The Hindu: Published on 22nd Oct 2025.
Why in News?
The United States and Australia have signed a $3 billion agreement to jointly develop and support critical minerals and rare earth mining projects, aiming to reduce dependence on China’s dominance in the global rare earth supply chain.
Background:
Rare earth elements (REEs) are vital for high-tech industries, including electric vehicles, defence systems, clean energy, and electronics.
China currently controls 90% of global refining capacity, 69% of mining, and 98% of magnet manufacturing.
Western nations, led by the U.S., are seeking to “de-risk” supply chains amid rising geopolitical and trade tensions with China.
Donald Trump’s administration has pledged massive investment and support for Australia’s mining industry to secure alternative sources.
Key Points of the Deal:
Total Commitment: $3 billion from U.S. and Australia combined.
Purpose: Mining, processing, and creating a price floor for critical minerals.
Expected Outcome: Unlock $53 billion worth of mineral deposits in Australia.
Beneficiaries: Several Australian miners, including Arafura Rare Earths, have received preliminary funding interest from the U.S. EXIM Bank (about $2.2 billion).
Expert Opinions:
Analysts remain skeptical about short-term results.
Dan Morgan (Barrenjoey Analyst): Supply growth before 2027 is “unrealistic.”
Dylan Kelly (Terra Capital): Prices unlikely to fall further; announcement increases investment interest but won’t shift the market quickly.
Experts agree China’s technological mastery and low-cost refining remain unmatched for now.
Economic and Strategic Impact:
Short-term: Boost to Australian miners; increased investor confidence.
Long-term: Gradual diversification of supply chain, but no immediate reduction of China’s dominance.
Geopolitical Angle: Strengthens U.S.-Australia strategic partnership under Indo-Pacific security goals and supply chain resilience strategies.
Challenges Ahead:
Refining complexity: China’s process is cheaper and more efficient.
Environmental concerns: Refining rare earths is highly polluting.
Time frame: Experts estimate 5–7 years before significant supply diversification occurs.
Financial risks: Heavy capital requirements and uncertain global demand trends.
Conclusion:
The U.S.–Australia deal represents an important strategic and financial step, but China’s near-monopoly in refining and production will remain unchallenged in the short term. Long-term success will depend on sustained investments, innovation in refining technology, and coordinated policies among allied nations.
