Nonlinear Supply Dynamics and Strategic Extraction in the Critical Mineral Market

Abstract

Critical mineral markets exhibit nonlinear price responses, constrained supply adjustment, and substantial asymmetries between dominant and emerging producers. This paper develops a dynamic two-player model of strategic critical-mineral extraction involving China and the rest of the world (ROW). The model combines discovered-reserve dynamics with a reduced-form nonlinear cubic price function and is solved using a Nash–Model Predictive Control framework with finite decision horizons. Three scenarios examine the effects of changes in the ROW’s marginal extraction cost and production support. The simulations show that reducing the ROW’s marginal cost substantially increases its extraction and profitability. Continued production support strengthens this effect, but also raises aggregate extraction and accelerates reserve depletion. When support is removed, the ROW remains viable and profitable, although its extraction and profits are lower than in the supported case. Longer decision horizons induce earlier extraction restraint and preserve a larger stock of discovered reserves. The reported solutions remain within the downward-sloping region of the nonlinear price function and should therefore be interpreted as regime-specific Nash–MPC equilibria. The results highlight a policy trade-off between supply diversification and long-run resource conservation.

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DOI

10.2139/ssrn.7002618

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https://papers.ssrn.com/sol3/papers.cfm?abstract_id=7002618

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