China, a major player in the global production of key raw materials such as copper, aluminum, rare earths, gallium and germanium, has recently raised global concerns with its export restrictions on materials crucial to the ecological transition. These metals are critical to the production of green technologies, and Chinese control over their availability could significantly affect international supply chains.
China accounts for a significant share of global copper, aluminum and rare earth production, with major implications for sectors such as sustainable energy, electronics and electric vehicles. The recent restriction on exports of gallium and germanium, essential for semiconductor and photovoltaic technologies, has further raised concerns about global dependence on Chinese sources.
What is China doing?
China, which already produces 45% of global refined copper output, has announced a further 45% increase in copper smelting capacity by 2027, accounting for 61% of new plants globally.
Similarly, global primary aluminum production reached an all-time annual high of 71.2 million tonnes in August. China has significantly increased production to meet growing domestic needs. However, the Chinese government has imposed a monthly production cap of 45 million tonnes per year, introducing uncertainty into global markets and potential impacts on prices.
These Chinese dynamics have triggered a ripple effect, also influencing the exports of metals such as gallium and germanium, essential for the production of green technologies. China, a virtual global gallium monopolist, has announced export restrictions, with stocks expected to last a maximum of five to six months. August exports of germanium were zero after a record 8.6 tonnes in July, as overseas buyers sought to stockpile the metal ahead of the lockdown.
The announcement of the restrictions has already had tangible impacts, with an almost total block on exports and a temporary increase in foreign demand before the restrictions came into force. This situation highlights the vulnerability of global supply chains and the need to diversify sources of key materials.
The problem of high interest rates.
Jamie Dimon, the CEO of JPMorgan, said in an interview with the Times of India: “I’m not sure the world is prepared for 7% interest rates. Going from zero to 5% caught some people off guard, but I ask the people who work in business: are you ready for something like 7%? The worst case is 7% with stagflation”
An interest rate of 7% is considered relatively high compared to current levels. Rising interest rates can have several implications, including increased financing costs for businesses and consumers, a potential reduction in investment and an impact on financial asset valuations.
The mention of “stagflation” adds another layer of concern. Stagflation is an economic situation characterized by a low rate of economic growth, high unemployment and high inflation. It is a combination of factors that can complicate the management of economic policies.
A sudden and sustained increase in interest rates can have significant consequences on the ability to finance long-term projects, particularly those related to the green transition. In a high interest rate environment, it becomes more expensive to acquire financing and this can pose a challenge for projects that require investment over an extended period of time before generating significant returns.
Can we say that green is a “debt” nature?
It is known that green financing often requires large sums of money (often in the form of public incentives) and that access to low or negative interest rates can be favorable is an important point. Lower interest rates make long-term financing more accessible and sustainable, encouraging investment in projects that may not generate immediate returns, but have long-term environmental benefits.
The observation on the “debt” nature of the green economy, without underlying liquidity, highlights the need for financial structures that can support long-term investments in sectors linked to environmental sustainability. This is a key element to consider in discussions on economic policies and financial support for the green transition
So what we could do?
In this context, the reuse of used industrial machinery emerges as a strategic solution to address the challenges of the ecological transition. Buying used industrial machinery instead of new can be an advantageous option in terms of cost and sustainability. The trading of used industrial machinery offers a way to reduce dependence on new production and can be a valuable resource in a context of limited raw material supplies.
Investing in used equipment not only reduces production costs, but also helps reduce the environmental impact associated with the production of new devices. This approach is particularly relevant in a context where China restricts exports of key materials, as it can help mitigate the risk of supply chain disruptions.
Ultimately, while China dominates copper and aluminum production, export restrictions raise questions about the security of global supply chains. The reuse of used industrial machinery presents itself as a key response, offering an opportunity for resilience and sustainability in addressing the challenges of ecological transition in a rapidly evolving world.
