Australia’s Rare Earths Strategy: A Response to China’s Export Restrictions

Australia's Prime Minister Anthony Albanese has announced a plan to invest A$1.2bn in critical minerals amid China's recent restrictions on rare earth exports, aimed at reducing dependency on Beijing and securing supply for advanced technologies. Despite these efforts, challenges remain due to China's dominance in refinement processes.

Australia’s Prime Minister Anthony Albanese has unveiled a proposal to invest A$1.2 billion (£580 million) in a strategic reserve for critical minerals, coinciding with heightened trade tensions stemming from China’s recent export restrictions on seven crucial rare earth elements. These minerals are vital to the production of advanced technologies, particularly in sectors such as electric vehicles (EVs), military applications, and robotics. The restrictions imposed by China are perceived as retaliation for the tariffs placed on Chinese imports by former US President Donald Trump.

Albanese's announcement indicates a focus on minerals essential for both Australia's security and its strategic partnerships, notably with allies like the United States and the European Union. A key question remains: can Australia's efforts effectively challenge China's near-monopoly on the rare earth supply chain?

Rare earth elements comprise a group of 17 metals known for their difficulty in extraction and refinement. Elements such as samarium and terbium are critical in technologies poised to drive future innovations. Australia is already a top producer of other essential minerals like lithium and cobalt. However, China controls approximately 90% of the global rare earth refining sector, which fortifies its position in the supply chain and raises concerns among Western governments.

The motivation behind China’s export restrictions is linked to its response to excessive tariffs, currently at 145%, affecting its trade with the US. Analysts highlight that the substantial reliance of the US on China for rare earth imports, which accounted for around 75% from 2019 to 2022, poses significant risks, particularly as geopolitical tensions escalate. Experts warn that a failure to secure stable rare earth supplies could compromise US defense capabilities.

In light of these developments, Elon Musk, CEO of Tesla, has indicated that the cessation of rare earth exports from China directly impairs Tesla's capacity to produce humanoid robots, illustrating the potential adverse impacts on US tech companies.

Albanese's proposed reserve aims to provide availability of these minerals for both domestic industries and international partners. However, experts such as Philip Kirchlechner, director of Iron Ore Research in Perth, caution that while the proposal is a step in the right direction, it is not a panacea for Australia’s challenges. Even with increased stockpiling, the essential refining processes largely remain within China's control.

Although Australia leads the world in lithium production, which is crucial for electric vehicle batteries, it only processes a small percentage of this resource, while China refines a significant portion of the world’s lithium. Australia is actively investing in domestic refining capabilities as part of its Future Made in Australia strategy, aimed at leveraging critical mineral reserves for a green transition. Recent initiatives include the establishment of the first combined rare earth mine and refinery by Arafura Rare Earths and a new processing plant launched by Lynas Rare Earths.

Despite these advancements, estimates suggest that Australia will remain dependent on Chinese refining capabilities until at least 2026. Meanwhile, China continues to navigate the geopolitical landscape, positioning itself to capitalize on the uncertainties created by US trade policies.

In response to these developments, China's ambassador to Australia has criticized the US approach to global trade while urging Australia to strengthen ties with Beijing, a proposition that Albanese's administration has firmly declined. Analysts interpret Albanese's strategy as primarily defensive against potential strategic adversaries such as China. In essence, this plan may enable Australia to counterbalance China's influence, allowing it to sell minerals during economic tensions to stabilize global prices.

Ultimately, while Australia’s intentions to become a key player in the rare earth market are commendable, the reality of its ongoing dependency on China for refining presents a formidable challenge to achieving complete autonomy in this crucial sector.