The US, Australia and partner countries should take a page from China’s stockpiling playbook. They should build up stockpiles of critical minerals, managing inventories to optimise prices for domestic mineral producers and consumers and to guard against decreased supply and increased demand in wartime.

The United States, Japan, and South Korea have strategic mineral stockpiles, but China is the master of the game. Its policy of building up or running down stocks has a significant impact on global mineral prices. This policy serves two purposes.

It provides a strategic stockpile for national emergencies, such as a war, and defends local industries against severe price fluctuations. When a critical mineral is cheap, China buys, increasing its stockpile and pushing prices higher. Doing so protects the profitability of China’s mineral producers. Conversely, when prices of a mineral are high, China sells down its stock, pressing down on the price and helping industries that consume the mineral maintain profitability.

For example, China bought zinc amid low prices in 2009 and 2012 and sold zinc amid tight supply in 2021.

If the US, Australia and partners established and similarly managed mineral stockpiles, they’d have an important capability: dampening market manipulation by foreign actors, including the Chinese government and major Chinese companies.

China’s National Food and Strategic Reserves Administration oversees the country’s minerals stockpile. The administration is under the powerful National Development and Reform Commission and was formerly known as the State Reserves Bureau.

Various authorities and analysts have analysed China’s stockpiling activities. The White House, for example, says that, whereas the US National Defense Stockpile is strategic and only meant for use in a national emergency, China’s stockpile is economic, ‘more interventionist in markets, actively combatting price volatility or supporting particular industry segments’.

A European Parliament study emphasises the strategic angle: ‘China’s stockpile is growing to secure reserves in the event of a conflict,’ it says. Alternatively, an analyst told Bloomberg that China accumulates minerals to ensure key industries have enough supply amid rising global demand. And Fastmarkets, a price reporting agency, says Beijing stockpiles minerals ‘to protect the functioning of China’s military and industry in a national emergency’.

China does not disclose the quantities of its mineral stockpile. But its inventory reportedly includes aluminium, antimony, cadmium, cobalt, copper, gallium, germanium, indium, molybdenum, rare earth elements, tantalum, tin, tungsten, zinc and zirconium. It may hold up to 2 million tonnes of copper, 900,000 tonnes of aluminium, 400,000 tonnes of zinc and 7000 tonnes of cobalt. In comparison, the US government holds 6460 tonnes of zinc, 316 tonnes of cobalt, no copper and no aluminium (although it may acquire 18,500 metric tons of the latter).

The US has been more serious about critical mineral inventories in the past. Amid Cold War strategic competition in the 1960s, it held large volumes, including nearly 835,000 tonnes of aluminium and more than 900,000 tonnes of copper. Given the deterioration of the Indo-Pacific security environment, it’s time for the US, Australia and partners to build stockpiles again.

China may have domestic reasons for mineral stockpiling, but its activities affect prices globally. In particular, it can force prices below the minimum levels needed by foreign producers to remain operational. For example, its largest cobalt company, CMOC, continues to produce in an oversupplied market. That’s driven the Australian company Jervois to pause construction of a cobalt mine in Idaho.

New and smaller mineral companies, like junior mining companies, suffer particularly from depressed markets because they rely heavily on strong mineral prices to secure investment and financing for mining projects.

In establishing or expanding stockpiles, the US, Australia and partner countries should set price floors and ceilings that they would defend with purchases or sales.

The price floors should be levels just above those that jeopardise upstream mineral projects, whether operating or prospective. Purchases should prioritise minerals produced domestically, with a secondary focus on those that are not produced locally but are available from partner countries.

Stockpiling amid low mineral prices is also cost-effective. For example, amid weak markets in 2008 and 2009, the Chinese government bought 400,000 metric tons of aluminium, 165,000 metric tons of copper, and 150,000 metric tons of zinc.

The price ceilings should be just below levels that jeopardise manufacturing by downstream mineral-consuming industries. If those firms have thin margins due to elevated mineral prices, the Australian, US and partner governments should sell minerals to them, imitating Beijing’s policy. The sales should be directed to companies in key sectors, such as defence firms. China reportedly favours crucial industries such as the electricity sector when it sells large mineral batches.

Sales from stockpiles amid high prices can generate high returns. Yet mineral sales from the stockpile would not be as common as purchases in the next few years, because Chinese companies generally overproduce, reducing global prices, due to state subsidisation. However, with global mineral demand projected to soar later this decade, mineral sales may become more common due to heightened mineral prices.

The stockpiles should also have volume floors to ensure sufficient minerals are on hand in a national emergency. Volume ceilings should be flexible because Chinese overproduction could demand prolonged purchases to protect domestic output.

Countries should prioritise growing their own inventories, rather than coordinating stockpiling with partners. They shouldn’t rely on each other’s stocks, because sea supply can be disrupted, as demonstrated by the rerouting of ships away from the Red Sea due to Houthi attacks from Yemen. Such disruptions would be magnified vastly in a US-China conflict over Taiwan. Also, if each county attends to its own needs, none will be free riding on its friends.

However, the US, Australia, and partner countries could collaborate in stockpiling minerals that some of them produce and others among them don’t. For example, the US, which has no identified geological reserves of manganese, could build a stockpile of the material by buying from Australia, thereby supporting the industry of a trusted supplier.

China’s economic mineral stockpile policy offers lessons for the West. Done right, such an approach can both prepare a country for national emergencies and support its domestic industries.