High tech magnets are fundamental to the digital world and the new energy space and mastering high tech magnets allows a country to dominate these key sectors. This is exactly what happened. Five years after securing the approval (heavily contested acquisition processes) to acquire the company, Magnequench's operations were terminated in the US and the factories were entirely relocated to China.
Fast forward a decade or so, the leading manufacturer and exporter of high tech magnets is no longer the US or its erstwhile competitor Japan but is China. China does not lead, it dominates! This domination is so impressive that the US F-35 fighter jet program had to seek exemptions to buy and use Chinese magnets as no other alternative was possible!
Looking Beyond RE
Whilst this book is centred around RE, the lessons and observations can be extended to a number of other minerals and the manufacturing sector as a whole. The US and Western countries have essentially hollowed out their manufacturing and mining capabilities. With a confident but erroneous belief that one can sustain purely on innovation, the US and the West have surrendered large swathes of territory to China.
China on the other hand is relentless. It has exploited this chasm to perfection. Commencing from the position of a benign, low cost responsible producer of goods for the world, it has steadily moved up the ranks of research, innovation and quality whilst continuing to build scale across industries. This has now put China as a clear threat to the US domination of future technologies. Using its vast manufacturing base, trained staff, state support, immense funding of R&D and a determined will, China has put the US and the world at large on notice.
With Make in China 2025 personifying the grand ambitions of the Middle Kingdom, the country aims to become a global manufacturing, cyber and science and technology superpower. I don't think any further explanation is needed to this statement. The target date is 2049 - a 100 years since the establishment of the People's Republic of China.
Conclusions
The book makes for interesting reading as it focusses on two key issues namely the metal and mineral intensity of new age energy solutions and the dominance of China across the very vital supply chains that will enable this transition. More importantly, the lessons from the evolution of the RE industry can be applied to a number of sectors and I am confident the conclusions will largely be the same.
The greater questions are will China achieve its vision as set out in Make in China 2025? Has COVID changed the dynamic in favour or against China? What steps can the US and the West take to counter China? Will the great decoupling take place or will it be stymied by factors of cost, inertia and efficiency. Will the US led liberal rules based order hold in the coming decades or will we witness some cataclysmic shifts in this regard? Who will lead the next digital, energy and industrial revolution?
Despite all the uncertainty and the high stakes involved, one thing is certain. Understanding the US and China and their relationship will be fundamental in the coming decade.
https://www.amazon.com/Rare-Metals-War-Digital-Technologies/dp/1950354318
My Book Review Event
Brow Sing - a book and knowledge enthusiast club asked me to review this book in Jan 2022. Below are the slides that formed part of this book review.
The book review had two critical themes.
A. The importance of metals and minerals in energy transition. Whilst the above book is focussed on rare earths, I expanded the discussion for the audience to cover other metals such as copper, zinc, lithium, cobalt amongst others.
B. The dominance of China in supply chains. China has assumed a very dominant position across the entire value chain of the low carbon industry. Beyond just mining RE, China has focussed on developing scale and market shares across all key minerals needed for energy transition. In addition, the country has build up capabilities in EV and battery manufacturing and wind turbines and solar panels. What is the impact of the same and how will it affect the rest of the world as tensions rise but the pivot to low carbon accelerates? These were questions, we attempted to answer.
Attached are the slides below.
