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Turning critical minerals into free range eggs

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The West wants to secure critical mineral supply chains — not with massive state subsidies, significant to China — but with market forces. 

The challenge: the geographical concentration of critical mineral mining and refining continues to increase, and is expected to increase further by 2030.

One of the solutions suggested is bifurcation, a premium on critical minerals produced in the West with expensive environmental regulation. But, will consumers pay an environmental premium?

Or, in other words, can you turn critical minerals into free range eggs?

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The problem

To take rare earths as an example: no planned rare earth projects outside of China can achieve a 15% return on investment at current prices, according to Benchmark Source.

Prices for neodymium-praseodymium oxide are, as of April 2024, around US$54/kg in China. Almost 40% of rare earth mines outside China require prices of between US$75/kg to US$85/kg, 15% of mines require prices above $85/kg.

And it’s not just rare earths, but copper, cobalt, graphite, and we’ll get to the problem of nickel further down in this analysis.

Cost challenges in the West include:

  • higher labour costs
  • tight capital investment
  • stronger environmental regulations
  • state subsidies in China
  • China’s technological advancement

However, after the invasion of Ukraine and exposure of supply chain dependency on China during Covid, the West is trying to secure supply chains.


Bifurcation is an inelegant term that few (including us) like to use, to describe, in the context of critical minerals, dividing prices into two distinct streams.

This division in critical minerals could be under a variety of categories, for example:

  • an environmental premium on minerals produced under more sustainable regulations
  • a regional premium, with increased taxes and prices on minerals not produced in domestic or preferred markets

For the West, bifurcation increasingly means paying a premium on critical minerals produced through more costly environmental practices, often supplied by domestic sources or close trading partners.

Such a premium would support miners and refiners across the West to raise the necessary investment to compete against cheaper minerals.

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The problem with bifurcation

There’s one significant problem with any attempts to divide prices in the global critical minerals market: commodities, like critical minerals, are homogenous, or identical.

ie a ton of nickel from Indonesia is the same as a ton of nickel from Australia. The only difference is cost of production. Not, for example, like a mobile phone, with different brands or features that can be sold at different premiums.

So, in our free market, globalized world, and within a reasonable margin, no producer should be able to charge a different price, wherever or however the minerals are produced.

Fragmentation of critical mineral prices 

As we highlighted in our recent newsletter, America’s current critical mineral strategy threatens disaster, commodity prices are already facing significant fragmentation due to a variety of factors, including:

  • war, sanctions
  • supply chain risk
  • geopolitics
  • subsidies
  • tax credits
  • export restrictions
  • environmental social governance (ESG), decarbonization
  • increased scrutiny

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For example, there were more than x6 times more new trade restrictions in commodities in 2022 than the 2016–19. In contrast, new restrictions on overall trade increased x3.5.

The main turning points that have accelerated this recent breakdown, include:

  • Trump-China trade war, 2018
  • Covid pandemic and national lockdowns, 2020
  • Russia’s invasion of Ukraine, 2022
  • Inflation Reduction Act’s Electric Vehicle and Renewable Energy tax credits, 2022
  • China’s critical mineral export restrictions (eg graphite, gallium, germanium), 2023
  • the EU’s Carbon Border Adjustment Mechanism (CBAM), 2023
  • Red Sea, Suez Canal, Panama Canal shutdowns and trade delays
  • new proposed guidance from the US Department of the Treasury and Internal Revenue Service (IRS) on the clean vehicle provisions of the Inflation Reduction Act (IRA)
  • and, of course, many other events in-between

Price bifurcation

This year, pressure ramped up significantly to open a green price premium on sustainably produced nickel on the London Metal Exchange (LME). The calls come as nickel miners across the West struggle to compete against low-cost production from Chinese mines in Indonesia that is flooding the market and driving prices down.

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“We have got to differentiate between dirty nickel and green nickel. The LME must differentiate between dirty and clean. They are two different products, they have two vastly different impacts”

— Australian billionaire Andrew Forrest, who owns miner Wyloo Metals, has told reporters

This type of direct premium would be arguably the biggest game-changer in attempts to bifurcate the global critical mineral markets.

However, the LME have stated the market for “green nickel” is not yet large enough to support such a premium. Instead, the LME has said its partner, MetalsHub, is developing an index price that will reflect demand for low carbon nickel.

Western governments, however, increasingly appear to be siding with the miners.

  • Canada’s minister of energy and natural resources, Jonathan Wilkinson, revealed the US, Australia, Canada and other close trading partners are discussing how metals prices could better account for environmental, social and governance standards.

    “We recognize that there will need to be, on the part of purchasers in the Western world of critical minerals, some way in which to actually have a price that reflects the fact that these are produced in a manner that is consistent with strong ESG”
    — Jonathan Wilkinson, Canada’s minister of energy and natural resources
  • Kevin Rudd, Australia’s ambassador to the US, has said officials had been working “forensically” on the issue and that doing business as usual was now “bad for the industry.

    “The type of price volatility we’ve seen across commodities – including lithium, nickel, cobalt, and [the] predatory pricing that the world has witnessed in these minerals – demonstrates the need for diversification of supply and for targeted government interventions to help stabilise prices”
    — Kevin Rudd, Australia’s ambassador to the US

There appears to be agreement on direction, but not on the type of mechanisms to do it. For example, how would any system define what type of mining and processing techniques are eligible as ESG-compliant?

This goes for the LME as well, who, despite refusing to set up an green premium on nickel, has reportedly considered introducing a premium on sustainable metals since it released a white paper on the topic in 2020.

“The aim is to build a robust framework that supports the gradual introduction of sustainability-linked pricing mechanisms while ensuring broad market participation and avoiding undue disruption. By taking a step-by-step approach, the LME hopes to align the interests of various stakeholders and drive meaningful progress toward the integration of sustainability into the global metals market”

— Georgina Hallett, LME’s chief sustainability officer, told The Northern Miner

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Geographic bifurcation

The US Inflation Reduction Act of 2022, reinforced by updated guidance in 2023 on “Foreign Entities of Concern,” disqualifies critical minerals sourced from any such foreign entity of concern from being eligible for clean vehicle tax credits. The Biden administration has since doubled down on this policy with 100% tariffs on EVs from China and an increase from 7.5% to 25% on electric batteries. 

“To strengthen the security of America’s supply chains, beginning in 2024, an eligible clean vehicle may not contain any battery components that are manufactured or assembled by a FEOC, and, beginning in 2025, an eligible clean vehicle may not contain any critical minerals that were extracted, processed, or recycled by a FEOC”

— US Treasury, Treasury Releases Proposed Guidance to Continue U.S. Manufacturing Boom in Batteries and Clean Vehicles, Strengthen Energy Security

This policy is supplemented by financial support for mines in domestic jurisdictions: to take just one example of many, a proposed loan of up to US$700 million from the US Department of Energy (DOE) to help finance the construction of the Rhyolite Ridge Lithium-Boron Project in Nevada, USA, a project that aims to produce lithium with a lower environmental impact.

In effect, these policies work to split the global critial mineral market geographically. Any mineral from a US domestic supplier may be produced at a more expensive cost, that is subsidised by trade barriers and downstream tax breaks.

The EU is following a similar trend with its Carbon Border Adjustment Mechanism (CBAM) that, although not targeting directly critical minerals as yet, places import tariffs on carbon intensive goods (eg steel, cement, etc) that are produced to lower environmental standards than domestic versions.

“The future carbon border adjustment mechanism should be designed in such a way as to address the risk of carbon leakage while fully complying with World Trade Organization rules, maintaining the competitiveness of the European industry and rewarding contributions to a low-carbon Europe”

— Euromines, recognized representative of the European mineral raw materials industry covering more than 42 different metals and minerals 

Bifurcation by a thousand cuts

So, if not a direct premium, what price mechanism could be introduced.

Well, some in the industry advocating against a direct environmental social governance (ESG) premium, suggest instead that the market should be left to itself to develop price differentials — and that this is, in fact, already happening.

We agree.

“Product type, ESG, and country of origin are all important properties and presumably were factors that led major automakers to agree to term supply contracts with BHP and Vale in recent years. ESG was no doubt a factor in these negotiations… We will continue to observe the distinction between Western-supplied, clean, green nickel and the high-carbon, less ESG-compliant nickel from China and Indonesia”

— Jim Lennon, managing director of commodities at Macquarie Group

Examples of this already happening include MP Materials long-term agreement with General Motors to supply rare earths in 2021.

“Restoring the full rare earth supply chain to the United States at scale would not be possible without U.S. manufacturers like GM recognizing the strategic consequence and acting with conviction”

— James Litinsky, MP Materials Chairman and CEO

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And, although not a critical mineral, the chief executive of aluminium goods manufacturer, Capral, recently explained how the company can charge an extra 5% on products made with low carbon emissions. For now, low-carbon aluminium products represent about 30% of Capral’s sales, further growth is expected.

“We are seeing signs of premiums, but it’s relatively modest… We believe you’ll see an exponential growth in the demand for our lower embodied carbon products in the years ahead”

— Tony Dragicevich, told a Tech Zero podcast

Even without a formal pricing mechanism, many companies concerned about dependency on concentrated supply in the current volatile geopolitical situation are diversifying regardless. And those who are not, are being aggressively “nudged” by Western governments to pay a premium to support secure supply chains.

However, as Australia’s Federal Resource Minister warns, it is not a simple process.

“Is anyone going to pay for it? Well, that remains to be seen… You have politicians in Europe and the European Union who talk it up, but they need to push their manufacturers a bit more to make sure they’re walking the walk… Because they have outsourced most of their mining, production and refining in the last few decades they don’t have a really practical idea of what the standards should be. So there’s a risk they pitch [standards] at an unachievable level”

— Madeleine King, Australia’s Federal Resources Minister has said to The Australian Financial Review


If the West is content with cheaper critical minerals from regions with lower environmental standards and supply chain risks, premium prices are not necessary.

But, the rhetoric and policies across the West suggest the diversification of critical mineral supply chains are an urgent priority.

The West needs to leverage other plenty of other strategies — such as permitting reform and loosening some environmental regulations — but, for mining companies to compete against cheaper global players (see our analysis on The Great Nickel Trade War and The West’s Pursuit of Rare Earths Hits Resistance from China), there must be financial incentives for sustainable mining.

The challenge is that it’s incredibly complex, for example,

  • deciding on mechanisms to measure which metals qualify for a green premium
  • encouraging consumers and businesses to pay this premium when cheaper options exist

Is there a precedent for successfully bifurcating a homogeneous product? This discussion on Money of Mine with “Rusty” Delroy suggests Free Range eggs — that consumers are willing to pay more for sustainable eggs.

Yes, we know (!), there are significant issues with the comparison (eg nobody eats metal), but the analogy highlights the potential and challenges — under the right conditions, higher prices for sustainable options are viable.

The bifurcation of critical mineral prices is not just coming; it’s already influencing the market. However, a universal, global pricing mechanism will likely remain elusive (just look at the difficulties over carbon credits).

Instead, we expect incremental changes — from legislation to public pressure, low-carbon pledges to marketing — that will drive the market, companies and industry to establish its own price for environmentally-friendly sourced minerals.

This process will take time.

In the interim, the West remains heavily dependent on current supply chains, putting all its proverbial eggs in one basket.

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about the author

Picture of Anthony Milewski

Anthony Milewski

Anthony Milewski has spent his entire career in the capital markets, including as company CEO, board director, advisor, founder and investor, with a focus on the energy transition and commodities.


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