Australia Strategic Reserve To Counter China's Mineral Monopolies

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That's where this strategic reserve comes in. If it comes to fruition, the federal government would buy agreed volumes of critical minerals from commercial projects or establish an option to purchase them at a given price. It would then keep stockpiles of these key minerals to prevent market manipulation by China and stabilise prices by releasing or holding stocks strategically.

The reserve would give Canberra more leverage in negotiating with trading partners and enable a rapid response to supply disruptions. Government backing for the industry would boost onshore processing, scale up domestic production and encourage more high-wage, high-skill jobs in regional areas.

Which minerals will be stockpiled? That's yet to be determined. The list of 'critical minerals' can vary between countries, and a mineral critical to one nation may not be to another.

Australia lists 31 critical minerals while Japan lists 35 , the US lists 50 and the European Union 34 . Australia's list is unique in that it reflects global demand, not domestic dependency.

The minerals most commonly included in these lists include cobalt, gallium, indium, niobium, tantalum, platinum group minerals and rare earth elements.

Why is the government intervening?

In 2023, major miners produced close to a billion tonnes of iron ore in Western Australia.

By contrast, critical mineral volumes are small. For instance, only 610 tonnes of gallium were mined in 2023 . Major miners such as Rio Tinto, BHP and Vale don't tend to bother.

Critical mineral markets are often opaque and highly concentrated . The barrier to entry is high. Globally, the market for the 31 critical minerals on Australia's list is valued at around A$344 billion (US$219.5 billion) – about the size of the global aluminum market.

That leaves it to mid-tier and small miners to bridge the gap between rapidly growing demand and supply. The problem is, raising capital is often very difficult. The price of critical minerals can fluctuate wildly. The price of lithium and nickel have fallen sharply over the last two years due to market oversupply.

The strategic reserve would make it easier for these miners by providing access to capital through loans from Export Finance Australia and private investors, reducing financial uncertainty and cost overruns and acting as a buffer against market volatility.

For instance, mid-tier miner Illuka Resources is building Australia's first rare earths refinery in Western Australia. The project already has significant government support, but it is likely to need more.

Despite Australia's significant mineral resources, it faces an uphill battle to gain market share. China's dominance has been driven by low production costs; low environmental, social, and governance standards; and a competitive labour market.

But intensifying geopolitical competition between China and the US means Australian minerals would likely be sought by the US.

How can Australia best play its hand?

In volatile market conditions, cheaper operations have a significant advantage, while new mines face an uphill battle.

Australia's critical minerals hub framework could help offset capital costs. Smaller miners could form cooperatives to share infrastructure and manage logistics, processing and access to international markets. Sharing infrastructure such as roads, rail, energy and ports would reduce the investment risk.