Australia Holds Key To Countering China's Critical Mineral Ban

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Domestically, China's rare earth sector is dominated by two state-owned giants, which together control nearly 100% of national mining quotas.

These measures have exposed the vulnerability of Western supply chains. The US has only one operational rare earth mine – Mountain Pass in California – and minimal domestic refining capacity.

A new processing facility in Texas owned by Australia's Lynas is under development, but it will take years to establish a self-sufficient supply chain.

Rare earths have become a source of contention in the tariff war. Photo: Shutterstock via The Conversation

Europe faces similar challenges. While rare earths are vital to the EU's green transition, domestic production remains limited . Efforts to diversify through partners like Australia and Canada show promise but are hindered by high production costs and continued reliance on Chinese technology.

China is also working to redefine how rare earths are priced. One proposal would tie the value of key elements like dysprosium to the price of gold, elevating them from industrial inputs to geopolitical assets. Another would settle rare earth transactions in yuan rather than US dollars, advancing Beijing's broader ambition to internationalise its currency.

For China, this strategy goes beyond economics. It is a deliberate national resource policy comparable to OPEC's management of oil, designed to link pricing to the strategic significance of critical minerals.

Australia's window?

Investors are closely watching Australian producers. Strategic deposits such as Mt Weld in Western Australia have drawn renewed interest from Japan, Europe and the US.

Industry observers argue Australia is better positioned than the US to develop secure supply chains, due to its rich geological endowment and transparent regulatory environment.

To seize this opportunity, the government has begun to act .

Under its Future Made in Australia initiative, the federal government is considering measures such as strategic stockpiling, production tax credits and expanded support for domestic processing. Iluka Resources has secured A$1.65 billion (US$1.05 billion) to build a rare earth refinery, due to be operational by 2026.

Emerging projects like Browns Range and Lynas's Malaysian refinery already serve as alternative nodes in the global rare earth supply chain network.

However, structural barriers remain. The Western allies, including Australia, still lack key processing technologies and have potentially high environmental compliance costs. Lynas's Texas plant was intended to expand allied capacity but has faced delays due to environmental approvals.

Walking a diplomatic tightrope

Geopolitical tensions add another layer of complexity. Australia's dual role – as a major upstream supplier to China and a strategic ally of the US – places it on a diplomatic tightrope.

Aligning too closely with the US could invite Chinese retaliation. Appearing overly aligned with China may provoke scrutiny from Washington.

Ownership concerns are also rising. The government has blocked or forced divestment of Chinese stakes in rare earth and lithium companies including Northern Minerals.