Why Europe must monitor the Chinese threat

European manufacturers will need to closely monitor China's "near-monopoly" on the extraction and supply of rare earth minerals as they turn to electricity, experts said. at CNBC.

Rare earths – minerals found in a wide range of consumer electronics – made headlines this week, as China hinted that it would stop exporting rare earths to the US after Washington increased tariffs on Chinese goods worth $ 200 billion.

The group of 17 minerals are not rare, but are produced in relatively rare quantities compared to extracted metals like copper. They have grown in importance in recent years because of their use in high tech equipment, the defense industry and electric vehicles.

China has extracted 70% of the rare earths of the world in 2018.

Martin Eales, CEO of London-based Rainbow Rare Earths, which runs an ongoing mining project in Burundi, told CNBC that China may not opt ​​for a total ban on exports, but rather for a reduction in its quota of production, which "would by definition reduce the amount" of rare earths available for export and potentially create supply problems for users in the rest of the world ".

However, the long-term concern of European manufacturers will be the increase in the amount of rare earth required, according to the British Geological Survey's mineral science director, Andrew Bloodworth.

As the automotive sector moves from internal combustion engines to electric vehicles, many of these electric motors will rely on field-intensive electric magnets containing rare earth components.

"It will not happen overnight, but as the automotive industry shifts from gasoline and diesel to electricity, you can make a small, highly efficient electric motor using strong magnets," he says. said Bloodworth to CNBC.

"The difference is that the volumes needed to make millions and millions of cars every year will change the game because they will increase this demand for materials."

According to Bloodworth, the Chinese are aware of the changing portfolio of materials required by the automotive industry, adding that they "are particularly interested in selling engines from the global auto sector. or even finished cars rather than rare earths ".

"So we can see the market work so that if demand rises rapidly, prices will go up, so some of these ongoing projects in the rest of the world will come true because they will become more attractive to businesses. ", he said.

At the moment, non-Chinese mines are a difficult proposition for investors because of the importance of Chinese dominance, but Bloodworth suggested that any imposition of tariffs or restrictions would be "nuanced", as it It would not be in China's interest to raise prices in a favorable climate. a way that encourages alternative sources of supply to enter the market.

Eales agreed that an added interest for companies like Rainbow, operating non-Chinese mines, lies in "speculation on how this could fit into a future supply chain that is trying to completely bypass China ".

"There will be so much demand in the rare earth vehicle market that some of these projects will come true anyway," said Bloodworth.

"They can be bought by Volkswagen or Toyota, for example, they will buy the offer and integrate vertically."

He hinted that Europe was increasingly concerned about the supply chain of raw materials, due to its role as the leading producer of finished vehicles and the threat posed by the Chinese monopolization of the supply chain.

The British Geological Survey has informed the British government of the importance of understanding this changing trend for the global manufacturing sector.