Trade Zone: Canada’s big critical minerals push

A critical leadership moment

By Jordan Brennan, Head of RBC Thought Leadership

• Prime Minister Mark Carney is back in the headlines today, this time in London with U.K. Prime Minister Keir Starmer. At stake: trade diversification and the kind of economic and security alliances that will define the coming decade. No doubt the security situation in Europe forms part of the backdrop to the conversation, including Russia’s alleged incursions into NATO airspace.

• This week’s meeting builds on talks from June. Back then, the development of the UK-Canada Economic and Trade Working Group got rolling, which will make recommendations on barriers to trade and critical minerals, among other topics.

• Carney is in a strong spot to lead. With the global order splintering, new partnerships are required to foster security and prosperity. Critical minerals sit at the nexus of both. Secure and stable access to critical minerals is a pre-condition for economic dynamism and geo-political security in the 21^st century. They not only underpin the defence industry—their applications span space exploration, clean technology, the digital economy, health care and much beyond.

• Here’s the problem: NATO and allied countries lack a cohesive strategy. This is Carney’s opportunity to shine. The Canadian government could craft a critical minerals strategy in partnership with allied countries that secures supply chains while attending to the dangerous concentration risk posed by China.

• As noted in a recent RBC Thought Leadership report, The New Great Game, China is way out in the front, controlling between 60% and 90% of refining capacity for lithium, cobalt, rare earths, and graphite.

• Building on Canada’s abundant mineral resources, the strategy would leverage Canada’s strength as the global centre for mining excellence. From copper to cobalt, uranium to nickel, lithium to graphite, Canada possesses the raw materials that nourish frontier industries and the engineering and financing capabilities to drive product to market. 

• The U.S. is taking bold steps in this space, too. Earlier this week, the White House announced it is seeking a 10% equity stake in Lithium Americas, a Vancouver-based company miner. Backed by a Department of Energy loan, Lithium Americas is developing what may become the largest lithium mine in the Western Hemisphere, built in Nevada.

• As it happens, RBC hosted a delegation this week from Washington. Two dozen staff officials from Congress (from both sides of the aisle) and the Canadian Embassy explored the possibility of a critical minerals partnership between Canada and the U.S. Coupled with Washington’s positioning on Lithium Americas, enhanced cooperation on critical minerals might be one avenue to strengthen Canada’s trading relationship with the Americans.

The week that was

• Prime Minister Mark Carney will attend the ASEAN summit in October, amid talk of a potential trade deal between Canada and the Association of Southeast Asian Nations bloc at some point next year

• Canada should consider making a “business case” to supply liquefied natural gas (LNG) to Germany, its ambassador suggested recently. Germany currently imports about 90% of it’s LNG from the U.S.

• If an international pharmaceutical company isn’t building a manufacturing plant in the U.S., its drugs will have a 100% tariff levied on them starting October 1. Foreign-made heavy trucks (25%) and household furniture (30%) will also face new tariffs starting next week.

• Trump promised U.S. farmers, who largely voted for him last November but have been hammered by his trade policy, relief by giving them “some of that tariff money.”

• The American aerospace giant Boeing may soon land a massive contract with China—potentially a centerpiece of the ongoing U.S.-China trade talks.

• Most countries are performing better than expected despite the pressure of tariffs, according to a new report from the OECD.

Tapping Indonesian nickle

By Shaz Merwat, Energy Policy Lead

After four years of negotiations, Canada signed a Comprehensive Economic Partnership Agreement (CEPA) with Indonesia last week.

The deal is expected to increase Canadian exports by $447 million–a paltry 0.04% increase over current figures. Still, it provides Canada with a call option on Indonesia’s economic growth. The country is expected to become a Top 5 global economy by mid-century and a vast market for Canadian agriculture, food products, machinery, services and even nuclear technology.

The announcement follows on the heels of the Trump Administration’s reciprocal trade deal with Indonesia, moving quickly to secure valuable critical mineral market access and resources—notably nickel. Indonesia agreed to remove its export restrictions on ore, allowing raw and semi-processed nickel to be shipped to the U.S. for refining and keeping the supply chain out of Chinese-operated Indonesian smelters.

For Canadian miners, the nickel arithmetic is likely negative. According to BNEF, Indonesia’s production of Class 1 Nickel (the higher quality needed for batteries) is expected to reach 1.6 million metric tonnes by 2030, accounting for 52% of the global supply. This puts Indonesian supply in direct competition with Canada (240,000 metric tonnes by 2030) and allows for more tariff-free nickel flows to land in North America–positive for North American security of supply but possibly at the expense of Canada.

The U.S. trade deal with Indonesia is the more impactful and given the lack of domestic mineral resources in the U.S., diversification of resources is key. For Canada, the focus remains leveraging our shared national security interests and economic integration to become a de-risked source of supply; competitive advantages that are more challenging for other trade partners to replicate.  

Bottom line