PERSPECTIVE3-5 min to read

Podcast: the race for Earth’s critical materials

Fund manager James Luke discusses the scramble to control Earth’s rare materials in a world looking to rapidly decarbonise.



David Brett
Investment Writer
James Luke
Fund Manager, Metals

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You can read the full transcript of the podcast below:

[00:00:07.930] - David Brett

Welcome to the Investor Download the podcast about the themes driving markets and the economy now and in the future. I'm your host, David Brett.

[00:00:20.930] - News clip

December 741. Japan attacked Pearl Harbor. First to feel the sting of Japanese steel are the USS Oklahoma and Utah, the latter a 33 year old target ship. Accurate hits by the enemy bombers make short work of these two naval bulwarks.

[00:00:38.760] - David Brett

The attack drew the Americans into World War II.

[00:00:42.150] - News clip

I ask that the Congress declare that a state of war has existed between the United States and the Japanese Empire.

[00:00:57.610] - David Brett

But what fewer people realize is that Japan's shortage of oil precipitated its attack. The US. Froze all Japanese assets in the States in response to Japan occupying French Indochina in 1941, preventing Japan from purchasing oil. Having lost 94% of its oil supply and unwilling to submit to US demands, Japan planned to take the oil needed by force. It hoped the attack would force the US to negotiate. Fast forward nearly 40 years to Kalwezi in southern Congo. In 1978, Soviet armed and Cuban trained rebels seized the capital city of Lualabar Province. According to a CIA report, before the insurrection, the Soviet Union appeared to have been stockpiling cobalt, one of the most critical industrial metals. Today, it's an essential mineral used for batteries in electric cars, computers and cell phones. And then, as now, it was used in the manufacture of aircraft engines and gas turbines. The battle for control over Congo's mines and its precious critical minerals rages to this day. 2021, Russia invades Ukraine. At one point, after Russia entered eastern Ukraine, it was estimated it had control of 50% of rare earth supplies in the region, raising concerns it could undermine efforts by the EU to break China's hold on the market.

[00:02:36.130] - David Brett

These critical minerals are vital to the future of our economy and society, particularly one looking to decarbonise by the way of electrification. And while clearly not a new phenomenon, this scramble for natural resources has intensified since the Pandemic and amid the war in Ukraine. So in this show, fund manager James Luke, a commodities expert, will be our guide to critical minerals. We'll look at why they're so important, who's winning the race to control them, and what the potential outcome means for our future.

[00:03:12.590] - Announcer

On Apple podcasts, Spotify, or wherever you get your podcasts, you're listening to The Investor Download.

[00:03:19.400] - David Brett

The definition of what a critical material is has, as you might expect, evolved over time.

[00:03:26.600] - James Luke

So if, for example, you take the EU, they have a list of critical minerals, and that list has evolved over time.

[00:03:33.830] - David Brett

That's James Luke.

[00:03:35.390] - James Luke

So back in 2011, they had 14 materials on that list. If you look at the fifth list, which was put out in, I think, March this year, that had expanded to 34. But roughly speaking, and taking a higher level view, the definition that they use is something which is critical for the functioning of the economy and is something which is at risk of severe supply disruption.

[00:04:02.490] - David Brett

For comparison, the US Geological Survey has 50 minerals listed as critical, while the US Inflation Reduction Act, which was signed in 2022 and has been described as a decarbonization game changer, has only around seven materials on it, but which are deemed as critical for the purposes of the act. Critical materials can include anything. Some commodities you will have heard of, such as oil and copper, and so called rare earth minerals such as cobalt and lithium. Others you may be less aware of, such as Sirium, which has many uses, but also has a doping compound that acts as a signal booster useful for transoceanic internet cables. And how about intrium and europium? They're used in smartphone batteries, but they also give your mobile phone display screen color and make the phone vibrate when texting.

[00:04:55.240] - James Luke

So, yeah, it's clearly a subjective phrase or term that will change depending on who you are, where you sit, and whether you have a lot of the stuff at home or not.

[00:05:04.240] - David Brett

In terms of where they're found, as you can imagine, it's dictated by geology, and different markets have different levels of concentration.

[00:05:12.380] - James Luke

So something like cobalt, something in the region of 60% to 70% plus of cobalt production, comes from the DRC in Africa. So that's an example of extreme geologic concentration.

[00:05:24.620] - David Brett

Cobalt, along with nickel, lithium and magnesium are well known and needed in batteries for the energy transition away from fossil fuels. But they're just a few of many.

[00:05:35.070] - James Luke

Then, of course, you've got the distinction in terms of where you actually mine the metal and where you refine it.

[00:05:42.430] - David Brett

The actual refinement of these minerals into a chemical that can be used in products such as lithium-ion batteries or the display screen on your mobile phone is heavily concentrated in China.

[00:05:53.100] - James Luke

And that's really a legacy of, if you want to be brutally honest, to some extent, that the willingness historically of the Chinese to manage the negative environmental impacts of that processing and of that refining. The environmental risks that come with that to an extent that Western countries just weren't willing to for a long time. So as the geopolitical dynamic shifts, it will be very interesting to see whether that changes.

[00:06:21.440] - David Brett

In 2010, China controlled 97% of rare earths through their willingness to extract, refine and produce the minerals while taking the environmental hit. And although that's fallen to 70% in recent years, China remains the dominant player. How China's maintained that stranglehold on these critical materials, and whether it's too late for the west and others to wrestle some back, that's coming up in part two of the show.

[00:06:52.470] - Announcer

Get in touch with us by email at or visit our website,

[00:07:03.990] - David Brett

Addis Ababa is Ethiopia's busiest airport. It can handle up to 22 million people per year and is one of Africa's busiest transport hubs. Yet when passengers pass through the new $360 million terminal rather than a traditional African greeting they're welcomed by an array of signs in Chinese. That's because it was built by China and it's a bustling hub for Chinese workers and engineers in transit to one of the many mines in the country owned by China's state-backed businesses. The airport is an example of China's soft power, mainly through its Belt and Road Initiative, which is a massive Chinese led infrastructure project that aims to stretch around the globe.

[00:07:49.770] - James Luke

You could argue that via the things like the Belt and Road project, the big debt packages that the Chinese have put into some African nations and that kind of soft power projection probably has put the Western producers and the countries that they hark from at a disadvantage.

[00:08:08.690] - David Brett

This soft power has been crucial to China's continued dominance over critical raw materials in recent years. Through various deals, it's estimated nearly 80% of the planet's supply of critical materials is sent to China for cleaning up and processing into usable metals. And being in control of such large swathes of these critical minerals gives China some leverage on the world stage.

[00:08:34.460] - News clip

News junkies are forgiven if they've never heard before of Gallium and Germanium. That's all about to change. If our growing general knowledge of the physics periodic table seemed timed with the visit to Beijing of the US Treasury Secretary, it's because China's announcing controls on the exports of key rare minerals that only it produces minerals essential for microchips as well as electric vehicles, fiber optic cables.

[00:09:03.240] - David Brett

The potential threat of being held to ransom over critical materials has already forced a response from some businesses. Apple, for instance, have announced a next generation iPhone will rely on recycled rare earths. The pandemic also highlighted the world's reliance on China for critical materials. Take the car industry, for example, in particular because of their use of semiconductors which to operate require many different critical materials.

[00:09:29.650] - James Luke

And you realize how complicated supply chains are and how if you don't have exactly the right semiconductor in the right place at the right time, suddenly supply chains and start to break.

[00:09:38.090] - David Brett

At the height of the chip shortage, global auto production slumped 26%. But it's not just semiconductors. Critical materials are used throughout the production of a car. Take Turbium and Prasidium for instance, heavy rare earths which are vital components in permanent motor magnets which are used in electric vehicles.

[00:09:58.610] - James Luke

Now, they're a very small part of the overall cost of the electric vehicles or for example, the wind turbines that they're used in. So for an electric vehicle, the estimate that we got from a rare earth producer a couple of weeks ago was probably only one hundred and fifty dollars to two hundred dollars total cost of rare earth in an electric vehicle. So very, very small percentage versus the size of the overall battery pack or other metal usages. But if you don't have them there, then the impact in terms of performance, in terms of torque is very significant.

[00:10:30.150] - David Brett

To put that into perspective. To achieve the EU's climate neutrality goal by 2050, the block will need at least 37 500 tons of rare earth magnets in 2030, more than double 2019 demand, and far more than current investments will yield, according to the European Raw Metals Alliance. So, in response to the threat to the supply chain security, governments around the world have been hurriedly taken action. In a bid to move away from its dependence on China, the EU proposed a plan in September 2021 to invest €1.7 billion in 14 projects on the continent, from mining to magnet making and recycling. While part of the IRA legislation in the US around these critical minerals is to try to incentivize a lot of that production in their own economy.

[00:11:18.660] - James Luke

I mean, clearly the IRA Act itself and the EU legislation is aimed at incentivising Western companies to invest in production capacity in, I guess you'd call it, Western spheres of influence or in countries or in assets that aren't controlled by potential non allies - China, in particular, within the current dynamic. So there is definitely a lot happening. The EU, I think, has put together a 2 billion euro fund specifically focused on critical mineral extraction. The IRA is also trying to significantly stimulate that type of activity. There's a lot of debate, metal by metal, as to whether or not the legislation, as it currently stands, will be enough to be a watershed moment in terms of disrupting those supply chains and being enough of an incentive to actually bring processing back. There are quite a few people who think that actually, so far, it's a little bit too weak and things would need to be a lot more aggressive if you are ready to see a big acceleration in that trend.

[00:12:32.330] - David Brett

While attempts have been made to reshore production of critical materials, for the time being at least, it looks like China will remain the dominant force. But which critical materials are on investors' radar, particularly given the energy transition that's coming up in the final part of the show?

[00:12:52.870] - David Brett

Despite all the talk of these rare commodities, the one critical material that might be the most important to investors over the coming years is one that's very well known.

[00:13:03.170] - James Luke

Copper is the material that I think is widely seen now as the most critical to the energy transition in terms of the ubiquity of the requirements for copper as a conductor of electricity. So whereas, for example, in lithium-ion battery chemistry and the cathode chemistry, there is a big debate about what that chemistry will ... How the dominant chemistry will evolve over time and whether that will mean substitution from nickel into manganese or more into lithium phosphate batteries. So there is room for intramental substitution. There is just much less room to actually get rid of the best and most economic conductor, which is copper.

[00:13:49.840] - David Brett

Copper will be integral across the energy transition from renewable energy production, the grid charging infrastructure and electric vehicles. There are an estimated 1.4 billion cars on the world's roads today. Around 78 million new cars are sold every year. To head off the worst effects of climate change, every single one will need to go electric eventually. That's a lot of copper needed for the car industry alone.

[00:14:16.990] - James Luke

So in the context of the energy transition, which requires pretty much unprecedented levels of investment and the scaling up of global electrification, then something like copper really is critical.

[00:14:27.810] - David Brett

Chile, Peru, and yes, you've guessed it, China are among the top copper producers, not to mention the US. Russia and Australia.

[00:14:35.530] - James Luke

If you then go to some of the more niche materials, something like rare earth, these things are relatively it's a bit like semiconductors. Just post the COVID crisis, where nobody really realized just how critical they are until there's a shortage of particularly niche brands of them. And the first time the wider world finds out how critical they are is when prices begin to surge.

[00:15:01.620] - David Brett

Take lithium prices, for instance, which rocketed 500% in a year between the start of 2021 and 2022. Surging electric vehicle sales worldwide created massive demand for the critical component of lithiumion batteries. But as in the case of most critical materials, you can't just buy them like shares on the stock market.

[00:15:25.140] - James Luke

What you can do is take positions strategically in producers that you think have high quality projects in those areas, certainly from a broader investment. Thematic, has there been interest in critical minerals or transition metals or however you want to term it? I think definitely.

[00:15:46.590] - David Brett

But Luke says traditional commodities are tough to ignore, too. In the early stages, he still sees them as a critical part of the energy transition.

[00:15:55.890] - James Luke

But I think interestingly commodities in general I think the idea that you can't touch oil and gas you can't touch anything fossil fuel related because it's so anithema to decarbonization or the energy transition. I think that is also slowly changing. Because for me, a critical thing to understand is that unless you have an orderly energy transition, you probably can't have an energy transition. And part of an orderly energy transition is making sure that you actually do have sufficient supplies of fossil fuels for the period that you require them.

[00:16:40.040] - David Brett

It's worth remembering, too, that critical mineral mining has an environmentally dirty history. Miners dig fast, open pits which pollute the environment and disrupt ecosystems. Those operations can produce wastewater ponds filled with toxic acids, heavy metals, and radioactive material. Mongolia, for instance, is the home to the biggest rare earth sewage pond. And take the remote village of Covas Deborosa in northern Portugal.

[00:17:07.220] - News clip

Nestled in the mountains in northern Portugal, covas Deboroso, a village with just 180 residents that could soon be on the edge of the largest lithium mine in Europe, crucial to the EU's decarbonization targets.

[00:17:21.880] - David Brett

However, for the residents of the village, the treasure beneath their feet is a curse rather than a blessing. The prospect of an open air mine is translating into fears of deforestation, air pollution, water contamination, noise and an end to their way of life.

[00:17:37.770] - James Luke

I think it's very interesting to contrast the oil and gas investment on the equity side to, say, metals investment, because metals producers are obviously they're kind of caught on the horns of a dilemma to an extent because they're both climate criminals. Because the industries that they operate are heavily carbon intensive and very dirty in terms of their emissions. But they're also climate heroes because they're producing the stuff that you need in order to drive forward electrification and the overall energy transition.

[00:18:10.080] - David Brett

Decarbonization and the race to control the mining and supply of these critical materials presents a challenge to governments, companies and investors. And while steps are being taken to take back some control of those critical materials from the likes of China, it remains the dominant player and knowing which critical material will become the most sought after.

[00:18:33.630] - James Luke

All of this stuff comes down to probabilities, doesn't it? So it comes down to the probability of a severe supply disruption happening, or of a material acceleration in demand occurring of these materials becoming more critical to the economies. So I think really, that they become more prominent in our minds as they become a bigger part of a much more clear strategic priority for all the reasons that we just discussed. Just become much, much harder to ignore, I think.

[00:19:04.040] - David Brett

Well, that was the show. We very much hope you enjoyed it. If you want to find out more, please head to and we're endeavoring to record as many of these shows in the studio, on video. And if you want to watch them in their full, unabridged version, then go to Schroders' YouTube channel. If you want to get in touch with us, it's And remember, you can listen, subscribe and review the Investor Download wherever you get your podcasts. New shows drop every Thursday at 05:00 p.m. UK time. But above all, keep safe and go well. Cheers.

[00:19:40.320] - Announcer

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David Brett
Investment Writer
James Luke
Fund Manager, Metals


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David Brett
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