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The U.S. has been looking for years to break free from China’s dominance in critical minerals and rare earth elements—with little success so far.

The Trump Administration has made American production and refining of critical minerals and rare earths a top priority and is pursuing minerals deals with various countries to get access to the supply of the elements essential to the manufacturing of everything from smartphones and electric cars to F-35 fighter jets.

More so than the supply of raw minerals, the United States needs the refined products from these minerals that are ready to use in electronics, defense systems, and batteries.

Chinese Dominance

China holds a dominant global position in the supply of critical minerals and rare earths, but its grip on the value chain – minerals processing and magnet production – is even tighter.

The U.S. will need a lot of investment and federal incentives to build a strong minerals refining supply chain at home or in allied countries to process the raw materials and challenge China’s dominance. This will likely take billions of dollars and years to build processing capacities to rival decades of China’s strategic positioning in minerals refining, Chinese access to materials in Africa, and cheaper labor and construction costs.

The cost of building a refining facility in China is currently a third of the cost in the United States, per industry estimates cited by The Wall Street Journal.

China is also currently unbeatable in scale after building refining capacities over the past three decades. Early in the game, Beijing realized that refined products – not the raw materials – are the key to holding a strategically and economically dominant position in critical minerals and rare earths.

“For the US and its allies, the lesson is stark: securing supply chains goes far beyond tapping new mines,” Zornitsa Todorova, head of thematic fixed income research at Barclays, wrote in the Financial Times.

“It requires investment in refining — a crucial step which remains firmly in China’s hands. Without this, the US won’t easily close the gap.”

The gap is gaping right now. China holds a whopping 92% of the global refining and production of magnets, according to estimates by the International Energy Agency (IEA) and Barclays Research. In cobalt, China is the source of 77% of global refined cobalt. As much as 65% of the world’s refined lithium is being refined in China, per the estimates cited by FT.

The IEA has also identified Chinese dominance as a risk to global energy security. Participants in the Summit on the Future of Energy Security in London last month acknowledged “the risks of overdependence on a limited number of suppliers.”

At the Summit, IEA Executive Director Fatih Birol said, “We look at where the critical minerals are produced, where they are refined and where they are manufactured, that is a huge concentration, and this is something that we think is risky.”

China’s firm grip on rare earths and critical minerals emboldens it to weaponize the export of these elements in the trade war with the United States. Last month, China curbed exports of dysprosium, gadolinium, scandium, terbium, samarium, yttrium, and lutetium—these “heavy” and “medium” rare earth elements are used in the automotive industry, as well as in the defense industry in parts of jets, missiles, and drones.

U.S. Seeking To Close The Gap

The U.S., for its part, is currently 100% import-reliant for nearly a quarter of its identified 50 critical minerals, and over 50% import-reliant on 29 minerals. In many instances, that reliance is on China, RBC said in an analysis earlier this year.

“The battle for global tech supremacy between China and the U.S. is manifesting a critical mineral resource war, and a geopolitical great game for the 21st century that may soon rival the race for oilfields that came out of the Second World War or the competition for trade routes that shaped the 19th century,” Shaz Merwat, Energy Policy Lead, RBC Climate Action Institute, wrote.

Right now, China is well ahead in that race. The U.S. is trying to play catch up by building refining capacity in America.

However, it will likely take years and a lot of scale for a chance to become competitive with China’s lower costs, established supply chains, and Chinese state company control over cobalt mining in the Democratic Republic of Congo and nickel in Indonesia, among others.

The U.S.-China trade war and the Trump Administration’s priority on minerals led to MP Materials, owner of America’s only scaled rare earth production source – Mountain Pass – suspending exports of rare earth concentrate to China. Before the suspension, 80% of the rare earth concentrate was being shipped to China for refining.

MP said last month that it had invested nearly $1 billion to restore the full rare earth supply chain in the United States. Today, the California refinery is processing nearly half of the production.

MP continues to produce and is stockpiling concentrate while accelerating downstream operations: ramping oxide production, fast-tracking heavy rare earth separation, and bringing magnet production online in Texas.

During President Trump’s visit to Saudi Arabia this week, MP Materials signed a deal with Saudi Arabian Mining Company (Maaden) to explore opportunities to jointly develop a vertically integrated rare earth supply chain in Saudi Arabia, including mining, separation, refining, and magnet production.

American Resources Corporation’s subsidiary ReElement has started producing magnet-grade rare earth oxides daily with a proprietary modular refinery platform and is advancing discussions around multiple restricted critical and rare earth elements.

U.S. companies are racing to announce refining facilities and platforms, but they need to scale up quickly if America has any chance of besting China.

By Tsvetana Paraskova for Oilprice.com