G7 closes rare earths deal, irritates China and Brazil sees opportunity

The agreement reached by G7 leaders to reduce China's dependence on critical minerals and rare earths was received in Brazil as a sign that the country has gained bargaining power in the reorganization of global production chains.

On Wednesday (17), the group's leaders set a goal of limiting dependence on any single supplier to less than 60% in the case of rare earths and permanent magnets by 2030. The long-term ambition is to reach 50% "as quickly as possible". The plan also provides for coordination of strategic stocks, supplier diversification, recycling and mechanisms supported by the International Energy Agency.

The measure directly targets China, which dominates central stages of the rare earth chain, especially processing, separation and production of permanent magnets. Beijing responded by defending its export controls on critical minerals. The Chinese Ministry of Foreign Affairs stated that the measures follow international standards and criticized the formation of exclusive economic blocs, arguing that this could harm global trade.

In the Brazilian government, the reading is that the movement confirms a window of opportunity for the country to try to occupy a more relevant position in the chain.

The assessment is that the dispute between the United States, the European Union, Japan and China for alternative sources of critical minerals opens space for Brazil to demand investments in processing, processing, research, technology and local industrialization.

Brazil negotiates critical minerals agreements in different formats with the United States, European Union and Japan.

The conversation with the Americans is considered the most advanced, but still faces political obstacles. The assessment within the government is that new commitments need to have practical effects, to avoid the repetition of broad memoranda of understanding, such as those signed with India, Spain and South Korea, which brought mentions of adding value, but still without concrete industrial developments.

The American proposal even makes explicit mention of the construction of refining capabilities in Brazilian territory.

The idea is that any financing will be structured through financial institutions linked to the United States government, such as DFC, an American development financing agency, and Exim Bank, the country's official export credit bank. These resources would likely be linked to future purchase contracts, so-called offtakes.

In addition to the political and ideological component, one of the points that raises alarm among part of the government is the mention of a "first look" for investments in the sector. The expression was interpreted by Brazilian interlocutors as an attempt to guarantee the United States a kind of priority in the analysis of a first wave of projects and opportunities in critical minerals in Brazil, although without formal exclusivity.

The development wing of the government sees the G7's move as reinforcing the thesis that the Brazilian State should have more coordination power over the sector.

This group, which won the internal debate within the government on the national policy on critical minerals, defends that the country uses external interest in rare earths, lithium, niobium, graphite, copper and nickel to condition partnerships on industrialization commitments, technology transfer and the formation of local production chains.

This vision is also in line with the ongoing debate in Congress on the national critical minerals policy.

The text approved by the Chamber and now under analysis in the Senate expands the government's role in defining priority projects and creates instruments to stimulate value addition in Brazil.

In practice, the proposal gives the government more capacity to influence the entry of foreign capital and to condition the progress of strategic projects on commitments to processing, processing and industrialization in Brazil.

The text approved by the Chamber also provides for the creation of a council linked to the federal government, with power to evaluate and approve international operations and contracts involving assets in the sector.

The Brazilian strategy goes in the same direction as the speech made by President Luiz Inácio Lula da Silva at the G7 Summit, in Evian-les-Bains, France. Lula defended that countries that hold critical minerals participate in the highest value-added stages of the chain, through industrialization, technology transfer and the formation of national capabilities.

Brazilian diplomacy has treated the industrialization of countries holding critical minerals as a central axis of its international position on the topic.

Behind the scenes, there is discomfort on the part of the government with the actions of some actors in the mineral sector, who discuss partnerships directly with foreign governments without prior coordination with Itamaraty.

The assessment is that this type of movement weakens Brazil's negotiating position precisely at a time when the global dispute for rare earths and critical minerals increases the country's bargaining power.

In the private sector, there is concern that excessive state intervention or unclear rules will drive away investors precisely at a time when the country is trying to present itself as a reliable alternative to China.

Source: CNN