A Critical Mineral Cartel Would Be Worse Than OPEC

Most of what the EU calls critical raw materials are concentrated outside the Western sphere of influence.
China has cornered supply chains and dominates the world’s processing capacity for lithium and rare earths.
The EU and the U.S. are looking at developing lasting relationships with African countries in order to set up supply chains for critical metals.

In her State of the Union address this week, EC President Ursula von der Leyen made a point about the EU’s growing independence in sectors such as energy, chips, and raw materials.

The official stressed the importance of these raw materials for energy, after which she went on to slam China for unfair market practices.

Was she aware Europe’s transition is literally doomed without China? Perhaps. Or perhaps she sincerely believed the EU could build its own transition supply chains from scratch. Only that would be as tough as jumpstarting shale oil production across Europe.

In fairness, this perception of a growing independence in the energy and raw materials sectors is more wishful thinking than a reality. The EU boasted it had given up Russian gas, but it had simply replaced it with U.S. LNG. Now von der Leyen celebrated the establishment of the Critical Raw Materials Club.

The club aims to source critical raw materials from “with reliable partners that are keen to develop their own critical raw materials industries,” according to the piece of legislation that led to the establishment of the entity. There are plenty of countries keen to develop their own raw materials industries. The problem is that most of these countries are also keen to make the most of these industries and not settle for friends’ rates just because Europe is asking nicely.

In other words, prospective “partners” are countries where resource nationalism is alive and well. And many of these countries may be quite open to the idea of a group similar to OPEC. Indonesia already indicated it was willing to try it for nickel.

Earlier this year, the country held talks with three other countries that remained unnamed about the possible setting up of an OPEC-style cartel to control the nickel market. Whether the talks will yield an outcome remains to be seen, but the fact that such talks are being held should alarm large importers of the critical metal.

Most of what the EU calls critical raw materials are concentrated outside the Western sphere of influence. The Democratic Republic of Congo, for instance, is notorious for being the home of over 40% of the global reserves of cobalt, per data from S&P Global cited recently by the Wall Street Journal.

Chile has the world’s largest reserves of copper. Indonesia is the world’s largest reserve of nickel—hence its push to cartelize production—and Argentina has the world’s largest deposits of lithium. It is hardly a surprise that both the EU and its North American partners have suddenly rushed to make friends across the world.

Africa is an obvious choice, and not just the DRC. Most African countries are rich in mineral resources but don’t have the means to develop them, and investment from international business has not been as generous as many might have hoped for reasons of political stability and clear mining legislation.

The EU and the U.S. might be happy to help with the development of those resources, especially since opening new mines on their home turf is basically out of the question thanks to environmental legislation. But China is far ahead of both of them. China has effectively already cartelized a lot of African mineral resources.

China has cornered supply chains and dominates the world’s processing capacity for lithium and rare earths. This is why the EU’s transition would be impossible without China, which the EC President berated for undercutting local products because it subsidizes its industries more than the EU does.

China has spent more than a decade doing all this and is now reaping the fruit of its labor. Brussels and Washington, on the other hand, slept through China’s expansion in mineral commodities and are only now waking up. OPEC may be scary, but a transition cartel led by China is a lot scarier for the net-zero champions. And, unlike with U.S. shale, alternative supply would be scarce and hard to come by.

By Irina Slav for Oilprice.com