In a groundbreaking development, UK Prime Minister Rishi Sunak and US President Joe Biden have forged the “Atlantic Declaration,” aiming to foster economic cooperation and bolster their respective nations’ growth. While not heralding a comprehensive free trade agreement, the declaration highlights the intent to establish a Critical Minerals Agreement between the two countries, which could have far-reaching implications.
Atlantic Declaration: New Critical Minerals Deal is a Win for the UK, A Test for Competitors
One of the key advantages for the UK lies in the potential access its cobalt, graphite, lithium, manganese, and nickel exporters might gain to US Inflation Reduction Act (IRA) funding, should the agreement be ratified. This would not only offer a significant boost to UK businesses but also serve as a strategic alternative to offset the losses suffered by exporters due to the repercussions of Brexit and the resultant decline in sales within the European Union.
The competition for preferential access to US markets intensifies as the UK negotiates simultaneously with the EU, potentially leading to restrictions on the quantity of exports eligible for IRA funding. The increasing market entry for UK suppliers poses a formidable challenge for companies establishing mining and processing capacities within the US, especially when considering the existing free trade agreements with Australia, Canada, Japan, and Mexico.
Lithium, in particular, has witnessed a remarkable surge in demand, amplifying the significance of this agreement. UK exports associated with the five critical minerals in question have already reached an impressive value of £166 million ($209 million) in the 12-month period ending March 31, 2023.
The “Atlantic Declaration” between the US and UK is poised to reshape the landscape of critical minerals trade, with the potential to redefine power dynamics and create new winners and losers in the global market. The world now awaits the outcome of negotiations and the subsequent impact on economic growth, as these two influential nations vie for dominance in this increasingly critical sector.
China’s Dominance and UK’s Cost Considerations Shape Critical Minerals Landscape
An intriguing aspect of the UK-US “Atlantic Declaration” and its potential Critical Minerals Agreement lies in the context of China’s overwhelming presence in the critical minerals market. Recent data reveals that mainland China accounted for a staggering 27% of shipments during the 12-month period leading up to March 31, 2023, while the US represented a mere 17%. Impressively, exports to mainland China surged by an astonishing 681% year-over-year, while those to the US experienced a slight decline of 3%.
This surge in purchases by Chinese buyers may have factored into the US decision to strike a deal with the UK, even though the UK accounted for a modest 2% of US imports of the five minerals covered by the agreement in 2022.
Analyzing the specific UK exports, lithium hydroxides and carbonates emerged as the top performers, with a total shipment value of £112 million ($141 million) during the aforementioned 12-month period. Cobalt oxides followed closely behind, valued at £32 million ($40 million).
Despite the potential benefits UK exporters of lithium products may gain from accessing IRA-related funding, they face fierce competition from leading exporters like Chile. Market Intelligence data highlights that UK lithium carbonate exports achieved an average price of $66 per kilogram in the first quarter of 2023, surpassing Chilean exports by 36% and mainland China’s ex-works price by 9%.
Beyond the Deal: UK Faces Cost and Risk Factors in Critical Minerals Market
Adding to the complexity, Chilean exporters already enjoy the advantage of a comprehensive trade deal with the US, making batteries that utilize Chilean lithium automatically eligible for IRA funding. However, Chilean exporters also face challenges due to the Chilean government’s recent plans to exercise greater control over lithium reserves once current concessions expire.
While the UK may possess lower legal risks compared to other lithium-exporting nations, it grapples with higher operational risks, including infrastructure disruptions and labor strikes, in comparison to both Chile and Australia. These factors could potentially hinder UK exporters when dealing with buyers who prioritize supply certainty.
The critical minerals landscape is shaped by China’s dominance, the competitive dynamics among major exporters, and the UK’s cost and risk considerations. As the UK navigates this complex terrain, it must strategically position itself to maximize opportunities while mitigating potential challenges.
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