Will critical minerals be Australia’s next rainbow?

This week’s signing by Anthony Albanese and Donald Trump of an agreement to develop and export critical minerals raises the question – are critical minerals the next big thing for Australia?

Paul Keating’s famous observation that Australia got kissed on the arse by a rainbow seems to apply yet again.

When Australia got locked out of Britain’s market in 1973 upon the UK’s entry into the European Union, we were obliged to look for customers closer to home.

We were already selling small quantities of wool and wheat to China. But following the Whitlam government’s official recognition of the People’s Republic in late 1972 ,we began selling it iron ore.

Then followed coal, other metals, gas, Chinese tourism and students studying at Australian universities.

By 2009, China had become Australia’s biggest export market and remains so, buying almost 28 per cent of our total exports. The US, by contrast, accounts for less than 5 per cent of our exports.

But is this about to change?

China’s giant Simandou iron ore project in Guinea will soon begin production of high-grade, lower-emissions iron ore, giving China an opportunity to diversify some of its iron ore purchases away from Australia.

And China is trading more with global south countries such as Pakistan, Peru, Chile and several African countries, a response in part to the tariffs imposed on it by the first Trump administration and largely maintained by the Biden administration.

Here’s where critical minerals come into the Australian story. We have an abundance of them.

For example, Australia has more than 20 per cent of the world’s lithium reserves, more than 30 per cent of zircon reserves, about 13 per cent of the world’s tungsten reserves and the world’s fourth-largest reserves of rare earths.

As Prime Minister Albanese said during his American visit, these resources are not just essential for the global shift to clean energy, for Australia and America they are vital to next generation advanced manufacturing, the digital economy, artificial intelligence and data centres.

A report by the Reserve Bank released on Thursday concludes that the outlook for Australian exports of critical minerals in the short term is highly uncertain, but that in the long term investment and production of critical minerals could increase strongly in Australia, depending on global decisions on emission reductions.

But that report didn’t take account of the agreement signed earlier in the week by Trump and Albanese.

China holds almost 40 per cent of the world’s known reserves of rare earths and is responsible for 65-70 per cent of global rare earths production.  

Even more strikingly, China has 90 per cent of the world’s rare earths refining capacity.

Recently, China imposed licences on exports of rare earths. This might, at least in part, have been in retaliation against the tariffs imposed by the second Trump administration on its exports to the US.

The US argues that state subsidisation of refining of rare earths and other critical minerals will have the effect of making it uneconomic in other countries, enabling China to corner the market.

The risk of ongoing trade wars between China and the US seems high.

Australia is a free-trading nation. The elimination of most tariffs and quotas by the Hawke, Keating and Howard governments has ensured that.

And no, Andrew Hastie, we won’t be taking a trip down Memory Lane to resume production of 1969 Ford Falcons.

The Albanese government has recognised the importance of developing Australian reserves of critical minerals, first through its Future Made in Australia initiative and then, ahead of the 2025 federal election, announcing it would create a strategic reserve of critical minerals.

Now an agreement with the United States has been inked by the Prime Minister and the President.

As Australia’s exports of thermal coal continue to decline as the world decarbonises, our exports of rare earths and other critical minerals used in electric vehicles and renewable energy systems will inevitably rise – boosted by the Australian-American agreement.

A lot of preparation went into that agreement, with the highly respected Resources Minister Madeleine King as the lead and the quiet achieving but effective Trade Minister Don Farrell also playing an important role.

But Albanese, heavily criticised by the media and the Coalition for not securing an early meeting with Trump, used his personal and political skills to develop a rapport with the President.

Out of these ministerial and prime ministerial efforts came the agreement signed earlier in the week.

Australia’s deposits of rare earths and other critical minerals and their commercialisation are further evidence that yes indeed, we got kissed on the arse by a rainbow – but we need to work hard to help its colours shine.