Has Trump set Australia up for a rare earths price war with China?
Who will ensure the ‘exit’ of Australia’s rare earth mining boom? Jude Manning Expectation of price war and long-term government subsidies in China.
Anthony Albanese sparked plenty of media fanfare with his successful visit to Washington this week, despite the odd hysteria over a rather humorous exchange between Trump and Ambassador Kevin Rudd. The agreement covered AUKUS and critical minerals; where they announced joint funding for projects in Australia and the US in an effort to shift supply chains away from China.
Unsurprisingly, we didn’t sweat the AUKUS at all, even though the deal apparently needed to be ‘supported’. The king has made a habit of squeezing his allies lately, so by approving the submarine deal without a second glance, Trump tells you everything you need to know about how good this deal is for him.
AUKUS. Deal of the century! …for Americans
Critical Minerals
The “stuff” was in critical minerals. The “US$8.5 billion deal” actually involves each country committing just US$1 billion to kick-start projects in the US and Australia. The US$8.5 billion figure speculates on the value of the projects and predicts that the US$6.5 billion shortfall will be covered by private sector financing. A cynic might suggest that the US and Australia have agreed to spend US$1 on their critical mineral industries.
Here in Australia, two projects have been approved: $307 million on the Alcoa-Sojitz Gallium refinery and $153 million for Arafura’s Nolans Rare Earth Project; A further nine projects have been approved from the US and Australian governments, including upgrades to Nyrstar’s Port Pirie smelter to produce Antimony.
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Rare earths are a subset of critical minerals, which refer to 17 elements with similar optical, magnetic and electrical properties. Contrary to their name, they are not particularly rare. They are found in low concentrations worldwide but are difficult to extract in large quantities.
Rare earths are essential for all kinds of advanced manufacturing, from solar panels and wind turbines to jets, data centers and oil refining.
The aim of the agreement is to break China’s stranglehold on the mining and processing of critical minerals, especially rare earths. China currently accounts for approximately 70% of rare earth mining and 90% of global processing. The deal comes in response to China imposing restrictions on the proliferation of rare earth elements or products containing them, raising fears of economic pressure from China.
Benefits for Australia
Climate Energy Finance Director Tim Buckley was optimistic about the deal, arguing Australia should leverage its natural advantages as well as its position in the US-China trade war to move up the export value chain by expanding onshore processing and refining capacity.
“It’s time for Australia to stand up and look after its geopolitical interests… Other countries are subsidizing their own industries while we play in the free market. That means we lose.”
Buckley said he would like to see Australia make such agreements with other governments such as Japan, India, the UK and the EU. He also argued that developing this capability was crucial to Australia’s Made in Australia Future plans, suggesting that relevant technology transfer, expertise, infrastructure and capital could improve the viability of neighboring projects and industries such as Green Iron.
“The content and continuation of the words will be key to the credibility and real-world impact of this new announcement.”
environmental concerns
But the open questions about this agreement are not just a matter of content. The two parties have promised to cut red tape and green tape to get projects up and running as quickly as possible, leading to concerns that environmental and social consequences will not be properly taken into account. Or if so, the proposed project timelines are unrealistic.
The agreement states:
“Participants take measures to accelerate, facilitate or deregulate To permit timelines and processes, including the obtaining of critical minerals and rare earth mining, fractionation and processing permits within the relevant local regulatory systems, in accordance with applicable laws.”
The prospect of rushing environmental approvals is particularly frightening given the nature of rare earth mining and refining, which is known to be environmentally damaging and water-intensive. Processing rare earths often involves separating them from radioactive materials such as uranium and thorium, which are very difficult to deal with. This is one of the reasons why we have given up on rare earth mining.
Who pays the bill?
The other big question when it comes to pouring taxpayers’ money into critical minerals in Australia is who will guarantee the output – the agreed floor price for production. Fierce price competition from China, which already produces enough rare earths to meet global demand, is inevitable.
“About a year from now we’ll have so many critical minerals and rare earths that you won’t know what to do with them. They’ll be worth about two dollars.”
Trump said it perfectly. Breaking China’s grip on rare earths will inevitably result in oversupply: the West has decided it wants to cut off 90% of the current market. Experts and industry leaders are sober on this issue
The sector will be dependent on government support in the long term.
Made in Australia No matter how clear our visions of the future are, Australia’s demand for rare earths and critical minerals is nothing compared to advanced manufacturing countries such as Japan and the USA. Are there any businesses in Australia subsidizing an industry that, by his own admission, is unprofitable?
There would be benefits to switching to rare earth mining and processing if countries that really need the final product raise capital. (Even the Central Bank warned This week, it was revealed that rare earths may be a “trick rather than a boom.”
Even so, will Australians see royalties for their natural resources? It’s easy to imagine how a critical mineral ‘boom’ turns into another LNG, where we attract a foreign industry, leading to huge environmental costs.
In exchange for few jobs and little tax and royalty revenue, profits go overseas.
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