Critical minerals account for a small share of downstream product prices – tripling rare earth prices would increase the cost of a car by just 0.1%.  An important element, often missing in critical mineral policy discussions, is a quantitative assessment of the cost share of critical minerals in downstream products and the impact of changes in critical mineral prices on the prices of these products. First, understanding price impacts is essential for emergency response strategies. It helps identify where disruption risks are most severe and where temporary support may be required. Second, it is crucial for the design of policy tools for supply chain diversification. Diversified projects generally have higher cost structures than incumbent suppliers, meaning that there is an additional cost of diversification. Understanding the magnitude of the price impact can therefore inform the design of appropriate policy instruments and burden-sharing mechanisms.

The additional cost of diversification may be considered a “mineral security premium”, acting as an insurance policy against major supply risks. Our analysis shows generally critical minerals account for a significant fraction of midstream components but a small share of downstream product prices. For example, critical minerals account for around one-quarter of battery cell costs but only about 3% of the price of an average EV, while rare earths represent around 40% of permanent magnet costs but less than 1% of the value of a car. Tripling rare earth prices would increase the cost of a car by just 0.1% while tripling the price of battery mineral prices would increase the final price of EVs and storage systems by just 5%. These results show that downstream users may be able to absorb higher material costs, providing scope for diversified sourcing without materially affecting end-product prices. This additional premium associated with diversification may be viewed as an insurance policy against major supply risks. This can be considered a “mineral security premium”, pricing in strategic and economic security risks. Ultimately, this is an issue of strategic risk management, and the premium could be shared between governments, industry, and consumers.

Building diversified critical mineral supply chains will require the cultivation of an ecosystem that addresses the key structural barriers preventing competitive supply from coming and staying online. Projects outside established producers frequently face higher costs, including 20% to over 150% higher capital costs and 50% higher operating costs for refining projects in the rest of the world as compared to today’s leading producing countries. Higher plant costs reflect the lack of larger industrial bases, while higher feedstock and process input costs reflect lower economies of scale, plant utilisation rates and process efficiencies. Market structures, including limited price transparency and demand uncertainty in some mineral markets, also contribute to elevated risks and provide challenges to financing.

A combination of targeted, well-designed supply- and demand-side measures can de-risk investment and crowd in private capital to build diversified supply chains. Capital and operating support measures, as well as risk-sharing mechanisms, can improve project bankability and investment incentives. These can help ease upfront financing constraints and crowd in private investment through instruments such as direct equity investments; improve project competitiveness by reducing ongoing operating costs through measures such as refundable tax credits; or mitigate price and volume risks through mechanisms such as price cap-and-floor schemes or offtake backstops.  Demand-side measures can complement supply-side support by creating predictable markets for diversified supply, using tools such as sourcing requirements, demand aggregation and facilitated offtake arrangements to provide revenue certainty and create consistent, sizeable and growing demand bases. The most suitable policy mix will vary across minerals and value-chain segments depending on market structure, scale and value chain characteristics.

Well-designed measures should balance improvements in project bankability against fiscal costs and risk, as different policy tools can have markedly different impacts. For example, analysis of rare earth refining shows that price-support mechanisms can raise the internal rate of return by around 2.4 percentage points for a typical project outside the leading supplier with an average annual fiscal cost of around USD 18 million over the support period, while upfront cash grants deliver a 1.3 percentage point increase at USD 3.5 million per year. These results highlight the importance of calibrating both the type and level of support to the specific needs of each mineral market and supply chain.

Diversified project development needs to be viewed through an ecosystem lens, paying special attention to technology, equipment and workforce bottlenecks. The concentration of critical mineral processing and refining and end-use component manufacturing capacity has emerged as one of the most significant vulnerabilities in global supply chains. While mineral resource endowments are often geographically diverse, the intermediate processing and refining stages required to produce materials that conform to strict industry specifications for the manufacturing of batteries, magnets or semiconductors remain highly concentrated. In each mineral supply chain, competitiveness of diversified projects depends on a whole ecosystem comprising specialised technology, machinery, equipment, reagent availability, precise process control and optimisation, waste and environmental impact management, scientific and engineering expertise and integration with downstream manufacturing sectors. As a result, many of the barriers facing new entrants are complex and multifaceted. They arise from accumulated operating experience, industrial clustering and economies of scale.

In many cases, there are very few suppliers of specialised machinery and equipment outside the dominant supplier, making them more expensive and increasing the time required to acquire them. Even once the equipment is procured, process optimisation, a prerequisite for producing materials with low defect density that pass certification for high-tech industries, is often time-consuming. Given the presence of well-established chemical industries in many regions, reagents are often much more widely available than machinery, but still tend to be more expensive outside the dominant supplier, and infrastructure for their proper handling, storage and disposal adds to overall costs. In the current context, affected by events in the Middle East and the subsequent export control announcement from China, sulphuric acid, which serves as a reagent for the pre-processing of several critical minerals, including copper, lithium and rare earths, has emerged as an important bottleneck.

The gaps in costs and lead times observed today are a function of the high levels of supply chain concentration and the lack of major industrial bases outside the dominant supplier. Looking at examples from rare earth elements for high-performance permanent magnets, cathode-grade lithium chemicals, anode-grade graphite, and semiconductor-grade gallium, we see that the gaps in the ecosystem can significantly impact the time and costs for diversified project development. Only a handful of suppliers provide key graphite processing equipment, while ultra-high-purity gallium refining and compound semiconductor manufacturing rely on only one or two specialised equipment suppliers. In rare earth magnet production, grain boundary diffusion – a key technology to enhance magnet performance – is highly patented, with only one equipment supplier outside China and equipment costs reportedly more than ten times higher, alongside longer lead times. Recent export controls targeting not only critical minerals but also processing technologies and equipment underscore the importance of closing these capability gaps. Addressing these challenges will require a holistic approach combining innovation, workforce development, policy support and international co-operation to build the technological foundations for diversified and resilient supply chains.