energy and power

Building more mines? The devil is in the details

Years of neglecting its critical metal supplies is finally catching up with the United States, whose government now realizes it must invest heavily in mining and manufacturing, as demand for the raw materials needed to build a new green economy that rejects fossil fuels gears up.

The problem is, this epiphany comes 20 years too late, and there are few details as to how the country will actually go about re-building its mining sector after decades of mal-investment and relying on other countries for doing the “dirty job” of mining and mineral processing.

More clean energy means more solar panels, wind turbines, electric vehicles, and lithium-ion batteries, both for EVs and grid-scale storage. For some materials, like silicon, supply is plentiful, but for others, such as the rare earth neodymium for wind turbines, lithium, cobalt, graphite and nickel for batteries, and copper for just about everything involved in wiring, the supply chains will need to shift.

That’s because for most of the metals used in clean energy and electrification, the United States relies on imports.

Since Donald Trump’s presidency, the US has been planning to reverse its dependence on foreign rivals especially China, which has the largest EV market and dominates the global battery supply chain.

We weren’t paying attention when China cornered the rare earths market back in 2010 and were also blind to the Chinese locking up global supplies & processing capabilities for nickel, cobalt, graphite and lithium. About 85% of the world’s neodymium is concentrated in a few Chinese mines, and most of the world’s cobalt production comes from the politically unstable Democratic Republic of Congo. The lion’s share of palladium, used in catalytic converters, and nickel, a crucial ingredient of electric-vehicle batteries and stainless steel — is mined in Russia, which is subject to Western sanctions after invading Ukraine.

These are just a few ways to illustrate the United States’ near-total subservience to foreign critical metal suppliers.

It’s hard to imagine the US being able to fulfill the Biden administration’s new clean energy agenda without either a significant increase in critical metal imports that frankly may not be possible in current market conditions, i.e., the hostility between the United States and Russia and China, or executing a home-grown strategy to explore for and mine them in North America.

Infrastructure promises

Right now, governments are using interest rate hikes to curb inflation, which is chipping away at consumers’ purchasing power and making the cost of everything — groceries, gasoline, housing etc. — more expensive. We understand the “demand destruction” strategy — reduce spending by making the cost of borrowing higher — but it’s only addressing the consumer demand side of the equation. The formula for aggregate demand is AD = C + I + G + (X-M) where X is exports and M is imports, and AD is another term for GDP.

For the Fed’s strategy of lessening consumer demand to work, i.e., for prices to fall, any decrease in demand from C, consumer spending, cannot be offset by an increase in demand from G, government spending. Otherwise, one just cancels out the other.

Yet this is precisely what governments across the globe are planning.

Many countries need to reduce their so-called “infrastructure deficits”. Basic infrastructure such as roads, bridges, water & sewer systems, has been poorly maintained, and requires hefty investments, measured in trillions of dollars, to repair or replace.

China, the world’s biggest commodities consumer, has committed to spending at least US$2.3 trillion this year alone, on thousands of major projects, according to Bloomberg.

“Made in China 2025” was initiated in 2015 to reduce China’s dependence on foreign technology, promote Chinese manufacturers,  and to change its perception as a low-end manufacturer.

China’s $900 billion “Belt and Road Initiative” is designed to open channels between China and its neighbors, mostly through infrastructure investments. Over 130 nations have signed up to BRI, including countries well beyond its borders. They include Russia, Italy, Greece, Portugal, Hungary, Poland, Romania, Ukraine, Chile, Bolivia, Peru, Venezuela, Saudi Arabia, Iran, most of Africa, Indonesia, Thailand, Vietnam, Cambodia, Myanmar, Laos, South Korea and New Zealand.

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