Australia has a key role to play in reducing China’s rare-earths dominance

US President Joe Biden has just signed an executive order launching a comprehensive review of America’s critical supply chains for strategically significant products and resources.

Among those are rare-earth elements, supplies of which the Biden administration says must not be ‘dependent upon foreign sources or single points of failure in times of national emergency’. ‘Foreign sources’ points a clear finger at one country which has dominated the market for decades.

China has used its near-monopolistic control of the global supply chain for rare-earth elements to strategic advantage against both the United States and Japan. The two countries have attempted to break China’s grip on rare-earth production over recent years using new green techniques.

As part of this effort, the US will reportedly accelerate efforts to work with Australia, Japan, South Korea and Taiwan to develop more resilient supply chains for semiconductor chips, electric vehicle batteries and other strategically significant products. However, there’s room for more strategic responses involving cooperation among Japan, the US and Australia to assure the mining and processing of the rare earths that are used to manufacture these products.

Rare earths are a group of 17 metals—15 elements from the lanthanide series and two chemically similar elements, scandium and yttrium. Each has unique properties that are vital for a range of commercial and defence technologies, including batteries, high-powered magnets and electronic equipment. An iPhone, for example, contains eight different rare-earth minerals, and there are probably a couple in your refrigerator and washing machine. They also make up about 420 kilograms of an F-35 fighter jet and are essential for guided cruise missiles.

Despite their name, rare earths are not all that rare. They’re present in abundance in the earth’s crust. The challenge, however, is finding them in sufficient concentrations to justify commercial mining operations. Securing the upfront financing required to build a mine in a location that will tolerate the substantial environmental impacts of establishing a rare-earth processing facility is no easy task.

Fortunately for China, the commercial viability of its reserves, Chinese companies’ access to state-backed financing and the country’s lax environmental regulations have helped build its dominance of the global rare-earth market.

According to the US Geological Survey, China accounted for at least 58% of global production of rare earths last year, and possibly up to 80% if you include illegal and undocumented production activity. China’s rare-earth production exceeds that of the world’s second-largest producer, the US, by more than 100,000 tonnes, and even then the US still relies on China for most of its rare-earth imports.

The Chinese state has realised that its control of the global market makes for a useful economic lever. In 2010, it effectively restricted rare-earth exports to Japan when a Chinese fishing trawler collided with a Japanese coastguard vessel near the disputed Senkaku Islands. More recently, it threatened to limit rare-earth supplies to US defence contractors, including Lockheed Martin, over its involvement with US arms sales to Taiwan.

China routinely adjusts its domestic production quotas and subsidises rare-earth prices to strategically flood the market when it wants to drive out competitors and deter new market entrants.

The US, in turn, has realised the need to develop a secure supply of rare-earths and has looked to Australia to help make that happen.

Australia has the world’s sixth-largest reserves of rare-earth minerals, though they remain largely untapped with only two mines producing them. The largest by far is the mine at Mt Weld in Western Australia, which is owned by Australia-based Lynas Corporation.

On 1 February, the Pentagon announced that it had awarded Lynas a second contract to develop a rare-earth processing facility in Texas.

The contract signed between Lynas and the US Department of Defence adds separation capacity for light rare-earth minerals to its planned heavy minerals processing facility in Hondo, Texas, announced last year. When the project is complete, Lynas—which is already the second-largest producer of separated rare earths globally—will operate two of the largest rare-earth processing plants outside of China. Not only is this a massive boon to Australia’s rare-earth industry, but it also gives the US substantially more access to rare earths in a global market that Beijing has long controlled.

While Lynas’s deal with the Pentagon is welcome news, the only new infrastructure being built under this agreement is in the US.

Compounding this challenge to China’s rare-earth monopoly has been the coup in Myanmar. China is dependent on rare-earth imports from Myanmar, particularly heavy rare earths. Imports of heavy minerals from Myanmar account for 60% of domestic Chinese consumption—and China is no stranger to restrictions imposed by the Myanmar government.

A long-term suspension of Myanmar’s rare-earth exports would be a shock to China’s supply chain. Filling the gap would require a sizeable boost to domestic production or additional foreign investment in an alternative supplier.

Days after the Pentagon announced its second contract with Lynas, Shanghai-based rare-earth processor Shenghe Resources signed a memorandum of understanding with West Australian mining company RareX Limited. If the deal goes ahead, Shenghe will hold a majority share of a new jointly owned rare-earth trading company that would likely source ore from RareX’s Cummins Range rare-earth mining project in northern Western Australia to be processed at Shenghe’s refineries in China.

The Cummins Range project will be a landmark project for northern Australia, bringing with it jobs and investment. The mine will likely transport rare-earth ores to either Wyndham or Darwin port to be shipped overseas for processing.

A Chinese state-owned company potentially investing in a new rare-earth mine in northern Australia should raise eyebrows in Canberra, Washington and Tokyo. The irony of descriptions of the project as a ‘great leap forward’ and RareX as ‘delighted to be moving towards securing an alliance’ ought not be lost on policymakers. There’s clearly a disconnect with Australia’s strategic policy settings when its partners have worked so hard to break China’s monopoly only to have the absence of equity investment push other Australian miners towards a Shanghai-listed company.

Australia’s critical minerals strategy of 2019 is largely focused on attracting foreign investment into new mining infrastructure. The renewed focus on the strategic and commercial importance of rare earths should be a stark reminder that, as the Northern Territory government’s Luke Bowen has written in The Strategist, Australia needs to back itself on rare earths instead of letting great-power competition lead the way.

While Biden’s executive order is a good start, the Australian government should establish a Japan–US–Australia dialogue to ensure a collaborative national policy response to rare-earth supply issues. Such a response needs to promote equity investments and green technologies for the mining and production of rare earths in Australia’s north that will support a shift to greater global competition and diversification away from China.