China is restricting the supply of critical minerals to U.S. military manufacturers, the Wall Street Journal has reported, adding that this has forced companies to delay order deliveries as they sought alternative suppliers.
The supply restrictions have meanwhile inflated the prices of the critical minerals, the report also said. According to defense industry traders, some of these now cost five times as much as they used to, and in at least one case, a critical mineral cost 60 times as much as it used to before Beijing started to restrict supply.
China completely dominates the global market for critical minerals, putting Western defense manufacturers and their governments in a rather awkward position of depending on China for key raw material supplies amid tense bilateral relations.
China dominates refining for 19 of the 20 critical minerals that the International Energy Agency recently analyzed, holding an average market share of around 70%. “Three-quarters of these minerals have shown greater price volatility than oil, and half have been more volatile than natural gas,” the IEA said in May, noting that major risk areas include high supply chain concentration, price volatility, and by-product dependency.
What is happening right now with U.S. military manufacturers is real-time evidence of this price volatility. Some of these companies are starting to warn about the possibility of production restrictions unless supply improves. One of them, Leonardo DRS, recently warned it has tapped its “safety stock” of germanium. Unless supply of the critical mineral improved by the end of the year, the company would have to delay deliveries.
This suggests the U.S. might be forced to make some concessions to China—because some of these vital minerals for the defense industry cannot be produced economically in the West, the Wall Street Journal wrote. Even those that could be produced economically would take a while to build supply chains.
By Irina Slav for Oilprice.com
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