Strategic Consideration and Optimal Timing of Critical Mineral’s Depletion, Recycling, and Substitution

The global shift to renewable energy technologies has sharply increased demand for critical minerals, highlighting the need for strategies to mitigate supply chain vulnerabilities. This paper analyzes strategic interactions between exporting and importing countries in the critical minerals market, with a focus on recycling and substitution as alternative responses to scarcity. We develop a dynamic game model in which the importing country invests in recycling and substitution technologies, while the exporting country optimizes its supply strategy. The analysis is framed within a Markovian subgame-perfect Nash equilibrium and features regime-switching across four market modes: exclusive reliance on non-renewables, recycling readiness, substitution readiness, and coexistence. Minera criticality, captured through minimum demand levels (i.e., higher demand signals greater criticality), shapes competition intensity and strategic timing.
Our key contributions include the derivation of regime-switching conditions using impulse control, characterization of optimal strategies under each market mode, and identification of multiple Nash equilibria in the presence of recycling. Low criticality leads to aggressive competition and constrained supply, whereas high criticality triggers earlier substitution and increased supply to secure market stability.