'Decoupling from China' isn't feasible in global metal chains

On Tuesday, Bloomberg reported that the American Iron and Steel Institute (AISI) has asked the White House to intervene in Anglo American Plc's sale of its Brazilian nickel mines to MMG, a company under the control of China Minmetals Corp. This reported request highlights a recurring tendency of certain US industry groups and politicians to overly politicize the legitimate business activities of Chinese enterprises. It also underscores a disregard for market principles and established international trade norms.

Driven by rapid advancements in artificial intelligence and clean energy, the US has increasingly viewed critical minerals as a new frontier in global competition in recent years. In 2022, the US Geological Survey released a new list of critical minerals, many of which have extensive commercial applications, such as nickel. This metal, used to make stainless steel, superalloys and rechargeable batteries, has been given important strategic significance and is considered critical to the US economy and "national security."

According to Bloomberg, the AISI argued that the potential acquisition would give China "direct influence" over substantial nickel reserves, which is clearly an attempt to exploit "national security" anxieties and calls for the US to politically intervene in normal economic transactions occurring in third countries.

MMG said in February that it had entered into a share purchase agreement with Anglo American for its nickel business in Brazil for an aggregate cash consideration of up to $500 million. Analysts believe this is a normal business cooperation based on the needs of both parties.

A commentary published by Reuters at the time stated that Anglo's sale to MMG is a corporate win-win. Anglo gets to deliver on its promise to shareholders to simplify its portfolio and pockets up to $500 million. MMG, which is already a major producer of copper, cobalt and zinc, gets to diversify into another metal and expand its geographic footprint into Brazil.

American companies don't have much of an edge in the nickel supply chain. Some analysts point out that Western-owned nickel mines tend to be older, less efficient, and have higher operating costs. Macquarie Bank analyst Jim Lennon said that about half of the world's ferronickel production outside of China and Indonesia is now suspended, according to Reuters.

Some Americans might hope that US companies could capture a larger share of this industry chain. However, to achieve this target requires genuine business competitiveness on the part of American companies. It shouldn't be the case that if US companies can't compete, they try to persuade Washington to use America's "political power" to intervene in business dealings and unfairly suppress competitors.

China's advancement in the supply chain of minerals, particularly in nickel, is the culmination of years of development, driven by rapid technological innovation, robust industrial network and substantial capital accumulation. This progress has not only bolstered China's position but has also contributed positively to the global mineral supply chain.

By supporting mineral development in countries like Brazil and fostering mutually beneficial partnerships with multinational corporations, Chinese enterprises have become integral to the industry's ecosystem. If the White House heeds the AISI's calls to intervene in such transactions, the repercussions would likely be detrimental to the international mineral supply chain, affecting Western companies as well. Such intervention could disrupt established collaboration arrangements and hinder the global industry's ability to thrive in an interconnected market.

Efforts to sever ties between Chinese firms and global partners in the mineral sector are unlikely to succeed, given China's strategic advantages and the mutual benefits that these collaborations offer. Over-politicizing mineral trade and pushing for decoupling from Chinese capital and technology are impractical. Instead, fostering cooperation through healthy competition presents a more sustainable path.