If the US desires extra uncommon earths, it must deal with refining | USAEMALL.com

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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

The writer is head of thematic fixed income research at Barclays

The US-Ukraine minerals deal was a symbolic win for both sides. Kyiv secures long-term US investment in a free and sovereign future. Washington gains preferential access to Ukraine’s mineral wealth and a chance to reduce its dependence on China in a strategic area.

Yet, the prospect of a surge in Ukrainian critical minerals remains a distant one. While attention often centres on extraction — the untapped deposits of rare earths, lithium and titanium beneath Ukraine’s soil — the real constraint lies further along the value chain. The bottleneck isn’t in getting minerals out of the ground, but in what happens next: refining. And this is where China’s dominance is unmatched.

Ukraine is estimated to hold about 5 per cent of the world’s rare earths and sits atop some of largest reserves of lithium and titanium in Europe — strategic minerals the US cannot do without. Artificial intelligence may run on code, but it relies on rare earths for the magnets, sensors and cooling systems that power advanced chips and servers. Lithium, the key mineral for lithium-ion batteries, drives most electric vehicles, from compact city cars to long-range trucks. American defence relies on titanium for its unique blend of strength and lightness, making it ideal for fighter jets and missiles. 

For the minerals-hungry US economy, the stakes could hardly be higher. Global supply chains are strikingly concentrated, leaving buyers with few real choices — dependent on a small handful of players who control either the raw materials or the means to process them. The Democratic Republic of Congo accounts for more than 70 per cent of the world’s cobalt output, while Guinea is a large producer of aluminium.

Securing future supply from alternative sources such as Ukraine is prudent and strategic. Ukraine could be the next frontier of reserves — the only problem is that its potential is raw. Minerals production requires more than geological luck; it demands infrastructure, energy, environmental safeguards, and above all, scale.

Over the past two decades, Beijing has quietly but systematically built the facilities, expertise and industrial ecosystems required to turn raw materials into usable inputs for batteries, electronics and green technology. Today, China is the world’s largest exporter of processed minerals. It controls 65 per cent of refined lithium and 80 per cent of refined cobalt.

In rare earths, however, China has a near monopoly, accounting for close to 90 per cent share of global refining capacity. Some of the raw materials are mined domestically, others imported from emerging economies, and even from developed markets. Take MP Materials, America’s only rare earth mine. It extracts light rare earths in Mountain Pass, California, yet 80 per cent of its output was sold to China for processing before it suspended its shipments last month amid China-US tariff tensions. Japan’s magnet industry tells a similar story. Japan imports a significant portion from its rare earth oxides for magnets from non-Chinese suppliers. But the dependency is still there — it is simply shifted downstream. Japanese firms often send their materials and components to China’s industrial heartland for finishing.

Even with fresh investment, shifting processing capacity from China to Ukraine is no quick fix. Much of what China refines is tailored to US industries, precision-built to slot straight into American supply chains. The supply chain, in other words, still bends — directly or indirectly — towards Beijing. Rerouting that pipeline will take years and could mean a full-scale overhaul of global supply chains.

As the world pivots from oil to metals, critical minerals are the new front line of geopolitics. But unlike oil, which can be bought from many countries, critical minerals come from a select few, sometimes just one.

China leads. The west is struggling to catch up. The minerals deal with Ukraine was Washington’s first move — more will follow. What’s the next minerals deal? Likely the Democratic Republic of Congo, for cobalt. Or Guinea, for aluminium. But China got there first, pouring two decades of investment into mines and infrastructure across the so-called global south. Today, according to IEA estimates, Chinese firms control 40 per cent of the world’s nickel and cobalt mines, tightening their grip on the minerals that power everything from electric vehicles to missiles.

For the US and its allies, the lesson is stark: securing supply chains goes far beyond tapping new mines. It requires investment in refining — a crucial step which remains firmly in China’s hands. Without this, the US won’t easily close the gap.