The global landscape for rare earths is shifting dramatically following China’s effective embargo on these critical minerals earlier this year. As nations scramble to secure their supply chains, Australia finds itself at a pivotal crossroads. The question arises: can Australia become a key player in mitigating the ‘magnet shock’ of 2025?
On April 4, 2025, China announced that the export of rare earths and critical minerals would require a license, effectively cutting off supplies to the United States, particularly for military applications. This move has sent shockwaves through industries reliant on rare earths for the production of permanent magnets, essential components in electric motors used in everything from electric vehicles to advanced weaponry.
Historical Parallels: Lessons from the 1973 Oil Crisis
The current scenario draws comparisons to the 1973 oil crisis, where an OPEC oil embargo against the United States led to economic turmoil and spurred the development of alternative oil sources, notably in the North Sea. Similarly, China’s embargo has catalyzed a global rush to develop alternative sources of rare earths.
In response to the embargo, the Trump administration quickly engaged with Australia, culminating in a significant agreement between President Donald Trump and Australian Prime Minister Anthony Albanese. The “United States-Australia Framework For Securing of Supply in the Mining and Processing of Critical Minerals and Rare Earths” aims to bolster economic resilience and create jobs in Australia.
Australia’s Strategic Position
Australia’s potential role in the rare earths supply chain is significant, yet complex. While the country is rich in rare earth deposits, the key challenge lies in refining these minerals into oxides and subsequently into metals. Currently, China dominates this stage, handling 90% of global refining.
Australia is making strides with two rare earth oxide refineries underway. Iluka Resources is constructing a facility in Eneabba, Western Australia, while Arafura Rare Earths is planning a refinery near Alice Springs. These projects mark critical steps in establishing Australia as a reliable supplier of refined rare earths.
Expert Insights and Industry Challenges
Despite these developments, industry experts like Darryl Cuzzubbo, CEO of Arafura, express skepticism about Australia venturing into magnet production. “While there’s nothing to stop Australia from making magnets, I just don’t see it as likely,” Cuzzubbo stated, highlighting the established supply chains of existing parts manufacturers.
However, Cuzzubbo believes Australia can play a crucial role in processing rare earths to an oxide, which constitutes 95% of the value chain. Additionally, Australia could leverage its strategic reserves as a bargaining chip in international trade negotiations.
Global Competition and Future Prospects
Meanwhile, the United States is not solely relying on Australia. President Trump has been actively engaging with other potential suppliers, including countries in Central Asia and South America. The reopening of the Mountain Pass mine in California and new projects in Brazil, Angola, and Tanzania are part of a broader strategy to diversify rare earth supplies.
Despite these efforts, the global demand for rare earths remains relatively low compared to oil. Each electric vehicle requires less than a kilogram of rare earths, valued at under US$100. This fact underscores the importance of refining capabilities over sheer mining capacity.
China’s Enduring Influence
China’s strategic maneuvering in the rare earths market is reminiscent of the 1970s oil dynamics. While the U.S. managed to negotiate with Saudi Arabia during the oil crisis, China’s position is different. It does not rely on American military technology and has limited dependency on foreign semiconductors.
“China set themselves up to pull this card, but you can only pull it once,” Cuzzubbo remarked. “As soon as you pull it, then you’ve just motivated these other global manufacturing powerhouses to solve the problem.”
As new mines and refineries come online, China’s leverage over the global magnet supply chain is expected to diminish. However, for the time being, it remains a significant player, capable of influencing market dynamics.
The Road Ahead
Australia’s journey in the rare earths market is just beginning. With strategic partnerships and investments in refining infrastructure, the nation could position itself as a key player in the global supply chain. However, the path to becoming a magnet production powerhouse remains fraught with challenges.
As global tensions over critical minerals continue, the world watches closely to see how Australia navigates this complex landscape. The stakes are high, and the outcomes will shape the future of industries reliant on these vital resources.
