Allianz+關(guān)鍵原材料：歐洲準(zhǔn)備好回到未來了嗎？-Critical raw materials Is Europe ready to go 2023

Allianz

AllianzTrade

01August2023

04

08

12

Afuturepoweredby

FromOPECtoOMEC

ImplicationsoftheEU

metalsbutfencedin

(OrganizationofMetal

CriticalRawMaterials

withironcurtains

ExportingCountries)?

Actandmissingpieces

18

Support,develop,leverage

andstrengthen–Key

takeawaysforEurope

AllianzResearch

Criticalrawmaterials:

IsEuropereadytogobacktothefuture?

AllianzResearch

2

Executive

summary

LudovicSubran

ChiefEconomist

ludovic

.subran@

JasminGr?schl

SeniorEconomistforEurope

jasmin.groeschl@

ArneHolzhausen

HeadofInsurance,

WealthandTrendResearch

arne.holzhausen@

AnoKuhanathan

HeadofCorporateResearch

ano.kuhanathan@

LucaMoneta

SeniorEconomistforAfrica

andMiddleEast

luca.moneta@

MarkusZimmer

SeniorEconomist,ESG

markus.zimmer@

Thefuturewillbepoweredbymetals,butfencedinbyironcurtains.Metalsandcriticalmineralssuchaslithium,cobaltandnickelarecrucialforthegreentransition,usedforeverythingfromelectricvehiclestowindturbines.

Themarkethasdoubledinsizeoverthepastfiveyears,reachingUSD320bnin2022,accordingtolatestIEA

estimates,andissettoatleastdoubleby2040amid

surgingdemandfromEVsandbatterystorage,aswelllow-emissionpowergenerationandelectricitynetworks.Butcompetitionforcriticalrawmaterialsandtheir

concentrationamongasmallnumberofcountriescouldcreategeopoliticalrisks,includingpotentialcartelization

FromOPECtoOMEC?Chinadominatesthefieldof

criticalrawmaterials,controllingnearlyallofheavyrareearthelements,91%ofmagnesiumand76%ofsilicon

metalsuppliesworldwide.Similarly,theDemocratic

RepublicoftheCongocommandsover60%oftheglobalcobaltmarket,whileSouthAfricaholdsashareof71%

forplatinumandRussia40%ofpalladium.Shouldthesemineral-richcountriesdecidetoformanOrganization

ofMetal-ExportingCountries,itcouldmanipulateprices,disruptsupplyandfurtherrestraininternationaltrade,

posingriskstocountrieshighlydependentonimports,

includingtheEU,JapanandSouthKorea.Production

concentrationaroundleadingsupply-chainfirms,inwhichEuropeislesspresentcomparedtotheUSorChina,couldalsocreatedependenciesandexposeEuropetotrade

warsbetweenthirdcountries.

01August2023

3

Inthiscontext,canEurope’sCriticalRawMaterials

Actclosethegap?Ensuringastablesupplyofcritical

rawmaterialsanddiversifyingimportdependenciesis

crucialforEurope.TheCRMActproposesa10%target

forEUsourcing,butwefindthatsevenoutofthe18

materialslisteddonotmeettherequirementattheminingstage(antimony,borate,manganese,naturalgraphite,

rare-earthelements,tantalumandtitanium).Forallofthese,theEU27ishighlydependentonsourcingfrom

thirdcountries(morethan94%).Moreover,21outof24materialsdonotmeettherequirementthatatleast40%oftheEU27annualconsumptionhastostemfromEU

refining.Third-countrysourcingsharesoftheEUrangefrom61%foraluminiumto100%forbaryte,berylliumorniobium.TheCRMActalsotargetsatmeetingatleast

15%ofannualconsumptionviarecycling.However,outof16strategicrawmaterials,onlyfourmeetthetarget.Halfoftheremaining12willnotbeabletomeetthetargetastheyareeitherconsumedorconvertedintheindustrial

process,ortherearesimplynomeaningfulscrapquantitiesavailableforthequicklygrowingdemand,asisthecase

forlithium.

Toincreaseindependence,theEUshouldsupport

afavorabletrade-policyenvironmentanddiversify

globalsupplychainsthroughstrategicpartnerships

withresource-richcountries.Theywayforwardshouldalsofocusonsustainableextractionpractices,becomingthecriticalshareholderofindustryfrontrunnersand

reinforcingrecycling.

AllianzResearch

4

Afuturepoweredbymetals

butfencedinwithironcurtains

TheEU’sconcernsregardingraw-materialsupplydate

backtothe1977Council’ssecondEnvironmentAction

Programme,highlightingdependenceonimports.Two

decadeslater,theEuropeanCommissionintroduced

theRawMaterialInitiative,anintegratedstrategyto

improveaccesstorawmaterials,andestablishedalist

ofcriticalrawmaterials(CRMs)basedontheireconomicimportance,supplyriskandlackofsubstitutes.While

subsequentEUstrategiesemphasizedtheneedforsecureaccesstorawmaterials,recentsupply-chaindisruptionsduetoCovid-19andtheUkrainewarhaveintensifiedthechallenge.

Metals,includingcriticalminerals,playakeyroleintheongoingenergytransitionduetotheiruniqueproperties

andtheirimportanceinnumerousclean-energy

technologies.Lithium,nickelandcobaltareessential

componentsoflithium-ionbatteries,whicharewidely

usedinelectricvehicles(EVs)andenergy-storagesystems.Althoughthereareemergingtechnologiesthattryto

reduceorcutentirelytheuseoflithium,itremainskeyas

theworldmovestowardsmorerenewablesanddemandforenergy-storagesystemsbooms.NottomentionthefactthatglobaldemandforEVsisskyrocketingasmoreand

morecountriesaimtoreducetheirgreenhouse-gas(GHG)emissions.Rareearthelementssuchasneodymiumanddysprosium,keycomponentsofwindturbinesandelectricvehicles,areanothersetofhighlysought-aftermetals.

Thankstoitsexcellentconductivity,copperisalsowidelyusedinelectricalapplications,thoughitiscategorizedasstrategic,notcritical,givenitskeyroleinelectricvehicles,windturbinesandsolarphotovoltaics.Finally,silver

andplatinumgroupmetals(PGMs)arealsocriticalinphotovoltaicsolarcellsandfuelcells,respectively(seeTable1forasummary).

Thecriticalmineralsmarkethasdoubledinsizeoverthepastfiveyears,reachingUSD320bnin2022,according

tolatestIEAestimates.Investmentinthesectorjumped

by+30%risein2022,followinga+20%increasein2021.

AndtheEUisnotaloneinrecognizingthestrategicvalueofCRMs:Infact,Canada,theUSandUKestablished

theirrespectivelistsofCRMsin2021and2022.This

underlinestheriskofpotentialtensionsaheadbetweenlargeadvancedeconomies.Indeed,outofthe32mineralsthattheUSandtheEUconsiderascritical,21aredeemedcriticalbybothregions.Competitionfortheseminerals

mightdisruptgeopoliticsandalliances.

Table1:SummaryofselectedCRMandtheirmainuses

Leading

producingcountry

and%

Aluminum

Transportation,packaging,

construction

?

?

5.8

1.2

Australia(28%)

Jamaica

Antimony

Flameretardants,metals,defense,construction

?

?

5.4

1.8

China(56%)

China

Arsenic

Herbicidesandinsecticides,woodpreservatives,semiconductors

?

?

2.9

1.9

China(44%)

China

Baryte

Drillingapplications,mechanics

?

?

3.5

1.3

China(44%)

China

Beryllium

Satellites,medicalequipment,

automotive,defense

?

?

5.4

1.8

US(88%)

Kazakhstan

Bismuth

Pharma,grinding,semiconductors

?

?

5.7

1.9

China(70%)

China

Primaryimport

sourceforthe

US

Economicimportance

USCRMlist

EUCRMlist

MaterialMainuses

Supplyrisk

01August2023

5

Leading

producingcountry

and%

Supplyrisk

Economicimportance

USCRMlist

EUCRMlist

MaterialMainuses

Primaryimport

sourceforthe

US

Chromium

Stainlesssteelandheat-resistingalloys

?

?

7.2

0.7

SouthAfrica

(44%)

SouthAfrica

Cobalt

Batteries,superalloys,engines

?

?

6.8

2.8

DRC(63%)

Norway

Copper

Cables,construction,electrical

products

?

?

4.0

0.1

Chile(28%)

Chile

Fluorspar

Metals,nuclearindustry,

construction

?

?

3.8

1.1

China(56%)

Mexico

Gallium

Optics,integratedcircuits,light-emittingdiodes(LEDs)

?

?

3.7

3.9

China(94%)

China

Germanium

Electronicsandsolarapplications,pharma,metals

?

?

3.6

1.8

China(83%)

China

Graphite

Batteries,steelmaking,lubricants

?

?

3.4

1.8

China(65%)

China

Hafnium

Superalloys,nuclearindustry

?

?

4.3

1.5

France(49%)

Germany

Helium

MRImachines,scientificresearch

?

?

2.9

1.2

USA(56%)

Qatar

Indium

LCDscreens,semiconductors

?

?

2.6

0.6

China(59%)

SouthKorea

Lithium

Electricvehiclebatteries,

smartphones

?

?

3.9

1.9

Australia(53%)

Argentina

Magnesium

Metals,chemicals,agriculture

?

?

7.4

4.1

China(91%)

Israel

Manganese

Steelandmetals,batteries,animalfeed,fertilizers

?

?

6.9

1.2

SouthAfrica

(29%)

Gabon

Nickel

Alloysandsteels,chemicals

?

?

5.7

0.5

China(33%)

Canada

Niobium

Aerospace,superalloys,MRI

machines

?

?

6.5

4.4

Brazil(92%)

Brazil

PGMs

Catalysts,electronics,medicine

?

?

7.1

2.7

SouthAfrica

(75%)

SouthAfrica

Rareearths

Catalysts,magnets,alloys

?

?

5.9

3.7

China(85%)

China

Rubidium

Defense,biomedicalresearch,

electronics

?

?

N/A

N/A

N/A

Germany

Silicon

metal

Alloys,chemicals,semiconductors,solarindustry

?

?

4.9

1.4

China(76%)

Brazil

Tantalum

Aerospace,drilling,lenses,

automotive

?

?

4.8

1.3

DRC(35%)

China

Tellurium

Cooling,energygeneration,metals,solarindustry

?

?

3.8

0.3

China(53%)

Canada

Tin

Chemicals,tinplate,alloys

?

?

4.5

0.9

China(31%)

Peru

Titanium

Aerospace,defense,medical

implants,powergeneration

?

?

5.4

0.5

China(43%)

Japan

Tungsten

Construction,drilling,electronics

?

?

8.7

1.2

China(86%)

China

Vanadium

Steelalloys,catalysts,batteries

?

?

3.9

2.3

China(62%)

Canada

Zinc

Galvanizedsteel,metals

?

?

4.8

0.2

China(33%)

Canada

Zirconium

Ceramics,abrasives,nuclear

industry

?

?

3.5

0.8

Australia(36%)

SouthAfrica

Source:USGS,EUCommission,AllianzResearch

AllianzResearch

6

Mineraldemandforclean

energytechnologies(kt)

Figure1showstheexpecteddevelopmentofmineral

demandforcleanenergytechnologiesunderthreeIEA

scenarios.TheStatedPoliciesScenario(STEPS)outlines

acoursebasedonexistinganddevelopinggovernmentalpoliciesworldwide.TheAnnouncedPledgesScenario

(APS):presumesallenergyandemissiontargets,includingnet-zerocommitments,willbeachievedpunctuallyand

fully,evenwithoutcurrentpolicysupport.TheNetZeroEmissionsby2050(NZE)Scenariopresentsaroadmapfortheenergysectortoachievenet-zeroCO2emissionsby2050.Allthreescenariospredictaswiftriseinthe

demandforcriticalmineralsusedinclean-energy

technologies.By2040,thedemanddoublesintheSTEPSscenario,whileitincreasesby3.4timesintheAPSscenarioandby4.4timesintheNZEScenario.Thisincreaseis

primarilydrivenbyEVsandbatterystorage,butlow-

emissionpowergenerationandelectricitynetworksalsosignificantlycontribute1.

IntheParisAgreementalignedNZ2050scenario,

theshareofdemandfromclean-energytechnologies’

risessubstantiallyinthenextdecade,reaching50%for

copperandrare-earthelements,around60%fornickel

andcobaltandabout90%forlithium.By2040,thetotalglobaluseoftheseminerals,includingusesrelatedto

cleantechnologies,isexpectedtoriseby+60%forcopper,between+100%-200%forneodymium,nickelandcobaltandby+900%forlithium.

Figure1:ExpecteddevelopmentofmineraldemandforcleanenergytechnologiesbyIEAscenarios

Figure2:Mineralsdemandforcleantechnologiesinthe

NetZero2050Scenario(totaldemandnormalizedto100%in2022)

1100%

1000%

900%

800%

700%

600%

500%

400%

300%

200%

100%

0%

2020202520302035204020452050

Coppershareusedincleantech

Cobaltshareusedincleantech

Lithiumshareusedincleantech

Nickelshareusedincleantech

Neodymiumshareusedincleantech

Coppertotaluse(2022=100%)

Cobalttotaluse(2022=100%)

Lithiumtotaluse(2022=100%)

Nickeltotaluse(2022=100%)

Neodymiumtotaluse(2022=100%)

Source:IEA2

40000

30000

20000

10000

0

3.4x

4.4x

33%

1x

2x

40%

10%9%

20222040Stated20402040Net

policiesAnnouncedZero

scenariopledgesEmissionsby

2050

scenario

scenario

HydrogentechnologiesElectricitynetworks

GridbatterystorageElectricvehicles

OtherlowemissionspowergenerationSolarPV

Wind

Source:IEA1,AllianzResearch

1Seealso:IEA(2023):

CriticalMineralsMarketReview2023

2

IEACriticalMineralsDataExplorer

01August2023

7

Lookingahead,allplannedcriticalmineralprojects

by2030couldpotentiallymeetvariousgovernments’

climatepledges.Incontrasttotraditionaloilandgas

markets,criticalmineralsareseeingincreasedexplorationinvestment,withanotable+20%growthin2022,ledby

lithium.TheproductionofEVsispromptingmanufacturerstostrategicallyinvestintherawmaterialsectortoensurethenecessarysupplies.EVbatterymanufacturersare

adoptingasimilarapproach.Anotherpositivetrendis

themainstreamingofrecycling,especiallyofbatteries,

withsignificantcapacityplanninganddevelopment

occurringpredominantlyinChina,Europe,andtheUS.

Thisiscrucialtobothmeetmaterialdemandandmitigateenvironmentalimpact.

Nevertheless,theriskofdelaysandotherhurdlescalls

formoreinitiativesby2030,withanaimtolimitglobal

warmingto1.5°C.Diversificationofsupplyremainsa

concern.Infact,themarketshareofthetopthreecritical-mineralproducers,especiallyinthenickelandcobalt

sectors,haseitherremainedconstantorincreasedover

thelastthreeyears.Atthesametime,critical-mineral

productionhasseenunevenprogressinenvironmental,social,andgovernance(ESG)practices.Whilenotable

improvementshavebeenmadeincommunityinvestment,fairworkingconditionsandpreventionofforcedand

childlabourandgenderbalance,challengespersist,

withhighgreenhouse-gasemissionsandasignificant

surgeinwateruse.

AllianzResearch

8

FromOPECtoOMEC(OrganizationofMetalExportingCountries)?

Recenteventssuchasthesemiconductorcrisis,supply

difficultiesbroughtaboutbypandemic-relatedmeasuresandtheoutrightwarinUkrainehavehighlighted

thefragilityofaglobaleconomycharacterizedbya

concentrationofresourcesthatcansuddenlybecomelessaccessible.Inpastdecades,thegeopoliticalframework

hasbeenshapedaroundresourcesstillfirmlyanchored

inthe20thcentury(oil,pipelinesandthegrabbingof

extractiveoragriculturalareasinexchangeforeasy

money).Today,wemaybeatthebeginningofthedivisionoftheworldintonewspheresofinfluencedictatedby

theenergyreconfiguration,climatechangeandanoverallde-democratizationoftheplanet.

Despitesufficientglobalresourcestosupportambitiousclimate-mitigationplans,rawmaterialvaluechains

–spanningmineralextraction,refiningandrecycling

–havebecomehighlycentralizedduetogeographical

distribution,economicspecializationandgeopolitical

factors.Chinadominatesthisfield,controllingnearly

allofheavyrareearthelements,91%ofmagnesium

and76%ofsiliconmetalsuppliesworldwide.Similarly,

substantialmarketconcentrationsexist:TheDemocraticRepublicoftheCongocommandsover60%oftheglobalcobaltmarket,whileSouthAfricaholdsashareof71%

forplatinumandRussia40%ofpalladium.Underthesenear-monopolisticconditions,theEUheavilyrelieson

thesecountriestosatisfyitsdemandforrawmaterials.

Theconcentrationofcritical-metalsproductionand

refiningamongarelativelysmallnumberofcountries

createssignificantgeopoliticalrisks(seeFigure3).

Geostrategicalliancesmaybecomeevenmoreimportantinahighlyfragmentedworldwithpotentialsupplyrisks,aswellasincreasedchancesofmarket,locationor

reputationalrisks.

Figure3:Productionofselectedcriticalresources,in%

100

90

80

70

60

50

40

30

20

10

0

BRICS

Non-OMECtopproducerOthers

OMEC(BRICS+)

Non-OMEC2ndproducer

Congo(DRC)

Chile

Chile

Sources:USGS,BP,AllianzResearch.Note:Countriesincludedinto

asimulated“BRICS+”havebeenselectedbasedontheirshareholdingcapacityintheBRICS-relatedNewDevelopmentBank(i.e.,Bangladesh,UAE,Egypt),

formalapplicationsorinteresttojointhegroupreportedbythemediaand/orstrongaffiliationtooneormorecountrieswithinthebloc.Aluminumdataarebasedonsmelterproduction;dataonlithiumarebasedonreservesasaproxyforfutureproduction.

Theriskscouldbefurtheramplifiedifsomeofthecountriesrichincriticalrawmaterialsdecidetoformacartel.The

worldwouldthenhavetodealwithan“OMEC”.What

couldanOMEClooklike?Mineral-richcountriessuchas

theDemocraticRepublicofCongo,Chile,Peru,China,

Russia,SouthAfricaandevenAustraliastandtobenefit

economicallyfromtheincreasingdemandandcould

decidetoformanalliance.Althoughsuchaninitiative

wouldcomewithchallengesrelatedtogovernanceand

geopolitics,itwouldposemajorriskstocountriesthatarehighlydependentonimportsoftheseminerals,suchas

thoseintheEU,aswellasJapanandSouthKorea,whichcouldfacesupplydisruptionsandincreasedcosts.The

UScouldbesomewhatcushionedfromtheblowasithasmanymineralresourcesavailable,thoughnotenoughtofullymeetitsfuturedemand.ThespeculativeOMECcouldtakeasetofactionstoinfluenceglobalmarkets,including:

01August2023

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?Pricemanipulation:AnOMECcouldrestrictsupply

throughproductionorexportquotastodriveupprices,whichwouldinturnmakeclean-energytechnologiesmoreexpensiveandeventuallyslowdownthegreentransition.

?Supplydisruptions:Thecartelcouldstrategicallydisruptsupplytoexert(geo)politicalleverageovercountriesthatarehighlyreliantonthesemetals.

?Exclusivetradeagreements:Thecartelcouldsign

exclusivetradeagreementswithchosenpartners,

furtherconcentratingtheirmarketpower,tiltingthe

globalsupplywheretheyseefitandmakingitdifficultfor“unfriendly”countriestosecuretheresourcestheyneed.

Althoughtheabove-mentionedcartelremainsspeculative,thistrendof“cartelization”ofcommoditiesseemstobe

alreadyinmotiontosomeextent.Inrecentmonths,therehasbeenfrequenttalkabouttheextensionoftheinformalBRICSgroupofcountries(Brazil,Russia,India,ChinaandSouthAfrica)toincludeseveraleconomicallyrelevantandcommodity-producingemergingmarkets.Intheevent

oftheformationofametalscartelwiththecountries

wementionedabove,wewouldexpectmanyemergingmarketsthatalreadyholdanappealtowardstheBRICSinitiativetosidewiththecartel.Wecanprobablymake

acompellingcaseforsomeSouth-EastAsiancountries

(Vietnam,Malaysia,Indonesia,Laos,SriLanka),some

Africancountries(Nigeria,Kenya,Angola)andsomeLatinAmericanones(Bolivia,Argentina).

Fromageographicalperspective,theimportdependenceofhigh-incomeeconomiesonmiddle-tolow-income

suppliersismorepronouncedforcriticalrawmaterials

thanformerchandiseproducts,withChina,Russia,

Brazil,SouthAfricaandIndiaaccountingforhalfofall

suchdependencies.Asthedebateonfriend-shoringand

de-riskingprogressesamongcommoditytradersand

investors,thequestionoffindingalternativesourcesforthematerialsneededforthegreenanddigitaltransformationsarises.Atthesametime,ESGconsiderationsshouldalso

becoupledwithopennessininternationaltrade.Concretesolutionstocopewithanendemicshortageofmaterials,costlierfinanceandactualbankabilityofprojectsarestillexperimentalandcouldresultingreaterfragmentation

andrelianceonadditionalsuppliersnotnecessarilymorereliablethanthepreviousones.

Whatifthemostdangerousconcentrationsand

dependenciesstemnotfromthegeographiclocation

ofresources,butfromtheshareholdingintheleading

supplychainfirms?Cobalt,forinstance,isknownduetoitsgeographicconcentrationintheDemocraticRepublicofCongo(around70%ofglobalproduction),butproductshaveshiftedovertimefromthehandsofthegovernmentandRussiaintothoseofChineseandSouthAfrican

companies.Similarly,theoutputofcopperbycountry

ofincorporationoftopproducingcompaniesseessix

companiesfromtheUS,UK,SwitzerlandandCanadainthetop10withaboutathirdofglobaloutput–andonlyoneEUcompanybasedinPoland.

AnOMECcartelthatmirrorsthecompositionofBRICS+hereislesseffective,atleastonpaper,butpoliticalrisksremain.Whileitisinterestingtonotethatadditional

capacitywouldnotincreasesignificantlybecausethe

copperindustrymaintainssubstantialdiversificationonthemid-anddownstreamside,theriskofexpropriatoryactsorarbitrarymeasuresagainstcompaniesoperatingabroad(potentiallyleadingtocreepingexpropriation)remains.

Figure4:Productionofcopperbycountryofextractionandcountryoftheminingcompany(ultimatebeneficialowner),in%

BRICS

Non-OMECtopproducerOthers(non-OMEC)

OMEC(BRICS+)

Non-OMEC2ndproducer

100

80

60

40

20

0

DRC

Chile

Chile

UK/CH

CountryofextractionCountryoftheminer

Source:USGS,PIIE,AllianzResearch

AllianzResearch

10

15

Unilateralactionsthatmaythreatentheindustry,whetherthismaybecountrieswhereCRMsareminedorprivate

companiesbecomingtargetsofretaliatoryactionsinthecountrieswheretheyoperate,includingtraderestrictions.ExportrestrictionsonCRMshaveexpandedbymorethanfivefoldgloballyinthelastdecade.Inrecentyears,around10%oftheglobalvalueofCRMsexportsfacedatleast

oneexportrestrictionmeasurebygovernments.China,India,Argentina,Russia,VietnamandKazakhstanwerethetopsixcountriesintermsofnewexportrestrictions

from2009to2020,andsomealsoaccountforthelargestproductionshareofmanyCRMs.

Governmentshaveimposedexportrestrictionsfor

variousreasons,including:monitoringexportactivity,

protectingdomesticindustries,ensuringastabledomesticsupply,addressingnationalsecurityconcerns,promotingsustainablepractices,managingtradeimbalances,

complyingwithinternationalagreementsandcontrollingtheflowofsensitivetechnologiesormaterials,aswell

aspromotingfurtherprocessingactivityandvalue

added.Between2009and2022,thenumberofnew

exportrestrictionsoncriticalrawmaterialsputintoplacevariedbetweenthepeakof116in2010and15new

exportlimitationsin2021(Figure5).In2022,datafromtheGlobalTradeAlertsdatabaseindicatesthatthetopthreecountriesapplyingexportrestrictionsoncritical

rawmaterialswerePakistan,theUSandIndonesia.Thethreemostcoveredmaterialswerealuminum,cobaltandhelium,followedbynickel,titaniummetalsandplatinumgroupmetals.However,inapplyingexportrestrictions,

governmentsriskjeopardizingthegreentransition.

Box:Blackmailingwithrareearths

China’sexportbanonrareearthstoJapanin2010isoftenseenasaprecedentinwhichChinauseditseconomic

strengthasleveragetoachievepoliticalgoals.Whathappened?

Chinahadalreadytriedtobringthelargelyunregulatedproductionandprocessingofrareearthsunderstate

control,witharestrictiveallocationofproductionrightsandtheintroductionoftariffsandtaxes.Amidthese

efforts,exportlicenseswerealsoissuedandgraduallyreduced;inthesecondhalfof2010,a-40%declineinexportshadalreadybeenannounced.

Inthissituation,theterritorialdisputebetweenJapanandChinaovertheSenkakuIslands(Chinese:DiaoyuIslands)escalatedintothearrestofaChinesefishingcaptainin

September2010.Chinathenstoppedtheexportofrare

earthstoJapancompletely.Afteronlytwoweeks,the

Chinesefishingcaptainwasreleasedandexports(slowly)resumed.Butasaresultoftheembargo,rareearthpricesexploded.Theconsequencesofthisbriefepisodecontinuetothisday.

Figure5:Numberofnewexportrestrictionsoncriticalraw

materials,2009-2023*

120

100

80

60

40

20

0

116

92

87

81

75

69

57

45

38

29

15

83

27

47

20092011201320152017201920212023*

Source(s):OECD,GTA,AllianzResearch3.

3.Note:2009-2010fromOECD,2022and2023numbersfromtheGlobalTrade

AlertDatabase;2023*availableuptoJune2023.BasedonHS6codesasoutlined

bytheHorizon2020SCREEN2factsheetsforeachCRM.

01August2023

11

OntheChineseside,effortstocontrolthesectorby

thestatewereintensifiedbecausetheexportbanwasnotcompletelyeffective,butrathercircumventedby

“smuggling”–unsurprisinggiventherecordhighpricesatthetime.Itwasnotuntil2021thatthegovernment

succeededinbringingthesectorcompletelyunderstatecontrolbymergingtheproducersintotheChinaRare

EarthGroup.

Ontheinternationalside,thesystemofexportquotas

eventuallyledtoacomplaintagainstChinaatthe

WTO,whichtookyearstoberesolved.Chinaendedthesystemin2015butintheendthiswasaPyrrhicvictory:Rare-earth-basedvaluechainshadalreadymigrated

toChinaandthedropinpricesfurthercementedChina’ssupremacyinproductionandprocessing.Thelackof

environmentalregulationsandlaxworkingconditionscreatedanunassailablecompetitiveadvantage.

OntheJapaneseside,aconcertedsearchforandsecuringofalternativesourcesbeganunderstateleadership.TheJapanOil,GasandMetalsNationCorporation,under

thecontroloftheJapaneseMinistryofEconomy,Trade

andIndustry,actedasananchorinvestorinnewminingareas,primarilyinAustralia,thussecuringnewsuppliers.Thisdiversificationstrategywassuccessful:TheshareofChineseimportsofrareearthsfellfromover90%toabout50%today.Atthesametime,recyclingandresearchintoalternativematerialsweremassivelyincreased.Japan

isnowaleaderin“rare-earth-free”magnetsandothercomponents.

Whatlessonscanbelearnedfromthis?First,Chinese

exportembargosarelikelytobefarmoreeffective

today:Thetimeswhentheprivatesectorstillhadsome

(evenillegal)leewayareover.Thegovernmentcaneasilyenforceitsorders,notonlyintherare-earthsector.Second,de-riskingca