One of the investments that seems to be complicated by this reality is the rare earth mine in eastern South Africa, near the Kruger National Park. The US government aims to finance this project through the International Development Finance Corporation (DFC), which was established during the Trump presidency. However, despite DFC committing to invest at least $50 million in the mine, parent company Rainbow Rare Earths is struggling to raise the remaining $250 million needed for the project.
The main problem for Rainbow Rare Earths, as well as several other companies involved in the extraction of critical raw materials, is the low prices of these materials. For example, rare earths have lost 63% of their market value since the beginning of 2022. This picture is seemingly incomprehensible, if you consider the growing importance of these raw materials.
The rare earths in this case are a group of seventeen chemical elements: fifteen are called lanthanides, and lie between lanthanum and lutetium in the Periodic Table, while the other two are scandium and yttrium. These materials have become a top strategic priority in the field of natural resources, as they are used in advanced technology products and in products related to green growth. It is worth noting, however, that contrary to their name, these raw materials are not particularly rare in nature. Their relatively reduced production is more related to the difficulty in their extraction process due to their proximity to other, often radioactive, chemicals.
For Western analysts, the low prices of rare earths and other strategic raw materials depend more on China’s trade practices, especially dumping. According to the International Energy Agency (IEA), 70% of rare earth mining takes place within Chinese borders, while the country also has 90% of the processing infrastructure for these materials. At the same time, China has managed to establish its presence in another field of rare earth deposits, Africa.
China became interested in these materials as early as the 1980s, making it a long-term—though not always reliable—partner of African leaders. Of course, one should not underestimate the role of China’s grand strategic plans in this area either, be it projects under the much-discussed New Silk Road or transnational development lending. As experts explain, China’s undisputed dominance of the rare earth trade allows it to control available reserves, keeping prices particularly low, and crowding out Western investment initiatives. For their part, Chinese analysts refute these accusations, citing the basic rule of all markets, namely supply and demand, as an argument.
However, the reality of the markets does not change the reality of the geopolitical arena: With the conflict between the West and China heating up, the Chinese monopoly on rare earths and other critical materials poses a serious threat to the supply chain in North America and Europe. Despite investment uncertainty, DFC aims to invest more than $700 million in critical raw materials mining projects in Africa. At the same time, the US is trying to secure as much of the supply chain as possible, also funding infrastructure projects such as the railway line that will connect Congo to Angola’s ports on the Atlantic Ocean.
However, the US still has a long way to go if it wishes to challenge China’s long-standing primacy in this area. One of the possible solutions that has been discussed in Washington is to create large reserves of rare earths, as happens with foreign exchange or oil, and establish a price floor to give some incentive to Western investors. The European Union has already attempted a similar market management, establishing the list of 30 raw materials of strategic importance, but the results of which have not yet been recorded.
Tags: Prices Slow Investment
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