Russia’s pulse with the West has reached unprecedented levels since the Cold War and is forcing the design of wide-ranging contingency plans, both in the European Union and in the United States. Apart from the military issue, the most well-known aspect is the feverish initiatives to ensure the EU’s supply of alternative gas in the event that the crisis culminates in its escalation and there is an abrupt cut-off. But this is not, far from it, the only area of dependency. In the aerospace sector, for example, European and American companies are already preparing to face possible problems in the titanium supply chain, a vital material for that industry and of which Russia is a significant producer. A scenario of conflict and sanctions could alter that market.
Of course, a possible shortage of titanium would not have adverse consequences as serious as the lack of gas, since it would not affect the population in general but only a productive sector, however important it may be. However, the case of this material serves to draw attention to a field of competition between powers that is less visible than others: strategic mining resources, essential elements for the development of such sensitive issues as the energy transition, the digital revolution or medicine. .
Every three years, the European Commission publishes a list of the materials it considers most relevant. The last one, from September 2020, selects 30, among which cobalt, lithium and rare earths stand out —fundamental in electrification processes—; silicon —for microchips— or titanium itself. In the report, Brussels highlights China’s position of preeminence and the importance of Russia as producers or processors of these minerals, a field of increasingly exacerbated competition between powers and a potential channel for pressure and political reactions. As in the energy field, here too the EU suffers from a marked dependence on the outside.
“In the last 20 years, much of the control of the supply chain has shifted from the West to China, both in terms of extraction and processing,” he says. Nicholas Crawfordresearcher at the International Institute for Strategic Studies in London for geoeconomic issues.
In extractive activities, Chinese companies have gradually expanded their scope of action, often obtaining contracts in developing countries thanks to complex schemes that included the financing of infrastructure projects. His progress has been remarkable. And the pulse with Western companies, unequal.
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“It’s true that a lot of the big miners are still Western,” Gavin Montgomery, an analyst at consultancy Wood Mackenzie, says by phone. “But the Chinese have the advantage that they have no other type of brake when it comes to investing in some countries: if an American or European company wants to enter the Congo, for example, it will be rejected by the banks that finance. A Chinese, no.” Still, when looking at the extractive landscape as a whole, “Chinese companies cannot be considered dominant; the traditional western ones retain a very significant role”, adds Crawford.
To the advance in the extractive leg must be added the strength of China in the processing of many of these key elements, a position of dominance that it has had for years and that is due to various reasons. First, the environmental concerns that these activities generate, which have led Western companies to relocate their activities there. Second, the lower labor costs, despite the fact that the differential has been shrinking over the years. And third, a logic of proximity to the manufacturing industry, which continues to have the Asian giant as its main center of operations on a global scale. “China has been able to capitalize on this movement and develop its own industries in this sector,” says Crawford.
The sum of the extractive power —both within and, above all, outside its borders— and the processing and refining of these metals places Beijing as a reference producer of twenty of the 30 strategic materials on which the Commission focuses . However, in a way, his strength goes even further than that chart suggests.
Cobalt is perhaps the most paradigmatic case of indirect dependence on the West. Although the vast majority of reserves and 70% of the global production of this mineral, essential for the production of batteries and mobile phones, are in the Democratic Republic of the Congo —Russia is the second in discord—, the real handle is the asian colossus. One of its largest mining companies, China Molybdenum, is today the world’s second largest seller of this material, only behind the Swiss-British conglomerate Glencore. His plan is to become number one in the medium term, with multi-million dollar investments in the African country. The data speaks for itself: 15 of the 19 active mines there are owned or financially supported by Chinese companies, according to a recent investigation of New York Times. And, what is more important, Beijing already accounts for two thirds of the total supply of already refined cobalt. Western dependence on China, in short, is enormous.
Rare earths as a symptom
However, if in one field the Chinese domain is especially intense, it is that of the so-called rare earths: an amalgam of 17 chemical elements with an unpronounceable name for ordinary mortals but essential for the manufacture of computers or electric cars. Here, the Asian giant not only dominates almost 60% of world production, according to the latest data from the US Geological Survey, but also – attention – 80% of processing. This places the others – the EU and the US, but not only – in a position of dangerous dependence, and gives the Xi Jinping government an important lever of pressure.
“In 2010, China decided to restrict rare earth exports as a measure of political pressure. It hit Japan particularly hard, with whom they have a dispute over the Senkaku/Diaoyu islands that was especially hot at the time,” says Crawford. “However, such actions cause disruption in the short term, but also a reaction in the medium-long term: 11 years ago, China’s production share was 100%,” she says. The US, Australia, India and —precisely— Japan are promoting an initiative to reduce dependency in this area. A plan in which, for now, the EU is not.
Naturally, not only Beijing has dominant or practically monopolistic positions. “I prefer to look at the amount of supply controlled by a single player. I don’t care so much if it’s China, the US or any other country or even company. Wherever there is concentration on a single source, there is the potential for a supply break,” David Dixon, senior analyst at Rystad Energy, slips by email. In those cases, the reaction is not impossible. But it is difficult and slow: due to environmental concerns in the West and also due to the technical difficulties of starting up productive operations of a certain size, explains Montgomery.
In this scenario, Russia plays a relevant role, although less than China, according to Crawford and Montgomery. It is a major player in titanium, nickel or aluminum. He has industrial experience. And its growing presence on the African continent, with good relations with regimes to which it provides security, opens up some prospects for international projection. However, there are limits: “At the moment, in Africa it has some operations, but on a small scale. In perspective, you have to keep in mind that they will have to continue to compete against both China and the West, ”says Crawford. The financial muscle or the experience and business size that they have are an unavoidable factor, and on both fronts their power is incomparably less.
The West maintains business hegemony in the sector
On the corporate side, the Western peso —and, very especially, the United Kingdom’s— remains at extremely high levels. By far the world’s largest mining company, the Anglo-Swiss Glencore, maintains a broad domain in the extraction of copper, cobalt and zinc, among others. The second, BHP Billiton (Anglo-Australian), is not only an essential player in the production of iron, but also in that of other key minerals for the jump to renewables, such as nickel or copper, and has between eyebrows and eyebrow rare earths.
Rio Tinto, also Anglo-Australian, maintains a substantial dominance of the copper and titanium dioxide market. And lagging behind are the Brazilian iron giant Vale and the British Anglo American, which dominates a no lesser fraction of the platinum market. Although Chinese firms are already emerging, they are still several bodies below their Western peers. It remains to be seen to what extent — with what speed — state support and financing without any problems of conscience will help them close the gap.
Faced with this situation, both the US and the EU are studying initiatives to reduce their degree of dependence on insecure suppliers. The US Congress, for example, is considering granting tax exemptions to encourage national production of strategic elements and a bill supported by Democrats and Republicans to prevent its powerful defense industry from continuing to buy rare earths from China.
The EU, for its part, is also trying to play a role. The Commission’s triennial study is precisely part of that effort. The concept of strategic autonomy is a mantra that resonates strongly these days in Brussels, which has just finalized its plans for microchips. At the moment, yes, without transcendent results.
Due to values and prerogatives, the EU cannot play a role like that of the Chinese state. But that does not mean that there are not interesting areas where it can be relevant. Crawford points to two: funding research and development of new technologies that reduce reliance on key materials that are difficult to access; and support research to improve the recycling of these materials. The circular economy, still underdeveloped in the sector, may in the future become a significant factor in reducing dependencies. Eventual price shocks in some markets due to geopolitical tensions could make this type of venture more competitive.
From the depths of the earth, with its strategic mining resources, to space, with the growing importance of satellites, passing through the essential capabilities in cyberspace, the pulse between powers of the 21st century is out of control and is played out on multiple levels. The range, finally, is infinitely broader than in the previous century.
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