Australia close to breaking China’s critical mineral stranglehold

Daftar Isi

Australian companies are nearing the point where they can break China's grip on the supply of rare minerals crucial for the world's most vital defence systems, electric vehicles, and the clean energy shift.

Firms such as Iluka Resources, Lynas Rare Earths, and various lithium miners are currently refining, or are close to producing, the minerals required for batteries, electrical circuitry and high-strength magnets that are crucial to the world's shift to renewable energy.

Light rare earth compounds, such as neodymium and praseodymium, are being used in aircraft engines, electronic devices, wind turbines and electric vehicles over here. The heavy rare earths, like dysprosium and terbium, which China has a very tight hold on, play a vital role in the high-strength magnets used in robots, defence technology and ocean wind turbines, where they can generate power for a long time without needing much maintenance, often far out at sea.

The minerals refined by Australian companies have become a valuable resource, given the shift by the US under President Donald Trump towards a more transactional trade relationship, and China responding to US tariffs by cutting back on exports of scarce metals.

If Australia gets pulled into a trade war with the US and China, "heavy rare earths could serve as a bargaining chip," said Neha Mukherjee, a senior analyst in rare earths at Benchmark Mineral Intelligence.

Within hours of Trump slapping a 10 per cent tariff on China last week, Beijing smacked a ban on exporting a bunch of important minerals like tungsten, tellurium, molybdenum, bismuth and indium that are crucial for a lot of top-notch gizmos. China's Commerce Department claimed the ban was to "protect Australia's national security interests."

News of the clampdown reveals a significant rift affecting the global economy.

China has thrown a fair bit of resources into perfecting the production of vital minerals and rare earths over decades. It supplies a whopping 90 per cent of all rare earth oxides used in global manufacturing, effectively holding the reins on the supply of key heavy rare earths. As a result, governments around the world are in a rush to get their hands on the key minerals.

"Rare eathas are among the very few metals where China’s shown a willingness to hold back supply to get what it wants, entirely separate from trade talks. We’ve also seen China put the squeeze on exporting eath processing know-how in the past," Iluka managing director Tom O’Leary said.

"We've all seen the problems associated with mainland supply chains over the last few years, and so there's a much greater awareness now of the significance of supply chain security," O'Leary said.

Iluka's setting up a state-of-the-art rare earths processing factory in Eneabba, Western Australia, with a $1.65 billion Government loan. Inside ten years of commencing operations in 2027, it'll amount to 10 per cent of the world's rare earth oxide supply, and be refining over a third of the world's strategic high-grade rare earth oxides, the company claims.

G'day mate, we're seein' more and more critical minerals bein' used as leverage in trade negotiations, with countries gettin' in behind their control over supply chains to try and get a fair dinkum deal

Cameron Perkins, analyst at Benchmark Mineral Intelligence.

Meanwhile, ASX-listed Lynas – valued at $6.5 billion – late last year fired up production at its newly built $800 million mixed rare-earths processing mill in Kalgoorlie. It'll ship the carbonate output from Kalgoorlie to Malaysia for further refining, where it operates the world's largest single rare earths processing plant that produces separated rare earths for export.

Lynas is also building a heavy rare earths refinery in Texas, backed by $384 million in funding from the Defence Department, as part of the Biden administration's efforts to speed up America's access to rare earth resources.

Another Benchmark analyst, Cameron Perks, said if the US-China trade war escalates and gets worse with new tariffs and export restrictions, it's going to have a big impact on the critical minerals industry as a whole, mate.

“We’re seeing critical minerals getting used more as bargaining tools in trade discussions, with countries using their control over supply lines to negotiate a better deal,” Perks said.

“People from South Korea and Japan are reaching out to Australia as they try to work out what's happening with supply, demand, pricing and cost curves because of Trump's policies. They want to know if there's an opportunity for them or if they should be reconsidering their plans.”

Australia's current rare earth output from mines is a tiny 1 per cent of global production, as stated by Mukherjee. Predictions indicate that this will skyrocket to 14 per cent by 2029 – an growth rate that's the quickest outside of China.

Boosting refining capacity is a costly, technically difficult and lengthy process. Not many have got the head start needed to compete with China, even on simpler materials like lithium.

ASX-listed IGO started churning out battery-grade lithium hydroxide at its Kwinana Refinery in Western Australia in partnership with China's Tianqi Lithium in 2022. But IGO had to close parts of the operation back in January due to a s Soft demand for electric vehicles and a nosedive in lithium prices leading to a mountain of surplus stockpile around the world.

Fair dinkum, the Market Recap newsletter is a good yarn of the day's trading. Pull up each weekday arvo. .