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Rare earth elements are notoriously challenging to extract and process, making their distribution and supply all the more critical.
In a significant political move, Australia’s Prime Minister Anthony Albanese vowed to allocate A$1.2 billion (£580 million) for a strategic reserve of critical minerals, pending a successful outcome in the upcoming election amidst rising trade tensions.
This initiative follows China’s recent imposition of export limitations on seven rare earth elements vital for various advanced technologies, including electric vehicles, military jets, and automation robotics.
While China’s restrictions affect all nations, many observers interpret them as a countermeasure to tariffs introduced by the United States under the Trump administration.
Albanese emphasized Australia’s intent to prioritize minerals crucial for national security and for its allies, particularly focusing on the significant role of rare earths. This leads to the question: could this new proposal potentially challenge China’s prevailing dominance in this sector?
Understanding Rare Earth Minerals and Their Significance
Rare earth minerals encompass a set of 17 elements regarded as “rare” due to the complexities involved in their extraction and refinement.
Essential for the advancement of crucial technologies poised to influence the future, rare earths, such as samarium and terbium, are also key components in electric vehicle production and sophisticated weaponry.
Albanese’s proposed reserve aims to include these rare elements alongside other critical minerals like lithium and cobalt, where Australia stands as a leading producer.
Though both China and Australia possess rare earth deposits, approximately 90% of the refining necessary for technological application occurs in China, conferring the nation with considerable control over global supply lines.
This concentration of refinement capabilities has raised alarm bells among Western governments.
Reasons Behind China’s Export Restrictions on Rare Earths
The Chinese government has stated that its restrictions on rare earth exports are a direct response to the extensive tariffs levied on Chinese goods by the United States, which currently stand at 145%.
However, analysts argue that the inability of the U.S. to secure a reliable supply of rare earths has emerged as a significant concern for the Trump administration, particularly amid increasing diplomatic rifts with China.
According to the U.S. Geological Survey, about 75% of the rare earth imports for the United States originated from China between 2019 and 2022.
Philip Kirchlechner, director of Iron Ore Research in Perth, remarked that the U.S. and European Union have historically underestimated the strategic importance of rare earth minerals, allowing China to establish a refining monopoly.
“China has its foot on the blood vein… of U.S. and European defense systems,” he noted.
Elon Musk, the CEO of Tesla, recently highlighted the impact of these export controls, claiming that China’s decision to halt the shipment of rare earths crucial for advanced magnets is hindering the company’s robotics development, showcasing the tangible repercussions of China’s market influence on U.S. enterprises.
Potential Implications of Australia’s Proposed Strategy
Albanese’s proposal suggests that the strategic reserve will be accessible for both domestic industries and international partners, likely signifying collaboration with allies like the U.S. and EU.
However, while Kirchlechner views the plan as a “long overdue” initiative, he cautions that it may not comprehensively address the larger issue at hand.
Even if Australia manages to stockpile critical minerals, the refining of rare earths will continue to be predominantly controlled by China.
Consider lithium, not categorized as a rare earth but essential for the production of electric vehicle batteries and solar panels. Australia accounts for 33% of global lithium mining, yet only refines and exports a minor portion, while China possesses a mere 23% of lithium extraction but refines 57% of the total according to the International Energy Agency.
Australia has made investments to enhance its rare earth refining capabilities under its Future Made in Australia plan, aiming to utilize its critical mineral reserves to facilitate the transition to greener technologies.
Arafura Rare Earths, based in Perth, received A$840 million in funding last year to establish the first combined mine and refining facility for rare earths in the country. Additionally, Australia recently inaugurated its first rare earth processing plant, operated by Lynas Rare Earths in Western Australia.
Despite these advancements, forecasts from the Center for Strategic and International Studies indicate that Australia will remain reliant on China for refining capabilities until at least 2026.
Reactions from the U.S. and China
In light of the turbulent trade dynamics instigated by Trump, China appears eager to capitalize on the situation.
The Chinese ambassador to Australia has criticized Washington’s trade policies through a series of editorials, urging Australia to collaborate with Beijing, a proposition that Albanese has firmly rejected.
During discussions with Trump, Australia highlighted its resource sector; some critical minerals were exempted from the 10% tariff he applied on various Australian imports.
However, analysts contend that Albanese’s strategy primarily aims to bolster Australia and its allies against potential threats from countries like China.
Alicia García-Herrero, chief economist for Asia-Pacific at Natixis, described Albanese’s plan as “more sophisticated” than prior initiatives, as it offers Australia the flexibility to market its resources during economic uncertainties.
Should China enact further export restrictions, Australia could leverage its mineral reserves to stabilize prices in global markets and mitigate China’s pricing control.
Nonetheless, García-Herrero warns that Australia cannot fully replace China in this landscape. “If [Australia’s] goal is to serve the West, especially the U.S., there are weak points China can exploit – primarily in refining,” she concluded.
Source
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