Stockpiling Key Materials Draws Focus --- China dominates supply chains for minerals that are needed for defense

 

"Nickel and cobalt aren't often topics in U.S. presidential campaigns.

But in laying out her proposed economic policies, Vice President Kamala Harris put a spotlight on those critical minerals and other materials essential to defense technology and electric vehicles.

Harris wants the U.S. to produce and process more of these minerals, which are also used in energy storage and nuclear power, to counter Chinese-dominated supply chains. She has proposed building a U.S. stockpile for critical minerals, an idea that has floated around Washington in recent months on both sides of the political aisle.

A physical or financial stockpile would expand upon investments by the Trump and Biden administrations to bolster an atrophied U.S. mining sector and build renewable-energy supply chains insulated from Chinese influence. Agencies including the Pentagon have funneled hundreds of millions of dollars into mining companies and funds in recent years, backing drilling projects and buying equity stakes.

Meanwhile, the State Department has been meeting with governments and companies friendly to the U.S., urging them to look at various mining assets around the world.

But Washington's efforts abroad are up against longstanding Chinese business ties with many large producers, as well as China's massive refining capacity for metals such as copper, lithium and nickel. Western miners complain Beijing floods the market with supplies, contributing to violent price swings that can tank generally more expensive projects in the U.S., Canada and elsewhere.

Last year, a federally backed Idaho cobalt mine three decades in the making suspended operations just weeks before it began producing its first pound of the lustrous silvery metal, which is key for munitions and electric-vehicle batteries. The culprit: a price collapse at the wrong moment.

The Harris plan to blunt those impacts offers few details, but industry participants say a stockpile could work a few different ways. A physical stockpile would allow the country to dip into reserves when it needed to, such as in the face of extreme export restrictions by China. Or, in a market where commodity prices have crashed amid oversupply, producers could sell their material to the U.S. at above-market prices.

"Stockpiles are actually incredibly important, especially because China is showing they're willing to weaponize resources in very short supply," said Gracelin Baskaran, director for the Critical Minerals Security Program at the Center for Strategic and International Studies.

A stockpiling system in which the government trades financial instruments such as futures contracts would help domestic miners shield themselves from turbulence, said Arnab Datta, a managing director at Employ America, a research group that has pushed for more aggressive use of strategic reserves. Volatility "really prevents people from investing sufficiently to meet our needs," he said.

The push to stockpile key materials stretches back some 85 years, to the eve of World War II, when Congress authorized officials to snap up supplies in the event of a national security crisis. Washington bolstered reserves to buffer against Soviet expansionism in the 1950s.

The government has gradually sold off many of those Cold War-era supplies. But the Defense Logistics Agency still stores thousands of tons of materials such as chromium and zinc in six locations across the country, according to its website.

Support for more aggressive intervention in the Chinese-dominated markets has also grown on Capitol Hill. Last week, a bipartisan group of senators introduced a bill proposing a $750 million pilot program at the Energy Department to explore futures contracts and other financial products to shield domestic companies from price shocks.

Meanwhile, representatives on the House Select Committee on the Chinese Communist Party are planning to advance their own bipartisan legislation later this year that will call for a national reserve, according to a committee aide. The committee in December called for tax incentives for manufacturing in the U.S. things such as magnets with rare-earth elements.

The U.S. is late in devising a national-security framework predicated on securing critical minerals. Some believe that to truly protect the economy and national security, the country has to undertake more domestic mining, which has been slow to develop due to environmental concerns and permitting timetables.

"A stockpile could be a fail-safe, but not a solution to the underlying problem of China's current control over critical mineral supplies and markets, and our economic vulnerability from lack of supply security or industrial know-how," said Abigail Hunter, executive director of the Center for Critical Minerals Strategy at SAFE, an organization that advocates for U.S. energy security.

Hunter said she welcomes Harris's focus on critical materials and would like to see a clearer path to market for domestic mines and more global initiatives to accelerate investment in this area.

While employing strategic stockpiles as economic tools has long been discussed, the Biden administration was the first to do so on a massive scale.

After sanctions on Russia sent oil prices skyrocketing, the Energy Department tried to dull the pain by selling an unprecedented 180 million barrels of crude from skyscraper-size storage caverns in the Strategic Petroleum Reserve. Since then, the government has partially replenished the stockpiles at lower prices, netting hundreds of millions of dollars in theoretical gains." [1]

1. U.S. News: Stockpiling Key Materials Draws Focus --- China dominates supply chains for minerals that are needed for defense. Steinberg, Julie; Uberti, David.  Wall Street Journal, Eastern edition; New York, N.Y.. 02 Oct 2024: A.4.