How China’s grip on electrification metals could affect inflation

Hello and welcome to Energy Source, coming to you from New York.

Brent prices fell as much as 9.5 per cent on Monday, as the US paused its two-week air strike campaign in Iran over the weekend. Rising tensions between Yemen’s Houthi militants and Saudi Arabia continue to threaten oil shipments in the region, further complicating a potential reopening of the Strait of Hormuz.

In today’s Energy Source, we take a breath from oil and turn towards critical minerals.

My FT colleague Martha Muir writes today about a new report warning that western critical minerals projects are being hamstrung by public funding gaps. This is impeding their ability to challenge China’s chokehold on materials essential to tech and defence manufacturing, according to Safe’s Center for Critical Minerals Strategy, a non-governmental organisation.

Over the weekend, Edward White reported on record funding in China’s Belt and Road infrastructure programme, which rose to $126.3bn in the first half of 2026, including $20.1bn for green energy financing. The BRI has played a substantial role in Beijing’s control of critical minerals — Indonesia, for example, is the primary exporter of nickel thanks in part to BRI financing, and sent 98 per cent of ferronickel exports to China in the first five months of this year.

And on Monday, William Wallis reported from Kenya about plans to develop a $62bn rare earth deposit that is also a sacred site to the Digo people.

Amid all of this is the backdrop of China’s systematic dominance over the metals needed for a green transition, which I report on today.

Thanks for reading, Nolan

China’s grip on electrification metals raises inflation risk

The global push for energy security faces new challenges as the world shifts towards renewables and China dominates the suite of metals required for them.

The FT earlier this month reported that Chinese control of rare earth metals has caused “panic” and “existential risk” for the semiconductor industry. The International Energy Agency reported shortly after that Beijing’s export controls could put $6.5tn per year of downstream production outside the Asian nation at risk.

But China’s supply-chain dominance extends to the common metals needed for electrification too, posing major risks for the green transition.

Natalie Biggs, head of base metals markets at Wood Mackenzie, told Energy Source: “The world is increasingly reliant on technology, and that means metals really . . . Now that we’ve got the rise of renewable generation, we’re even reliant on it for power reasons.”

China is the leading refiner of nearly every metal needed for renewable energy. So-called electrification metals such as copper, lithium, nickel and cobalt are crucial for the manufacturing of green technologies including solar, wind and batteries. If battery-grade graphite trade were disrupted, for example, more than $300bn of downstream production outside China would be at risk.

The top refining country for each of these metals — China in every case except nickel — accounted for an average 72 per cent share in 2025, up from 70 per cent in 2023. This is barely projected to shift over the next three decades, according to projections released by the IEA earlier this month.

Colin Williams, who has been a geophysicist at the US Geological Survey for more than three decades, said: “We’re already dependent on many of the mineral commodities that are needed for renewable energy and evolving electrification to an extent that we consider critical.”

“Our processing capability is not even enough to refine the copper that we mine ourselves,” he told Energy Source.

In a working paper released by the National Bureau of Economic Research last week, economists used policy and bilateral trade data to show how China has reorganised electrification metals into a “hub-and-spoke system”, despite being endowed with very little of the natural resources themselves. This marks a significant departure from fossil fuels, which have diffuse supply chains and are buffered by strategic reserves and deep markets.

“There is a little bit of a parallelism [of] China’s centrality with the state of the US as a global hegemony,” Evgenia Passari, one of the paper’s authors, told Energy Source. “We think that this big centrality of China was built by choice, by strategic choice, by strategic financing in those big important exporters of those metals.”

Using an analysis of more than 8mn news articles to identify commodity-specific supply and demand shocks, the researchers also developed a model to determine how China’s grip on supply chains could affect inflation.

They found that a one-standard deviation decrease in the supply of electrification metals raises the cumulative level of consumer prices by roughly one percentage point in the US and the EU over the following two years, about twice the effect of a comparable fossil fuel shock and significantly longer lasting.

The authors wrote: “The transition from fossil fuels does not abolish strategic dependence; it relocates it from hydrocarbon reserves . . . to mineral processing chains, which are concentrated, thin and slow to replicate.”

In response to foreign supply chain reliance made clear since the Covid-19 pandemic, the US has made some efforts to buffer risks. On February 2, the White House announced the creation of a critical minerals reserve alongside the US Export-Import Bank. The reserve, called Project Vault, is backed by a $10bn Exim loan and nearly $2bn in private-sector investment.

Exim told Energy Source: “Foreign adversaries have the ability to chokehold the American supply chain. That’s why this is one tool in the US government’s toolkit to ensure that there’s other options for American manufacturers.”

Australia, Japan, South Korea and China are the only other countries with significant critical minerals stockpiles, according to the IEA.

Securing critical minerals was an important part of last month’s summit of G7 countries in France. “In light of the high degree of market concentration, the need to reduce vulnerabilities regarding [critical minerals] . . . we recall the urgency of diversifying our supply chains”, the leaders announced. 

However, their commitments to diversify their supply chains only focused on rare earths and permanent magnets.

“For other critical minerals, we task the relevant ministers with setting a specific target for reducing these dependencies before the end of the year,” the leaders said.

Power Points

• A deadly storm in Chile threatens copper production and has added to concerns over the industry’s ability to supply the metal crucial to the AI boom.

• Sir Ian Wood, one of Scotland’s richest men who was critical to the development of the UK’s oil and gas industry, has died at the age of 84.

• DCC’s board has recommended a £5.75bn takeover offer from US private equity groups KKR and Energy Capital Partners despite the FTSE 100 energy group’s top shareholders heavily criticising the proposed deal.

Energy Source is written and edited by Jamie Smyth, Martha Muir, Alexandra White, Rachel Millard, Malcolm Moore, Ryohtaroh Satoh and Stephanie Findlay with support from the FT’s global team of reporters. Reach us at [email protected] and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.