REFILE-China's refined metals restriction can only be fired once by Russell

China has once again rolled out a big cannon to curb metals and minerals that are vital for the global energy transformation, as well key components used in weapons and electronic devices.

It is no secret that when China restricts exports or threatens to do it, Western governments and businesses are concerned. They have become dependent on China's dominance in the production and processing of refined metals.

China has recently decided to tighten up its export restrictions on minerals such as magnets and critical minerals.

This behaviour is not without risk for China, since the cannons of export restrictions can only be fired in anger once.

It would be a major disruption for Western supply chains if China were to decide to stop selling metals to Westerners, such as rare Earths, lithium cobalt antimony tungsten tungsten, and other metals.

It would also lead to a rapid expansion of supply and processing infrastructures in the West.

Western nations could easily mine the raw ore that is used to produce many of these metals.

It would be difficult to increase refining capacity but it could be done quickly if China stopped supplying Western buyers.

The cost would be high, but the West would not have any choice other than to pay it. The need for new supplies would override all financial concerns.

China's ultimate risk is that by cutting off Western buyers of refined metals, it could end up destroying its industry due to massive overcapacity while Western buyers develop their own supply chain.

China produces 90% of rare earths refined, 90% of graphite and just over 80% of cobalt.

China's share is much lower, but when you add its control over Indonesian nickel refinery to the amount of nickel produced in China, it comes out at around 70%.

The West could meet its copper needs by relying on other sources than China.

POLITICS DRIVER

Why does China restrict the export of metals and minerals that are critical to the global economy, when it is only encouraging its customers to create alternative supply chains by doing so?

The answer seems to be largely political.

China and President Donald Trump are engaged in a difficult trade war. Both sides have made threats to use whatever leverage they can to improve their negotiation positions.

Beijing's problem is that, as it imposes more and more restrictions on export of critical minerals, it will encourage the West to build alternative supply networks.

China does not even need to fire a cannon. The threat to do so, particularly in the refining of metals, will be sufficient to spur the needed investment from the West.

Trafigura's Chief Executive Richard Holtum said at the LME Week Seminar in London, on Monday that processing minerals was more important than mining.

Holtum stated that "you do not have national safety if all you have is stuff in the earth."

If the West's capitals are increasingly receptive to his message, then it is likely that additional cash will be invested in metals refinery, along with subsidies and incentives, even though existing refineries can't compete at current prices with China.

China's export restriction will likely lead to the creation of a global two-tier system for critical metals. This system would be more expensive for Western consumers, but also safer. It would also result in a Chinese system which is cheaper and subject to Beijing's demands.

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These are the views of a columnist who writes for.

(source: Reuters)