China's electrification metals dominance raises inflation risks for U.S. and EU

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China's metals dominance & inflation

Highlights

China will control an average 72 percent of key electrification metals refining in 2025, up from 70 percent in 2023, per International Energy Agency data.
Beijing's export controls pose risks to $6.5tn of downstream production annually outside China, with battery-grade graphite disruptions threatening over $300bn in output.
A National Bureau of Economic Research paper shows a one-standard deviation drop in electrification metals supply raises cumulative consumer prices by about one percentage point in the U.S. and EU over two years.

Refining concentration and supply chain exposure

The Financial Times reports that China's control over supply chains now extends well beyond rare earths to the more common metals needed for batteries, solar and wind equipment. The article cites International Energy Agency projections showing that the top refining country for key electrification metals, China in every case except nickel, holds an average 72 per cent share in 2025, up from 70 per cent in 2023, with little change expected over the next three decades.

Natalie Biggs, head of base metals markets at Wood Mackenzie, says the world is becoming more reliant on metals as digital technologies and renewable generation expand. Colin Williams of the U.S. Geological Survey says current processing capacity is already insufficient, including for copper mined in the U.S. itself.

The concentration creates direct industrial risks. The IEA says Beijing's export controls could put $6.5tn a year of downstream production outside China at risk, while disruption in battery-grade graphite trade alone could endanger more than $300bn of output beyond China.

Inflation effects and policy response

A working paper released last week by the National Bureau of Economic Research argues that China has reorganized electrification metals trade into a hub-and-spoke system through policy and bilateral trade links, despite limited domestic natural resource endowment. The paper's authors say this differs from fossil fuels, whose supply chains are more diffuse and supported by strategic reserves and deeper markets.

Using more than 8mn news articles to identify commodity-specific supply and demand shocks, the researchers find that a one-standard deviation fall in electrification metals supply lifts cumulative consumer prices by about one percentage point in the U.S. and the EU over the following two years. They say that effect is roughly twice that of a comparable fossil fuel shock and lasts significantly longer.

The U.S. is responding with new safeguards, including Project Vault, a critical minerals reserve announced by the White House on February 2 alongside the U.S. Export-Import Bank, backed by a $10bn Exim loan and nearly $2bn in private investment. The IEA says Australia, Japan, South Korea and China are the only other countries with significant critical minerals stockpiles, while G7 leaders in France last month call for faster supply chain diversification, though their immediate commitments focus mainly on rare earths and permanent magnets.

The public-financing gap for Western critical minerals supply chains has become a key obstacle to building mining and processing capacity outside China, even as supply security is treated as a strategic priority, our publication previously reported. The article noted that while China dominates global processing and has invested heavily overseas, many state-backed lenders remain too risk-averse or constrained by mandates to unlock the long-term capital needed to crowd in private investment. It also highlighted recent U.S. attempts to use unconventional financing tools, but warned that current support still falls short of what’s needed to meet policy goals and reduce exposure to export restrictions.

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