Critical minerals including rare earth elements, lithium, and cobalt, play a crucial role in industries, from electronics and renewable energy to defence.

Nearly a year has passed since ASPI hosted the inaugural critical minerals focused Darwin Dialogue ^[1], a multi-day track 1.5 initiative with support from the Northern Territory Government.

Progress has been made since, including the signing of the Australian-US critical minerals compact ^[2] in May 2023, but results have not been achieved at the pace desired by governments or industry.

Immediate challenges and structural concerns persist for Australia’s critical mineral sector in 2024. Tackling these issues whilst achieving greater policy results at speed will be a crucial objective throughout the year.

Perhaps the most pressing of these challenges is the global crash in lithium value. Prices of lithium—Australia’s second largest commodity in committed capital expenditure ^[3] through to 2030, surpassing even iron ore—collapsed ^[4] in the last 12 months.

Consequently, Core Lithium suspended its Finniss mine operations in January. Other closures could follow if market conditions don’t improve. Operational mines and Australian lithium projects are in jeopardy.

In response, Minister for Resources Madeleine King and WA Mines Minister David Michael held crisis talks ^[5] with Australian nickel and lithium producers.

The talks highlight the importance of critical minerals and the time-sensitive nature of secure supply chains. They are also a shining example of closer collaboration and communication between government and industry in the sector. Maintaining this communication, and trust, is critical to aligning policy and industry objectives, and efficiently working together to achieve Australia’s national objectives.

Similar crises are likely without sustained progress towards structural reforms.

Global critical minerals markets and supply chains remain overly concentrated on China as a singular destination and source affording Chinese companies overwhelming influence over the sector across multiple extraction and processing stages and giving the Chinese government undue leverage on its neighbours and strategic competitors.

Overly concentrated geographic clustering of the market, by itself, creates market level risks.

This risk is especially pronounced if the market participant wields its leverage coercively—which China has a demonstrated willingness to do.

In December last year, Beijing banned ^[6] the export of rare earth extraction and separation technologies. Chinese companies also routinely adjust their domestic production quotas and subsidise rare earth element (REE) prices to strategically flood the market, drive out competitors, and deter new market entrants.

Policies enacted under President Xi Jinping underwrite China’s undue influence and continue to blur the lines between the private sector and the government in China. It is a political risk compounding the economic issue of overreliance on a single market.

Far from a hypothetical, Beijing has already used its near-monopolistic global supply-chain control of REEs to strategic advantage against the US and Japan.

We should expect it to do so again.

The interplay of immediate challenges and structural issues is present in the collapse of lithium ^[7] and nickel commodity prices in the last year. While seen by many as a market correction in response to a combination of factors affecting the global market, a focus on market manipulation is due.

For lithium, a surge in production capacity has certainly outpaced the growth in demand, leading to oversupply. This oversaturation is partly due to the substantial investments in lithium extraction projects in response to the anticipated boom in electric vehicles and renewable energy technologies.

Slower-than-expected adoption of electric vehicles and the development of alternative battery technologies has contributed to the drop in lithium prices.

But it also has a lot to do with increased Chinese lithium mining.

China is increasing use of lepidolite-derived lithium. Lepidolite is a poor-quality lithium source, expensive to extract lithium from, and environmentally unsound, with low yield and high energy costs. Chinese authorities in Yichuan have already shuttered lepidolite plants due to environmental concerns ^[8].

Persistent, state-backed investment in lepidolite-lithium would be driven by nationalist desire for a domestic lithium supply, not market fundamentals.

In Australia, an influx of low-quality lithium and continued low prices could be an industry killer. And if Australian spodumene ore derived lithium mines prove unsustainable then supply may recenter on China.

Similarly, several factors have led to the decline in nickel commodity prices, including increased nickel pig iron production in Indonesia and the push for nickel sulphate for electric vehicle batteries.

The nickel pig iron output surge has led to an oversupply, driving down prices. It is again a potential industry killer for Australian producers. And again, there are significant environmental, social and governance (ESG) concerns surrounding Indonesian nickel.

Indonesian nickel has high pollution levels and produces difficult to dispose of tailings ^[9] and other ecological concerns. Indonesian nickel is largely processed in domestic coal-fired rotary kilns. There are plans to expand its nickel production using electric kilns but potential pollution levels are expected to remain high ^[10].

Further, the Indonesian government placed a prohibitive ban on nickel exports in 2020 to reduce international competition and drive domestic investment. While the EU successfully ^[11] challenged this ban as breach of Indonesia’s World Trade Organization (WTO) obligations, with the panel recommending policy reform in November 2022, it remains in effect. Indonesia has appealed the WTO panel’s decision, suspending its impact until after the appeal is heard.

As highlighted by Indonesia, the geopolitical landscape of critical minerals is evolving. Nations are strategically positioning themselves to be important suppliers of critical minerals, as well as ensuring stable and secure supply of these essential elements for their economic and technological advancement.

This increased awareness has led to the development of several unilateral critical mineral supply chain policy measures.

Over the last 12 months, Australia has introduced a new critical minerals strategy ^[12] and new critical minerals and strategic materials lists ^[13].

Countries like the US, Japan, Korea, and Australia increasingly recognise that the markets alone cannot provide stable critical mineral supply chains, and the problem is too big for any country to resolve.

Australia, like-minded governments and the private sector must collaborate to ensure competitive, secure, resilient REE and critical minerals supply and value chains. But this is a complicated problem, requiring a nuanced and collaborative policy approach. International collaborations and alliances are forming to establish more resilient supply chains and share mineral exploration and extraction expertise. A collective approach reflects a shared commitment to addressing the challenges posed by the concentration of critical mineral production and enhancing the security of these vital resources for various industries, including electronics, renewable energy, and defence.

In April, ASPI will convene the second Darwin Dialogue to bring together leaders and key players from Australia, Japan, the Republic of Korea, and the United States to discuss critical mineral production, supply chain resilience and economic security.

In the lead-up to this event, ASPI will produce a second series of Strategist pieces exploring the opportunities for developing Australian critical mineral supply chains and mini-lateral cooperation.