Strategic Minerals: Great Power Resource Competition and China's Strategy

Ask AI · How does capital game affect the stable supply of mineral resources with dual impacts?

Yang Danhui / Text

Mineral resources are an indispensable material foundation for economic and social development. In recent years, a new round of technological revolution has driven global industries toward intelligent, green, and integrated development. Strategic minerals such as rare earths, lithium, gallium, and graphite are increasingly used in fields like new generation information technology, new materials, intelligent equipment, and clean energy.

As a scholar who has been working in related fields for many years, it is clear that one cannot just watch the excitement but must stand at the height of national strategy and a global perspective, applying professional knowledge, undertaking the mission of safeguarding the resource security of a major country, and meeting the needs of modern industrial system construction. It also involves addressing readers’ confusions and questions about strategic minerals.

Strategic minerals: Are they “the cherry on top” or “indispensable”?

Humans’ understanding and use of minerals can be traced back to thousands of years ago, in scenes like pottery making, the Bronze Age, and the Iron Age. However, large-scale development and utilization of mineral resources began with the Industrial Revolution, when underground treasures were excavated and continuously entered industrial production, becoming raw materials and industrial products. Only then did human society start rapidly accumulating “wealth above ground.”

In my book Strategic Minerals: Great Power Resource Competition and China’s Strategy, the term “strategic minerals” refers to non-energy minerals that are crucial to the national economy and resource security, indispensable for strategic emerging industries and future industrial development, vital for energy transition and green development, and with prominent strategic value in great power competition and geopolitical games. As the new wave of technological revolution and industrial transformation accelerates, we can increasingly observe that the role of strategic minerals is shifting from “the cherry on top” to “indispensable.”

The transformation of the role of strategic minerals can be illustrated with an analogy that may seem not entirely fitting: if the demand for mineral resources during the early and middle stages of industrialization, as well as during economic expansion, is like satisfying “basic needs,” then bulk minerals and basic metals in the “kitchen” of industrial raw materials are more like staple foods—core supplies for the industrial system. When the economy enters a stage of high-quality development, the “dining table” of industry presents a variety of delicacies, and “seasonings” need to become more diverse to match the “appetite” of modern industries. Strategic minerals play a vital role in achieving the excellent properties required for modern industrial raw materials, production equipment, and final products—such as weight reduction, noise reduction, shock absorption, wear resistance, and corrosion resistance. The key to expanding their functions, deepening applications, and realizing their value lies in technological innovation.

The impact of technological innovation on the supply and demand of strategic minerals is complex and profound. On one hand, the technological attributes of strategic minerals are further highlighted; on the other hand, once breakthroughs are achieved in industrialization utilizing major innovative results, the supply-demand balance of specific mineral types can be quickly broken. Merely controlling raw mineral resources without downstream R&D and application capabilities makes it difficult to maintain the overall advantage of the industrial chain. Therefore, technological progress can both stimulate and suppress the demand for strategic minerals.

From “the cherry on top” to “indispensable,” this reflects an increasingly close two-way locking relationship between modern industrial systems and strategic mineral resources. Energy transition, technological innovation, and industrial upgrading jointly promote the deepening application of minerals, continuously creating new demands. Conversely, changes in mineral availability can constrain or enhance technological innovation and industrial development quality. Recognizing the indispensability of strategic minerals does not imply resource determinism. Instead, an objective positioning of their role encourages us to accelerate reconstructing a more efficient, intensive, and green “mineral-industry” chain, relying on technological and institutional innovation to offset resource scarcity, and alleviating pressure on raw mineral resources through reduction and recycling.

Capital: Aid or Disrupt? Starting from the “妖镍” incident

In March 2022, the London Metal Exchange nickel futures prices suddenly surged to extreme levels and fluctuated violently in a very short period, causing trading interruptions and nearly triggering margin calls on huge short positions, severely impacting the order and trading mechanisms of the global metals market. This bizarre market event was dubbed the “妖镍” incident by the market and media.

Reviewing the process of risk accumulation in this event, it is not hard to see the power of capital markets in influencing the stable supply of mineral resources. The Chinese stainless steel giant Qingshan Holdings was a short seller in this wave of trading. To hedge against falling nickel prices, Qingshan held large short positions in LME nickel futures (about 200k tons), while international commodity traders like Glencore and hedge funds held long positions. Russia is a major producer of electrolytic nickel, and the outbreak of the Russia-Ukraine conflict sharply tightened global nickel supply. Multiple parties detected Qingshan’s large short positions with delivery issues and bought aggressively, pushing up nickel prices significantly, leading to the rare continuous surge on March 7 and 8, 2022.

The “妖镍” incident illustrates the professional capabilities required for physical enterprises to engage in financial derivatives trading, as well as the importance of strictly controlling delivery risks. It also reveals the complex impact that capital forces can have on the security of strategic minerals. For a long time, the mining industry’s characteristics—high capital investment, high cyclicality, high political risk, high environmental constraints, and high geographic concentration—have naturally bound it deeply with capital.

When mineral products are deeply integrated with financial derivatives markets, the role of capital becomes more tense, and its “double-edged sword” effect on mineral investment and market stability becomes more prominent. On one side, capital drives mining development by transmitting resource allocation signals from markets and governments, playing an important role in resource investment, price discovery, and risk management. It helps provide liquidity, deepen markets, and stimulate exploration and technological innovation. On the other side, capital “disruptions” can significantly exacerbate supply-demand imbalances of strategic minerals, widening the gap in development technology and capital input among different mineral types.

In the mineral resource market, capital is both the “blood” providing liquidity and a “block” that can generate risks and disrupt stable supply. However, this does not mean we should entirely deny the financial attributes of most mineral products. The “妖镍” incident offers a profound warning: under today’s capital market and trading mechanisms, mineral resources are no longer just the “grain” of industry but also the chips in capital games. The stable supply of mineral resources is affected by multiple factors—beyond resource endowment and technology, it also requires deep dialogue between financial governance and industrial demand. For the “beast” of capital, taming is not the goal; for countries and enterprises, it is essential to improve financial literacy, strengthen rule-based guidance, actively explore financing models like “mining development funds + supply chain finance,” and firmly control the global pricing power of key minerals. The aim is to better serve the resilience of the industrial chain rather than pursue short-term arbitrage, finding that delicate “golden balance” between investment returns and national resource security.

Resource competition: From great power rivalry to global governance

In the long run, the changes in the supply-demand relationship of strategic minerals generally follow the regular evolution of mineral production, consumption, and structure. However, their short-term market performance largely responds to price mechanisms. As a new wave of technological revolution and industrial transformation deepens, the influence of technological progress, energy transition, and “carbon neutrality” goals on the global supply-demand pattern of strategic minerals is increasingly profound. Turbulent geopolitical situations further amplify the complexity and uncertainty of global supply and demand relationships. Under the influence of multiple factors, the participation and risk factors in the global governance of mineral resources are increasing, posing new challenges.

Unlike bulk minerals such as crude oil and iron ore, or basic metals like aluminum, most strategic minerals such as lithium, indium, gallium, germanium, tantalum, niobium, beryllium, and platinum-group metals have relatively small global reserves, diverse ore types, special mineralization conditions, low resource grades, and common coexistence with other minerals. Their unique occurrence conditions lead to highly uneven distribution worldwide, with higher concentration of reserves and production. The concentration of primary mineral resources and initial products makes the supply-demand relationship more susceptible to geopolitical influences.

Looking back at world industrialization history, the sustained utilization of global mineral resources at low cost has always been a fundamental resource strategy of developed countries. From colonial expansion in the early stages of industrialization to controlling international pricing of mineral products, these strategies reflect the priorities of developed nations.

In recent years, with the escalation of great power rivalry, the US and Western countries’ strategy to “de-Chinazise” mineral supply chains has become clearer. There is a tendency toward unilateralism and small-group formations in mineral governance, often deeply tying mineral issues with policies and diplomacy, which triggers “cold start” effects and intensifies camp-based alignments, severely disrupting global mining cooperation.

Although multilateral organizations like the UN have made some progress in exploring a global governance framework for mineral resources, the reality is that due to long-standing conflicts of interest and governance disagreements, global governance in the strategic mineral field still faces practical difficulties and structural contradictions. These include weak legal binding, fragmented standards, North-South responsibility imbalances, and geopolitical erosion of multilateral cooperation. These issues are difficult to resolve, leaving global mineral governance in a “governance gap.” As the world’s largest consumer, processor, and importer of mineral resources, China faces the challenge of fulfilling and responding to the responsibilities of a major country in actively guiding and participating in global governance.

China’s advantage: Accelerating from resource giant to advanced materials powerhouse

China is undoubtedly a major country in the field of strategic mineral resources, production, consumption, and trade. Recently, the US and Western countries’ restructuring of key mineral supply chains to “de-Chinazise” has made their strategic goal clearer. Objectively, from both supply and demand perspectives, China possesses significant systemic advantages in resource endowment, capacity, industrial chain, market scale, application fields, and stock accumulation, playing an unshakable role in the international landscape of strategic resources.

As the US pushes for supply chain risk reduction, aiming to establish relatively stable supply channels outside China, the process of diversifying strategic mineral supply and demand has already begun and will continue to deepen. From current progress, the diversification of supply sources is accelerating, but the impact on China remains manageable.

It must be clearly recognized that the spatial distribution of strategic minerals is uneven, their time scales are non-renewable, their abundance is scarce, and their physical properties are difficult to substitute. Under the combined influence of a new wave of technological revolution, energy transition, “carbon neutrality,” great power competition, and increasingly complex geopolitical situations, the evolution of the global supply-demand pattern of strategic minerals shows multi-factor-driven and diversified restructuring features. Mineral resources have always been a focus of great power competition.

China’s strategic mineral security faces a complex external environment. As a mineral and industrial power, China urgently needs to establish a green, inclusive, and dynamically balanced view of mineral resources. We must recognize the irreplaceable value of strategic minerals in modern industrial systems, avoid falling into resource determinism, face the long-term tight supply and demand, and the rapid restructuring of the global landscape. At the same time, we should increase technological investment, promote technological innovation and recycling. The strategic layout of major powers in the mineral field requires systematic thinking, a global perspective, and strategic foresight.

For a long time, due to an incomplete understanding of the functions, uses, and strategic significance of strategic minerals, some domestic advantages have been exploited in a rough manner, and resource advantages have not truly transformed into industrial advantages. This has become a stubborn problem hindering the development and utilization of strategic mineral resources.

Currently, overall, in the competition of science and industry under the new wave of technological and industrial revolution, major industrial powers each have their own advantages. Objectively, China’s overall technological level has significantly improved, and in some fields, it has begun to compete with developed countries. However, for a long time, China’s industrial shortfalls have included advanced materials, high-end raw materials, and core components. Many “bottleneck” technologies and products exposed during the US’s suppression of China are in this category. This is partly due to the stage of economic development and traditional development models, but also largely because of long-term neglect of industrial fundamentals and weak basic research on the performance and development of various metals and non-metals. As China’s technological gap with the world’s advanced level narrows, and as existing experience and targets for imitation or surpassing become fewer, the path of technological progress—especially in cutting-edge technology, major equipment, and core components—must increasingly rely on international industry transfer, and the “low-hanging fruit” of foreign technology transfer will become harder to pick. Moving from follower to peer and even leader involves risks and uncertainties. In the fields of advanced materials and core components, reliance on imports or imitation to catch up is no longer sufficient; autonomous innovation must be accelerated to break through technological blockade. Fortunately, China’s industrial transformation and upgrading have accelerated, improving overall quality and competitiveness, with breakthroughs in electrochemistry, photochemistry, rare earth functional materials, and other areas, forming a good situation where mineral resources and industrial systems mutually reinforce. During the “14th Five-Year Plan,” it is crucial to leverage multiple advantages—resources, capacity, and markets—advance technological independence and industrial chain security, enhance resource integration, and provide key raw materials for building a modern industrial system, achieving “dual carbon” goals, and promoting high-quality development. This will accelerate China’s transition from a resource big country to an advanced materials powerhouse.

(The author holds a doctorate in economics; this is the preface to Strategic Minerals: Great Power Resource Competition and China’s Strategy; content has been edited)

Editor: Liu Jinping Chief Editor: Cheng Kai