INSIGHT-Rattled by China, West scrambles to rejig critical minerals supply chains

By Amy Lv, Divya Rajagopal and Ernest Scheyder

BEIJING/TORONTO/LONDON, Dec 6 (Reuters) - China's trade restrictions on strategic minerals are starting to hit Western companies where it hurts.

Blaming Beijing's curbs on antimony exports announced in August, German chemicals and consumer goods heavyweight Henkel HNKG.DE told customers last month it had declared force majeure and suspended deliveries of four types of adhesives and lubricants widely used by automakers, according to a Nov. 8 letter to clients reviewed by Reuters.

Henkel uses the silvery metal to make its Bonderite and Teroson-branded products, core parts of the company's adhesive technologies division, which brought in 10.79 billion euros ($11.4 billion) in revenue last year.

"We have been notified by our suppliers that the importation of these raw materials has been delayed pending the Chinese government accepting license applications," according to the letter, which was signed by two senior executives.

"As a result, Henkel is hereby declaring force majeure in connection with its deliveries of these products," the German company also said, adding it was unable to predict the duration of the situation.

The letter from Henkel, which had not been reported previously, and conversations with more than two dozen traders, miners, processors, end-users, and industry experts in North America, Europe and China underscore the severe disruption caused by Beijing's trade restrictions and highlight how Western players' struggle to replace China-based supply chains.

Contacted by Reuters about the letter, Henkel said it was working to support its customers and find alternative supplies: "We are monitoring the global supply situation of antimony very closely and aim to restore solutions to fulfill our customers’ orders."

The price of antimony, scarce in nature but essential for military equipment such as ammunition, infrared missiles, nuclear weapons, and night vision goggles, rallied nearly 230% this year to about $39,000 per metric ton in Rotterdam's busy spot market, according to market intelligence provider Argus.

China is the world's largest antimony producer and dominates the production of many strategic materials.

Last year, Beijing also limited exports of gallium and germanium - used for semiconductors, solar panels and weapons - as well as certain types of graphite - a key component in EV batteries.

Responding to a fresh U.S. crackdown on China's chip industry, Beijing this week further ratcheted up pressure, imposing an outright ban on exports of gallium, germanium and antimony to the United States, where Henkel makes Bonderite in Michigan.

LOOKING FOR ALTERNATIVES

Beijing's restrictions bring added urgency for Western players to cut their reliance on minerals from China.

Miner Perpetua Resources PPTA.O, for instance, is developing an antimony mine in Idaho with U.S. government funding.

But new mines can take years to develop, leaving players like Henkel scrambling to find alternatives, which are often more costly.

"Please note that we are in close contact with our suppliers and using all commercially reasonable means to leverage our global supply chain to address this situation and support our customers," Henkel also wrote in the letter.

Meanwhile, some Western miners and processors have started to build up capacity.

United States Antimony UAMY.A $(USAC)$, the only North American processor of the metal, made plans to lift output at its Montana smelter, which was running at 50% of capacity after China announced curbs on antimony exports in August.

"Our decision to ramp up production was predominantly triggered by the more than tripling of worldwide Rotterdam antimony prices," the company's chairman, Gary Evans, told Reuters.

China's restrictions "created significantly more demand for our finished products," he added.

Mining at the Montana site was halted in 1983, when it was cheaper to source antimony from mines outside the United States, and environmental curbs now prevent extraction there, according to the company.

USAC, which does not rely on China, is in talks to receive the material from four other countries and one domestic supplier as early as December, Evans said, declining to name them for competitive reasons.

Orders at Ottawa-based Northern Graphite NGC.V, which touts itself as North America's only producer of natural flake graphite, jumped 50% in the aftermath of China's graphite curbs announced in October 2023, CEO Hugues Jacquemin told Reuters.

"When the export controls came into effect in December last year, there was quite a surge in demand. We started ramping up capacity," said Jacquemin, whose firm is developing projects in Namibia and Ontario to add to its mine in Lac des Iles, Quebec.

China accounts for over 70% of supply of both natural mined graphite and its synthetic variety.

Mark Jensen, CEO of ReElement Technologies, an arm of American Resources AREC.O that specialises in recycling and refining rare earths, said China's most recent export ban means the company has this week fielded at least 10 calls from U.S. miners offering zinc ore, which can be a source of germanium during processing.

Those shipments had previously gone to China for processing given lower labour cost and different environmental standards, he said.

"We have been reaching out to U.S. suppliers of these feedstock to sell these byproducts to us instead of sending it to China as we are now an alternative to China," Jensen told Reuters.

Canadian miner Teck Resources TECKb.TO, which produces germanium as a byproduct at its Red Dog zinc mine in Alaska and is the only supplier of the metal in North America, told Reuters it was studying whether to boost output of the critical material there now that China has blocked exports to the United States.

DISRUPTED MARKETS

China's export squeeze has triggered a surge in prices for many strategic minerals.

Gallium sold outside of China was 30% to 40% more expensive than in the People's Republic in the first half of 2024 from a year before, according to Toronto-based Neo Performance Materials NEO.TO, which produces gallium by recycling manufacturing scrap, said in August.

In China, the restrictions have forced some weaker players out of the market, traders and analysts told Reuters.

Two Chinese germanium traders told Reuters they had given up on exports as they were unable to secure licenses either because overseas clients were unwilling to provide specific details on end-users or because they are from the United States.

Even before Beijing's latest curbs singling out the United States, no Chinese germanium or gallium was shipped there this year through October, Chinese customs data show. Over the same period in 2023, the U.S. ranked as the fourth- and fifth-largest export market for the minerals.

For end-users, China's restrictions underscore the importance of supply diversification.

"When you de-risk, you need to de-risk with different levers," said Maxime Picat, chief purchasing officer at automaker Stellantis STLAM.MI. "If you are a one-solution company, knowing that your battery suppliers are all Chinese or all Korean, then you are at risk."

($1 = 0.9465 euros)

(Reporting by Amy Lv in Beijing, Divya Rajagopal in Toronto, Ernest Scheyder in London and Alessandro Parodi in Gdansk; Additional reporting by Giulio Piovaccari in Milan and Sabine Siebold in Berlin; Editing by Tony Munroe, Veronica Brown and Lisa Jucca)

((Amy.Lv@thomsonreuters.com;))