American Critical Mineral Independence Act of 2021
Critical minerals are required for the manufacture of many technologies and products used daily by Americans such as computers, cell phones, airplanes, and automobiles.
More importantly, critical minerals also play a key role in the manufacturing of products important to the American defense and economic system; advanced electronics, electricity generation, storage, manufacturing equipment, transmission systems; defense systems, transportation systems, cutting-edge medical devices, military supplies, and other critical infrastructure systems.
A steady and reliable supply of critical minerals is therefore essential to the United States’ national defense and economic security. At the moment, the US depends heavily on foreign sources of critical minerals since it lacks domestic manufacturing and processing capabilities.
The lack of domestic processing and manufacturing capabilities for critical materials makes the US more vulnerable to potential geo-political and geo-economic actions from foreign governments that may lead to demand and price volatility for specific minerals. This can severely cause mineral shortfalls.
Addressing shortfalls and vulnerabilities in the critical mineral supply chain can be done through an increase in domestic exploration, processing, production, and recycling, as well as investment in research and development.
In 2018, the U.S. Department of Interior identified 35 critical minerals crucial for national and economic security, including 17 Rare Earth Elements (REE) such as promethium and cerium. It should however be noted that these elements are not really ‘rare’ despite the name, they are commonly found on the earth’s crust. However, extracting them is expensive and typically not environmentally friendly, thus their scarcity.
Chinese Strategic Dominance of Rare Earths Sector
China is the world’s leading supplier of rare earth elements. For instance, it produced over 60% of REE raw materials compared to around 12% produced by the U.S in 2018. China also has the largest share of critical minerals and REE reserves at 36.7% compared to 1.1% held by the U.S.
Refinement and processing capabilities are much higher in China compared to the U.S due to the abundance of foreign raw materials and domestic facilities to process locally available materials. Between 2008 and 2018, China exported about 43% of all rare earth elements compared to just 9.3% exported by the U.S. On the contrary, the U.S imported 98% of processed REE from the People’s Republic of China in 2018.
China has also dominated the REE market due to low tax environmental regulations, and cheaper labor costs, among other factors. Decreasing reliance on China for the supply of these vital resources will enhance strategic stability and ensure enduring self-reliance in the face of increasingly adversarial relations with Beijing.
Bolstering U.S Critical Mineral Independence
The Current Biden administration has come out to announce the steps it is taking to bolster the supply chains for critical minerals and REEs used in the production of key technologies and medical/defense systems. Through the American Critical Mineral Independence Act of 2021 and other interventions, the government intends to reduce overreliance on China as the primary supplier of these critical elements.
Biden observed that depending on China for materials that power critical economic and security technologies is detrimental if America wants to build an independent future.
One of the steps the administration is taking includes a $35M contract awarded to MP Materials to process heavy REE in California. The $35M complements roughly about $700M that MP Materials will invest towards creating an American Rare earth magnetics supply chain by 2024.
Following Biden’s executive order last June, the administration released a report that revealed a worrying over-reliance on China for critical minerals as observed above. The goal of Biden’s administration is to become “reasonably self-sufficient” when it comes to key essential industries such as network and auto equipment for competitiveness and national security.
The U.S doesn’t have to produce 100% of the critical minerals and REE –since this will be unsustainably expensive. However, the country needs to prioritize and focus on key essentials –which means we may still need to continue importing some of the materials from China in the long run.
While an increase in domestic production may come with a high price tag at the beginning, the country will be able to appreciate this move during emergencies or in case of shutdowns due to a pandemic.
U.S senate legislators recently introduced a bipartisan bill that could limit defense contractors from sourcing REE from China by 2026. The pentagon will also need to create strategic reserves for such critical minerals by 2025.
According to Phoebe Moon, a doctoral candidate at the University of California, enhancing the critical minerals value chains is fundamental, but keeping geopolitics stable is even more important.
What does this mean as an investor?
Looking forward there potentially may be a supply demand imbalance with many of these REEs with technology rapidly growing, most notably within the automotive industry where lithium-ion batteries are being used to power vehicles. Thus, looking to domestic opportunities for investment may be wise as a prudent investor.
Outside of lithium other components that are in high demand are also copper, cobalt, and uranium. All of which are being used in one way or another in the development of a long-term energy transition.
As an investor there are a few items you may want to consider before investing. Such items are the cyclical trends and spot value price action on such REEs as it’s not uncommon to see large spikes in price and short term sell offs. Additionally, there seem to be an increased level of start-ups or companies still in the development stage. Be aware of what company you invest in and always consider the stage of development, balance sheets, awarded permits, mine life, amongst other items before choosing how much to allocate.
Do your research and consult with a professional if you have questions on how to create a sustainable investment portfolio.