Quick Bite – Trump and Albanese Conclude Rare Earths Deal
PM Anthony Albanese must be heaving a huge sigh of relief. He was able to walk away from a meeting with President Trump with not only his dignity intact (unlike Kevin Rudd) but with a good economic deal tucked into his briefcase. The new $4.6 billion Trump-Albanese deal on critical minerals will hopefully unlock a wave of rapid investment in the sector that will thrust Australia into a key role in US efforts to break China’s stranglehold on elements crucial to defence and renewable technologies like electric vehicles and battery technology.
Source: Visual Capitalist
The deal, which includes offering guaranteed price floors for new producers and blocking asset sales on security grounds, might upset China, which processes up to 90% of the world’s rare earths and dominates refining of lithium, graphite and gallium, giving it almost monopoly power across key inputs in everything from smartphones to missiles, drones and jet fighters.
Source: Visual Capitalist
Source: Goldman Sachs
A surge in Australian critical minerals companies pushed the sharemarket to a record high on 22 October after the deal was signed in Washington, and mining executives in Australia predicted it would turbocharge the sector at an unprecedented speed and scale.
The big question: Can a US-Australia Partnership Shake China’s Grip on Rare Earths?
Australia has the reserves and mining expertise, and the US is eager to invest in alternatives to China. But building mines, refineries and factories could take years. Australia is estimated to have at least 5-6% percent of the world’s reserves of rare earths and accounts for somewhere between 3-8% of global production.
Source: Goldman Sachs
The tricky part with these elements is less about digging them out of the ground, and more about the technological capacity to process them and the environmental degradation the process can entail, if not done carefully. They occur in low concentrations and are chemically challenging to isolate. Despite being essential, the metals are needed in very small quantities. That makes it less likely to be economically viable for private companies to invest in developing the expertise needed for their production.
Source: Statista
Importantly, Australia has a strong and resilient mining sector, a major branch of our economy, and the expertise and industry built around it. Australia has around 89 active rare earth exploration projects on the go at present, more than any other country, according to the Center for Strategic and International Studies.
Source: Visual Capitalist
Geological deposits of rare earths are just the start. Obtaining permits for a new mine is highly time-consuming, and building mines takes years. Setting up refineries to separate rare earths from ore also takes years. After that comes the difficult chemical processes required for separation. Nothing is quick, everything is complex, costly, fraught with environmental issues. Do not hold your breath on this project.
China Dominates Refining.
Source: GS
The PM’s office announced financial commitments in 2 projects on Australian shores. One is a rare earths mine in the Northern Territory that his office said would contribute up to 5% of global supply. The other is an investment in a gallium project in Western Australia, expected to eventually produce 10% of the world’s supply of the metal, which is used in specialized semiconductors needed for transmitting data along fiber optic lines.
The agreement also says the governments will intervene if projects are not commercially viable. China has in the past flooded the global market with rare earths to drive down prices and drive competitors in other countries out of business. Note that the rare earths market, which while vitally important, is very small in the greater scheme of commodity markets. Estimates are that the rare earths market is in value ~33 times smaller than the copper market.
Last month, Chinese state media warned Canberra over its security cooperation with the US, saying it will not tolerate “infringements on its core interests.” It remains to be seen how the Albanese government succeeds or fails in this difficult task of pleasing its two most consequential relationships, especially when they are antagonistic towards each other. Where I come from, there is old proverb: “When the elephants fight, the grass gets trampled”. Australia will need exquisite finesse over the next few years if it is to play its geopolitical cards correctly.
As countries turn inward, and geopolitical competition increases, so the “Commodity Control Cycle” with rare earths perhaps in the final phase will assume outsized importance.
Source: Visual Capitalist