That involves the gap between theoretical modelling and mining reality, between geopolitical trends and national self-interest, and between talking up benefits of co-operation and delivering a sound business case.
Despite excitable rhetoric from Trade Minister Don Farrell about making Trump an offer he can’t refuse, there was never any prospect that promising reliable access to Australia’s critical minerals would ward off the president’s tariff obsession.
After all, the Albanese government has been selling that same agenda hard in Washington for a while – with little impact on US investment in actual projects despite official statements of good intentions.
It was only a few years ago that Australian politicians, markets and miners couldn’t get enough of the critical minerals boom story as the new economic growth driver for resources as well as the energy transition.
In May 2023, the Albanese government and the Biden administration signed a “climate, clean energy and critical-minerals pact” that Joe Biden praised as the “third pillar of the alliance” along with economic co-operation and defence.
Since then, there’s been little detail and even less US funding to turn that pact into practical outcomes by co-operating on new critical minerals projects. That is despite the many years it takes to get from exploration to investment to first production.
Of course, the Albanese government is not alone in pushing the necessity for more non-China processing of critical minerals, especially of rare earths. But as well as a shared interest in limiting China’s ability to turn supplies on and off, Labor promotes the image of a revitalised domestic manufacturing sector as a result.
This optimistic vision has been badly punctured by the global collapse in prices for minerals such as lithium, nickel and rare earths – due in part to that continuing ability by China to turn supplies on and off.
Weaponry and electronics
Flooding the global market or withdrawing access to key processing technology and IP, for example, makes it harder for other countries trying to catch up after belatedly realising the risks of allowing China to come to dominate global markets and complex technology over the last few decades.
Supplies and processing of rare-earth elements are of particular concern given their vital role in advanced technology, including weaponry and electronics, and the high level of Chinese control over production and processing.
But with current low prices for many critical minerals, companies usually can’t fund a viable business case. Investment often only makes sense for broader and long-term strategic reasons, rather than any prospect of capitalising on short-term returns.
The Albanese government has been trying to help fill this funding gap with a variety of cheap loans and guarantees as companies struggle to progress final investment decisions on commercial grounds. It’s also why the government has legislated production tax credits for critical minerals processing starting in 2027.
A handful of Australian critical minerals projects, including rare earths, are now slowly getting built. Most are still pending given uncertainty about when or if there will be an eventual rise in prices.
But the government’s continuing belief in the ability to trigger a major boost to domestic manufacturing via critical minerals processing has always been dubious given Australia’s high costs and the absence of a sustainable domestic market.
Hard economics suggests major customers such as South Korea, Japan, Europe or the US may prefer to mostly import Australia’s raw materials for further processing and manufacturing in their own countries. It’s not as if small amounts of rare earths, for example, are bulk commodities with massive transportation costs.
Long-term supply
Trump’s fanatical focus on reviving manufacturing jobs in the US only makes the notion of US investment in boosting such jobs elsewhere more challenging.
So the government is banking more on patient capital from other countries accelerating their willingness to invest in Australian projects to ensure reliable long-term supply.
Japanese funding, for example, helped Lynas Rare Earths survive a cash crisis more than a decade ago after China manipulated market pricing to deter competitors.
The Japanese government is in discussions with Alcoa about a possible gallium project in Western Australia. Gallium, one of the rare earths needed for semiconductors, is a byproduct of bauxite.
Alcoa won’t comment on specifics but “is interested in working with partners to find an economic solution which could contribute to production of this critical mineral”.
In response to the Biden restrictions on advanced technology exports, China announced a ban last December on exports to the US of gallium and other rare earths.
The explosive pace of the Trump administration means America’s next moves in this strategic contest are unpredictable – as are China’s. There’s no quick fix to any of it.
