Australia Looks to Loosen China's Grip on Critical Minerals

The Australian government's reworked approach to how it manages and exploits its vast reserves of critical minerals must be seen in the wider context of hard lessons learned in the past, particularly around nickel.
New Australian government rules around foreign investment in critical minerals targets China dominance in critical minerals market

Australia is to rework its laws governing foreign investment in a move aimed at bolstering its role as global player in the energy transition. 

The law changes will increase the domestic processing of critical minerals and the production of green technology and energy, government Treasurer Jim Chalmers has said. 

It is hoped the policy, dubbed A Future Made in Australia, will attract private capital through incentives and regulatory changes. But crucially, the country is also looking to remake rules around foreign investment to ensure foreign-backed projects are “in our national interest”, Chalmers said.

At the centre of the policy is Australia’s desire to tighten scrutiny of foreign investment in the mining and refining of critical minerals.

“Foreign investment is where the stovepipes of economic and national security have often failed to meet in the past,” Chalmers said. 

He played down suggestions the new restrictions were targeted at China, and its attempts to secure a tighter grip on the lithium market. However, the reality is Chalmers has a track record of blocking investments by China-linked companies in the country’s critical minerals and rare earths industries.

EV batteries are the biggest single driver of lithium demand, and it’s an area where China’s need is both urgent and large-scale. China-owned EV maker BYD overtook Tesla to become the world's biggest electric car company in the final quarter of 2023. 

Last year the company sold 525,409 battery electric vehicles (BEVs) in the three-month period to December 31 alone.

Worldwide lithium production in 2022 increased year on year by 23%, to approximately 130,000 tonnes. Every 100,000 metric tonnes of lithium is enough to manufacture an estimated 12,500,000 EV batteries. 

Loss of clout in nickel market hard lesson for Australia  

Australia’s reworked approach to how it manages and exploits its vast reserves of critical minerals also must be seen in the wider context of hard lessons learned in the past.

The country’s influence as a producer of nickel – another vital component of EV batteries – has diminished with the emergence of Indonesia as a dominant force in the nickel market.

Indonesia blindsided Australia to become the world's top refined nickel producer, after it spent a decade banning raw nickel exports in a bid to make itself a major producer of processed nickel. This saw it move up the supply chain and vastly increased the value of its nickel exports.

The Indonesian nickel industry has been backed heavily by Chinese investment, and in February this year Nickel prices bombed, following a global supply glut from Indonesia engineered by China. 

This caused the closure of many Australian nickel mines, and it was this that prompted high-level discussions in Australia about diversifying its critical minerals strategy and rethinking its partnerships. 

In terms of lithium, the biggest producers in the world are Australia (55,000 metric tons), Chile (26,000) and China (14,000).

“Obviously we take a firmer view of state-owned enterprises but China is not the only part of the world that has state-owned enterprises,” Chalmers said. “Our approach is non-discriminatory and it’s not country specific.”

China’s tightening grip on the critical minerals supply chain has seen Australia work more closely with countries including the US, Japan and South Korea.

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