- While efforts to diversify raw mineral extraction are progressing, refining remains the true bottleneck because raw materials must undergo complex processing before they can be commercially used.
- High capital costs, market uncertainty, and the need for complex industrial ecosystems make building new refineries far more challenging than opening mines.
- Indonesia successfully shifted up the value chain by banning nickel ore exports to force investment into domestic smelting and refining infrastructure.
From the European Union’s (EU) Critical Raw Materials Act to the US’ Inflation Reduction Act, critical minerals have become a cornerstone of modern industrial strategy. Governments worldwide have committed billions of dollars to securing long-term supplies of lithium, nickel, cobalt, and rare earths – the materials underpinning the energy transition and future economic competitiveness.
Despite this unprecedented political attention, supply chains remain stubbornly concentrated. While efforts to diversify sources of raw mineral production are gathering pace, building truly resilient supply chains has proven far more challenging.
This raises a fundamental question: if the need to diversify critical mineral supply chains is widely recognised, why has reducing dependency across the broader value chain proven so difficult?
Refining, not mining, is the bottleneck
For much of the past decade, discussions around critical minerals have focused on securing access to resources. Governments have competed for mining rights, investors have backed exploration projects, and policymakers have sought to diversify sources of supply.
However, ownership of mineral resources does not automatically translate into influence over supply chains. Australia is the world’s largest lithium producer, accounting for around 40% of global output in 2024. The Democratic Republic of Congo (DRC) supplied roughly 70% of global cobalt production in 2025, while Indonesia holds around 42% of the world’s nickel reserves. Despite this growing geographic diversity in extraction, much of the value chain remains concentrated elsewhere.
The reason lies in what happens between extraction and end use. Lithium ore cannot be used directly in batteries, nickel ore cannot be fed straight into electric vehicle supply chains, and rare earth concentrates must undergo complex separation processes before they can be used in magnets, electronics, or defence applications.
Refining is the stage that converts raw materials into commercially usable products, and increasingly, it’s also where market power is concentrated.
According to the International Energy Agency (IEA), China is the dominant refiner of 19 of the 20 strategic minerals it tracks, holding an average market share of around 70% across these supply chains.
Concentration has not only persisted but increased: the combined market share of the three largest refining countries for key energy minerals rose from around 82% in 2020 to 86% in 2024, with roughly 90% of the new refining capacity added during this period coming from the single largest supplier.
The result is a growing disconnect between where minerals are extracted and where they are transformed. While governments have invested heavily in diversifying upstream supply, refining remains the critical chokepoint through which much of the world’s energy transition materials must still pass.
Why refining is more complex than mining
If refining has become the key bottleneck in critical mineral supply chains, why has building additional capacity proven so difficult?
Part of the answer lies in the nature of refining itself. Mining projects are tied to geology; refineries are tied to industrial ecosystems. A country may possess abundant mineral resources, but that alone does not guarantee it can support a competitive processing industry.
Refining requires reliable power supplies, transport infrastructure, water resources, specialised industrial inputs and a skilled workforce. These conditions are difficult to develop simultaneously and often take years, if not decades, to establish. As a result, refining capacity tends to cluster in locations where these ecosystems already exist.
Yet building a refinery is only the first step. Unlike mines, which derive value directly from the resources they extract, refineries operate as commercial businesses. Their competitiveness depends on securing reliable feedstock, maintaining high utilisation rates, and processing materials at costs that can compete with established producers.
New entrants are therefore not simply constructing new facilities; they are attempting to compete against established refining hubs that already benefit from integrated supply chains, operational experience, and long-established customer relationships.
This commercial reality has important implications for investment. Processing facilities require substantial upfront capital and often take years to generate returns, making investors particularly sensitive to uncertainty. Thereby, the issue is often whether projects can actually attract capital.
Copper, for instance, benefits from a globally recognised benchmark pricing, deep futures markets, and well-established risk management instruments. Many critical minerals, by comparison, still operate within less developed market structures, where pricing transparency, liquidity, and contracting norms vary significantly.
As a result, investors face greater uncertainty when assessing long-term project economics, reinforcing the concentration of processing capacity in established refining centres.
Building the missing middle: Indonesia’s nickel experiment
Rather than remaining a supplier of raw nickel ore, Jakarta sought to move up the value chain through a series of downstreaming policies, culminating in aban on nickel ore exports in 2020. By restricting exports of unprocessed ore, the Indonesian government aimed to channel investment into domestic smelting and refining capacity, rather than overseas processing hubs.
The policy was controversial. Critics argued that export restrictions distorted markets and disrupted global supply chains. Yet the results have been difficult to ignore. The number of nickel smelters increased from just two in 2014 to more than 40 within a decade, while exports evolved from roughly$6 billion of nickel ore in 2013 to around$30 billion of nickel and nickel-based products by 2022.
However, Indonesia’s nickel industry is still evolving and questions around environmental standards, market concentration, and long-term competitiveness remain. Nevertheless, its experience offers an important lesson for countries seeking to diversify critical mineral supply chains. While resource abundance can provide the foundation, building the missing middle requires both strategic policymaking and targeted investment aimed at establishing industrial infrastructure.
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The race for critical minerals is often framed as a race to secure resources. Increasingly, however, the challenge lies in where these resources are transformed.
As governments seek to build more resilient and diversified supply chains, refining capacity may prove to be the most critical resource of them all.
