China’s dominance over the supply of many of the critical minerals needed in industries from chipmaking to electric vehicles has long been a headache for politicians in Washington and other major capitals. In the past year, the problem has become even worse.

A flood of Chinese supply has led to record low prices for minerals like lithium, nickel and cobalt, stalling efforts to encourage producers in the U.S. and allied countries like Australia and Canada to build up reliable supplies of their own. Instead, they have idled mines and delayed investments in new projects.

Now, policymakers are toying with ambitious remedies. One idea that has gained traction: a critical mineral stockpile, akin to the U.S.’s strategic petroleum reserve (SPR) in which the government stores millions of barrels of oil. Influential proponents include Democratic presidential hopeful Kamala Harris, who included it in her campaign’s policy platform in a speech in late-September, as well as the House’s select committee on China. 

A strategic stockpile of minerals like lithium and cobalt could act as a buffer against the kind of huge price swings of key metals seen recently, insulating producers and reassuring would-be investors. Combined with other tools like futures contracts, the government could buy up supplies when prices tank, and sell off reserves when prices spike due to supply shortages. 

It’s the latest example of how policymakers in Washington are considering bold market interventions in the interest of competing with China. But experts say that key questions about what a stockpile would look like and how much it would cost still need to be answered. 

“Given the prolonged period of market volatility, there’s broad consensus that the industry needs price support,” says Gracelin Baskaran, director for the Critical Minerals Security Program at the Center for Strategic and International Studies. “Stockpiles are important, but they can’t be the be-all and end-all of critical minerals policies. What commodities should we stockpile, and what other mechanisms are we putting in place to complement it and build mineral security?”

The U.S. has stockpiled strategic minerals since 1939 — two years before it entered World War Two — to ensure it has enough materials in case of conflict. Some of its largest reserves include manganese, chromium, zinc and tungsten. The stockpile is managed by the Defense Logistics Agency, a branch of the Department of Defense, and stored in six locations around America. Its acquisitions are largely self-funded by revenue from past stockpile sales. 

Yet this National Defense Stockpile is a fraction of its peak size, as most of it was sold off in the aftermath of the Cold War. With about $900 million worth of stockpiled material as of September 2022, the reserve is $13.5 billion short of what would be required to support America’s critical infrastructure should the country go to war, according to an estimate by the Congressional Research Service.¹The DoD reports its stockpile volumes to Congress in a biennial report.

Beyond better covering America’s defense needs, stockpile proponents believe that the U.S. could use its procurement muscle to support raw material producers and incentivize domestic production. In 2023, the U.S accounted for just 5 percent of global lithium production, for example, and 0.2 percent for cobalt, according to the U.S. Geological Survey. A new cobalt mine in Idaho that was supposed to be America’s first was shuttered last year before it even opened after prices cratered. 

The Biden administration has exercised the SPR to incentivize domestic production before: Soon after Russia’s invasion of Ukraine in 2022, it released 180 million barrels of oil over six months to try to cool prices, and issued forward contracts through the Department of Energy that effectively put a floor on prices to encourage domestic oil producers to invest in future production. 

The move was criticized by some, including Republicans. But “this [decision was] actually an extension of what the SPR was conceived for,” says Arnab Datta, managing director at Employ America, a research group that advocates for more aggressively using the country’s reserves. “If you look at the governing stature of the SPR, it lays out a number of other goals that include encouraging competition in the petroleum industry, minimizing cost… and maximizing domestic supply of crude oil.”

Datta and others say the same principles should be applied to critical minerals such as lithium, and that building a stockpile would be relatively easy. Total global production of the silvery-white metal, which is an essential ingredient in electric vehicle (EV) batteries, remains a fraction of the volume of oil, or conventional metals like iron or copper. 

“The current price of lithium makes it a $20 billion market. So to stabilize it by buying, say, three percent, is like a $600 million intervention. So the dollars at risk for the government is really in the tens of millions,” says Alex Turnbull, partner at Keshik Capital, a Singapore-based hedge fund. “It’s pretty crazy how much stabilization you can get for not a lot of dollars.”

Direct subsidies to producers can ensure what is produced domestically is cost competitive with imported goods. If you want the U.S. to source domestically, you have to ensure it doesn’t cost households more money.

Gracelin Baskaran, director for the Critical Minerals Security Program at the Center for Strategic and International Studies

Proponents differ on their suggestions for which minerals to include in the stockpile. The House’s China select committee recommends a larger list of materials including cobalt, manganese, rare earths, vanadium, gallium, graphite, germanium and boron. Besides lithium, Turnbull also raises copper as one strategic mineral that the government could help stabilize. 

By expanding the mandate for the U.S.’s minerals stockpile, Washington would potentially be taking a page out China’s playbook. Through the National Food and Strategic Reserves Administration and its forebears, China has long been “the master of the game” when it comes to leveraging its stockpiles, says Gregory Wischer, principal at Dei Gratia Minerals, a critical minerals consultancy. 

“China’s stockpile has a dual purpose: one is defensive and the other is economic, to support domestic industry when prices get too high for downstream industries like the electricity sector, and then conversely when prices are too low and domestic producers like copper smelters have difficulty remaining profitable,” he says. 

What, exactly, China stockpiles is not publicly known, and Chinese authorities are rarely transparent about when they buy up and sell down their stockpiles. But because of the country’s dominance over much of the critical mineral supply chain, even rumors of its intentions can produce wild swings in the price of metals. For example, while Chinese lithium producers account for less than 20 percent of mine production, China refines more than two-thirds of the metal. For other metals like graphite, which has vital defense applications, Chinese refiners control more than 90 percent of the market. 

China’s outsized influence over the market, combined with its heavy investment in mining assets abroad, have helped it consolidate its control over global supply. An about-face by Chinese policymakers over electric vehicle subsidies in 2018, for example, resulted in a glut of lithium on the market. Chinese companies were then able to step in and acquire distressed lithium miners in Australia and Canada relatively cheaply. 

“Whatever the motivation, it was a state decision that had a tremendous impact on the competitiveness of the market,” says Datta. “Stockpiling is a way that the federal government can step in and help achieve the end goal, which is a competitive market we can compete in.”

Still, some experts warn that going all-in on a stockpile has risks. The ongoing battle between different battery chemistries in the EV sector, for example, means that it’s unclear how important nickel or cobalt will ultimately be to the battery supply chain. 

CSIS’s Baskaran notes that stabilizing the price of battery materials is not a panacea to the bigger woes facing the EV industry. 

“Domestic producers like Ford can’t turn a profit even with these rock bottom prices,” she notes. “Direct subsidies to producers can ensure what is produced domestically is cost competitive with imported goods. If you want the U.S. to source domestically, you have to ensure it doesn’t cost households more money.”

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