China Reacts to US-Australia Critical Minerals Agreement

Beijing has responded to the burgeoning U.S.-Australia critical minerals accord, asserting that resource-rich nations should adopt “a proactive role” in stabilizing their critical minerals supply chains. This statement comes as the U.S. and Australia solidify their partnership in an effort widely perceived as a strategic move to counter China’s dominance in the rare earth market.

In response to a question regarding the U.S.-Australia agreement, a spokesperson for China’s Ministry of Foreign Affairs, Guo Jiakun stated, “The formation of global production and supply chains is the result of market and corporate choices.”

He further added, “Resource-rich nations with critical minerals should play a proactive role in safeguarding the security and stability of the industrial and supply chains, and ensure normal economic and trade cooperation,” according to NBC.

Rare earth elements are vital components in a wide array of modern technologies, ranging from electric vehicles and wind turbines to consumer electronics and advanced defense systems. This makes their supply chain a critical factor in both economic growth and national security.

The agreement between U.S. President Donald Trump and Australian Prime Minister Anthony Albanese, signed at the White House on Monday, aims to bolster the supply of these crucial minerals. The framework agreement, valued at an estimated $8.5 billion, follows China’s recent imposition of stricter export controls on rare earths.

Earlier this month, China’s Commerce Ministry announced expanded curbs on the export of rare earths and related technologies, citing concerns over the potential “misuse” of these minerals in military and other sensitive sectors. This move has sparked concerns among Western automotive industry groups and other manufacturers, who fear potential supply chain disruptions.

The demand for rare earths and other critical minerals is projected to surge in the coming years, driven by the accelerating clean energy transition and the increasing adoption of technologies that rely on these materials. Experts predict that the electrification of transportation, the expansion of renewable energy infrastructure, and the development of advanced consumer electronics will fuel this demand.

China currently holds a dominant position in the global critical minerals supply chain, accounting for approximately 60% of the world’s production of rare earth minerals and materials. This concentration of production has raised concerns among U.S. officials, who view it as a strategic challenge in the context of the global shift towards more sustainable energy sources. Securing a diversified and reliable supply of these minerals is seen as crucial for U.S. economic competitiveness and national security.

George Cheveley, natural resources portfolio manager at Ninety One, characterized the U.S.-Australia agreement as a welcome, albeit overdue, initiative to diversify the supply of critical minerals beyond China.

“From an investment point of view, it is not so obvious. This is a very small sector,” Cheveley stated on CNBC’s “Squawk Box Europe” on Tuesday.

“And clearly when you’re dealing with a sector so politicized and where government money is being put in essentially as a subsidy, it is telling you that it is difficult to make it work economically,” he added. This highlights the complexities of investing in the rare earth sector, where government intervention and geopolitical factors can significantly impact market dynamics.

Australian rare earth stocks experienced mixed trading on Tuesday following the agreement. While some companies initially rallied, others later retreated, signaling the market’s cautious optimism. Investors are closely monitoring the potential impact of the agreement on these companies, assessing their ability to capitalize on the increased demand and secure long-term supply contracts.

Lynas Rare Earths, Australia’s largest rare earths producer by market capitalization, experienced a 7.6% decline after earlier gains. Mineral sand miner Iluka Resources slipped 0.1%, while lithium producer Pilbara Minerals added around 2.6%. Latrobe Magnesium, Australia’s primary producer of magnesium, saw gains of more than 15%.

In the U.S. premarket trading, rare earth stocks also saw declines. Critical Metals slipped 3.8%, USA Rare Earth fell 2.4%, and MP Materials lost 1.8%. This market reaction suggests that investors may be taking a wait-and-see approach, evaluating the potential risks and rewards associated with these companies in light of the changing geopolitical landscape.