Tag Archive for: Darwin Dialogue

Guidance for critical minerals policy from ASPI’s Darwin Dialogue 2024

Critical minerals are a focal point of international contention in an increasingly fracturing international system. These minerals underlie competition across civil and defence sectors and promise economic opportunity throughout their supply chain. Furthermore, they are vital to the clean energy transition, with minerals needed for electric vehicle batteries, solar panels and even wind turbines. Yet, their supply chains face extensive challenges.

Since ASPI’s inaugural Darwin Dialogue in 2023, Australian and foreign governments have begun implementing industrial policies to support domestic growth in critical minerals and downstream industries.

The Darwin Dialogue 2024 brought together high-level government representatives of Australia, the US, Japan and South Korea and senior representatives of other nations, academia and think tanks, held over two days in April 2024. It assessed the rise of industrial policies and discussed the next policy steps to achieve diversified supply chains, unlock investment in industry, protect industry from geopolitical risks, and deepen market environmental, social and governance considerations.

Australia’s critical mineral policy is principally shaped by the Critical Minerals Strategy, released in December 2023, and the Albanese government’s flagship industrial policy, Future Made in Australia, announced ahead of the Federal Budget 2024-25. It is further backed by close collaboration with state governments.

Implementing Future Made in Australia comes with significant costs, but industrial policies help navigate our geopolitical environment—especially in highly exposed sectors such as critical minerals.

In many respects, the rise in industrial policies is a targeted response to China’s dominance across supply chains. But it is also an attempt to stay competitive against policies implemented by allies—principally the United States’ dryly named Inflation Reduction Act (2022).

However, concerns remain around the strategic planning behind a Future Made in Australia. The government must stick to a clear, results-oriented strategy, making targeted investments to build a viable interconnected sector in collaboration with states and territories. Currently, there is a risk that investments could be process-oriented and perhaps disconnected.

Industrial policy is a double-edged sword: it protects and promotes domestic industry while also picking winners and potentially further fracturing the international trade order. It must be handled with caution. We must be careful about where we compete, where we cooperate and, importantly, with whom we do either.

Governments naturally focus on domestic industries and opportunities and selectively engage partners, but no single nation can build the necessary mineral supply chains alone. At the Darwin Dialogue 2024, there was broad consensus that national and transnational government interventions are unavoidable in the critical minerals sector—but they must be implemented carefully.

Overly focusing on domestic concerns instead of working internationally obscures pressing, near-existential challenges for the critical mineral sector. Current supply chains are insecure, and projected demand is likely to far outstrip supply of many critical minerals. This could constrain energy transition and building defence capabilities.

Rapid expansion of critical minerals production is needed. To achieve that, Australia and its allies must harmonise policies and build shared supply chains, rather than build domestic competitors that may cannibalise one another. Some competition is needed and unavoidable, but it must be proportionate.

Australia’s policy framework must work to attract new domestic and international investment sources, particularly since the Foreign Investment Review Board is rightly blocking Chinese investment into critical minerals on national security grounds. Policy options include unlocking superannuation fund investment, maximising use of free trade agreements and increasing demand by building joint stockpiles. We must also protect industry from politically driven price risks, noting that political risks are remarkably difficult to project or hedge against as they are external to the market.

Notably, unlocking new investment and developing new supply chains is not about bifurcating global trade or alienating any one nation from the supply chain. Doing so would be neither effective nor realistic. Rather, Australia and its allies must strive towards diversifying supply chains away from any singular, concentrated source or destination.

Furthermore, in developing these supply chains, Australia and its allies must maintain and extend high standards of environmental, social and governance performance. This means limiting harmful impacts of energy transition and building business models that are resilient to geopolitical or domestic social-licence risks over the medium to long term.

ASPI’s report from this year’s event, Darwin Dialogue 2024: Triumph through Teamwork, offers 11 key policy recommendations for government and industry to evolve Australia’s critical mineral policy framework.

It identifies ways to deepen minilateral cooperation with the US, Japan and South Korea across government and industry, secure new streams of funding for Australian industry, increase the number of graduates from Australian universities in fields related to critical minerals mining and processing, and improve market environmental, social and governance considerations.

Southeast Asia’s potential in critical minerals

Global critical mineral demand is expected to increase dramatically in coming decades, from a 7.1 million tonnes in 2020 to 42.3 million tonnes in 2050. Global commitments to decarbonisation are the main drivers of this growth, because clean-energy technologies depend on large quantities of critical minerals. But all manner of sophisticated industries, including defence manufacturing, will also compete for these materials. 

Secure and reliable critical mineral supply chains will be vital for energy transition. The supply chains are the secret to scaling up installation of wind turbines, advanced batteries, electrolysers and clean-energy grids. 

Southeast Asia has significant natural reserves of several key critical minerals, including nickel, tin, rare-earth elements (REEs) and bauxite, and the region is still not fully explored for more of them. But establishing downstream processing of the materials in Southeast Asia is a great challenge, especially if high environmental standards are to be met.  

To turn itself into a hub of critical minerals supply, the region will need help from countries that are experienced in the field, such as Australia, India, Japan, the United States, China and European nations. 

Nickel, lithium, cobalt, copper, and neodymium are among the most commonly used critical minerals in clean-energy products, which include solar PV, wind turbines, grid battery storage, electric vehicles, electricity networks, and hydrogen technologies. Significant increases in demand are expected. 

Demand for selected critical minerals:

 

Southeast Asia holds large reserves of several key critical minerals. Measured against global reserves: 

—Indonesia has 22% of nickel; 16% of tin and 4% of bauxite; 

—Vietnam has roughly 18% of both rare earth elements and bauxite;  

—Myanmar has about 18% of rare earth elements; and 

—The Philippines has about 5% of nickel.  

Cobalt reserves have also been identified in Indonesia and the Philippines. 

Due to challenges in extending the value chain downstream and a lack of engagement by experienced, outside countries, Southeast Asia has begun developing domestically focused approaches. Indonesia’s approach to nickel is a strong example. 

Indonesia began establishing itself as a critical mineral hub by banning exportation of raw nickel ore in 2014, allowing exceptions only for mining companies that were investing in processing. By 2020, the ban on nickel ore exports was absolute. 

By requiring domestic refining, Indonesia aims at creating a value-adding industry for critical mineral resources. Formerly, it was extracting 71 million tonnes of nickel ore annually and exporting 65 million tonnes in raw form. Most went to China for smelting and use in stainless steel. 

Since it imposed the ban, Indonesia has attracted significant Chinese capital investment in building local smelters, which has been led by privately owned Tsingshan Steel Group. Mine output has consequently risen ninefold. International competitors, including nickel mines in Australia, are struggling to match the capital returns and low operating costs of the Indonesian operations. 

However, there are reasonable concerns about long-term environmental sustainability of upstream and downstream critical-minerals industries in Indonesia. Also, the EU has challenged the export ban in the World Trade Organization, alleging it is inconsistent with the obligation to eliminate quantitative trade restrictions. 

Still, the policy has achieved its objectives. Indonesia now has a downstream nickel industry and may be tempted to ban exports of other critical minerals. 

In critical minerals, China is strong in mines, processing facilities, capital, expertise and markets. Its powerful position may further complicate Southeast Asian countries’ ability to establish secure and reliable value chains. It can also use its industry strength as a coercive diplomatic tool. China alerted the world to that risk in 2010 when it used its near-monopoly in REEs to severely limit supply of them to Japan amid a territorial dispute. 

Remarkably few players are in the global REE supply chain, despite the elements’ significance to sophisticated technologies. So, the United States and its allies are attempting to re-establish themselves in the field. 

The Biden administration is giving the effort renewed focus, planning massive investment in climate change technology as it takes a hard-line approach to rivalry with China and the perceived national-security threat from it. Others have reacted, tool. Policy tools for diversifying supply of critical minerals include the EU’s Critical Raw Materials Act, the US  Inflation Reduction Act, Australia’s Critical Minerals Strategy and Canada’s Critical Minerals Strategy. 

Southeast Asian countries may stand to benefit from these efforts to reduce dependency on China. 

And Australia may be able to help them. Its resources sector is well positioned to support development of cost-competitive Southeast Asian processing industries that meet environmental, social and governance considerations. It can offer high labour and environmental standards and technical expertise to drive production efficiencies. 

This would contrast with Indonesia’s move into production of high-grade nickel through low-grade processing. Indonesia’s weaker environmental regulations may have long-term social and environmental consequences. 

Southeast Asia faces a great challenge in establishing high-quality downstream industries for critical minerals while meeting environmental standards. But the challenge is not insurmountable. 

Government help can reduce risks and thereby improve the prospects of projects going ahead. That help can include technical support, research and development, strategic investments to scale up processing, and locking in finance and production offtake. Meanwhile, partnerships with foreign industries can offer technology. 

It won’t be easy, but Southeast Asia does have the potential to be one of the world’s major sources of critical minerals.

China’s EV battery sector has an Achilles’ heel

To make a good battery, you need fluorine, an element that is sourced from the mineral fluorspar.

That presents a looming problem for China and its considerable efforts to dominate the global electric vehicle (EV) industry. The country is the dominant producer and consumer of fluorspar, but it’s rapidly running down its reserves. So, among the many critical minerals worth watching, this one is a standout.

While the price of most critical minerals and rare earths have corrected sharply over the past year, the fluorspar market has trended upwards, reaching all-time highs in the first quarter of 2024. As far out as analysts can forecast, they see supply deficits for the mineral, with EV uptake generally expected to increase demand by an order of magnitude by 2040.

The ASX-listed company that I run, Tivan Limited, is based in Darwin. We are diversified across the critical minerals sector, with different minerals in different locations, and projects that are at different stages of development. In January, in a first for Australia, we announced commencement of a fluorspar project, at Speewah in the Kimberly region of Western Australia.

Although it’s hardly known to most people, fluorspar, also called fluorite, is used in many industrial processes, including making semiconductors, smelting, refrigeration, ceramics, coatings and so forth. Some uses, most notably per- and polyfluoroalkyl substances, commonly known as PFAS, are being phased out. Australia recognised the importance of fluorine in December by listing it as a critical mineral. The US, EU, Japan and others had already taken similar action.

Because it’s needed for battery packs, modules and cells, fluorspar is called the ‘the stealth battery mineral’ in industry circles. Reflecting the growing interest in fluorspar, Benchmark Mineral Intelligence, a global market information provider, recently launched a service supporting this ‘quiet achiever of the EV battery sector’.

The focus on fluorspar is likely only to sharpen. A prominent feature of the material is that, unlike other inputs to the EV battery sector, it will soon be in structural short supply in China—and therefore a vulnerability as that country seeks to maintain its dominance in EV batteries.

China currently produces and consumes two-thirds of the world’s fluorspar. Yet on baseline forecasts, which conservatively assume an unchanged production rate, China will deplete its known reserves by 2030. China’s rate of reserve depletion is extreme, running at three to four times the global average.

China has begun responding to the vulnerability, turning to Mongolia, with its 8% of global reserves, as a supplier of choice. China imported four times as much fluorspar from Mongolia in 2023 as in 2022.

In December, China’s Ministry of Finance also eliminated a 3% import tariff on fluorspar with low arsenic content, the removal of which adds costs to mid-stream processing. The world’s largest fluorspar mine, located at San Luis Potasi in Mexico, has high arsenic content. China also extended comparable relief to battery-grade lithium, nickel and cobalt. Further Chinese measures are likely; they will depend on how US policy towards the EV sector changes after the presidential election in November.

Increasing domestic supply will be difficult for China. Its thousands of primary fluorspar producers are consolidating. Environmental standards are increasingly a constraint, particularly because China’s fluorspar resources are mostly located in the more affluent eastern provinces, such as Jiangxi and Zhejiang.

Nor does China have an alternative to fluorspar as a local feedstock of fluorine. To source lithium, by contrast, China turned to domestic production of lepidolite, a relatively expensive source of the metal. By doing so, it helped deflate the 2022-23 price bubble across the lithium sector. Despite its lack of cost competitiveness, lepidolite is on track to contribute 15% of global lithium supply through to 2025.

Importantly, fluorine is unlikely to be replaced to any large degree in making EV batteries. Its elemental properties (it’s the most electronegative element on the periodic table) are fundamental to design and mass production of batteries, maximising energy capacity for a given volume and mass.

Estimates of how much is needed to make a battery vary, though Benchmark finds that 18kg is used in a 40 kilowatt-hour EV cell. It’s needed in several parts of a battery: in the binder, separator, electrolyte and anode. Evolving battery chemistries have not diminished the dependence on fluorspar, with newly ascendent lithium-iron-phosphate batteries exhibiting the highest levels yet of fluorine intensity so far.

China’s dominance of the EV battery sector is extreme, recently measured above 80% by Bloomberg New Energy Finance. Its leadership reflects its aggressive strategic policies pursued over a decade and its control over the commanding heights of global supply chains.

But fluorine is the Achilles heel of China’s strategy, and thereby among the most critical of critical minerals.

China shows how Western governments should stockpile minerals

The US, Australia and partner countries should take a page from China’s stockpiling playbook. They should build up stockpiles of critical minerals, managing inventories to optimise prices for domestic mineral producers and consumers and to guard against decreased supply and increased demand in wartime.

The United States, Japan, and South Korea have strategic mineral stockpiles, but China is the master of the game. Its policy of building up or running down stocks has a significant impact on global mineral prices. This policy serves two purposes.

It provides a strategic stockpile for national emergencies, such as a war, and defends local industries against severe price fluctuations. When a critical mineral is cheap, China buys, increasing its stockpile and pushing prices higher. Doing so protects the profitability of China’s mineral producers. Conversely, when prices of a mineral are high, China sells down its stock, pressing down on the price and helping industries that consume the mineral maintain profitability.

For example, China bought zinc amid low prices in 2009 and 2012 and sold zinc amid tight supply in 2021.

If the US, Australia and partners established and similarly managed mineral stockpiles, they’d have an important capability: dampening market manipulation by foreign actors, including the Chinese government and major Chinese companies.

China’s National Food and Strategic Reserves Administration oversees the country’s minerals stockpile. The administration is under the powerful National Development and Reform Commission and was formerly known as the State Reserves Bureau.

Various authorities and analysts have analysed China’s stockpiling activities. The White House, for example, says that, whereas the US National Defense Stockpile is strategic and only meant for use in a national emergency, China’s stockpile is economic, ‘more interventionist in markets, actively combatting price volatility or supporting particular industry segments’.

A European Parliament study emphasises the strategic angle: ‘China’s stockpile is growing to secure reserves in the event of a conflict,’ it says. Alternatively, an analyst told Bloomberg that China accumulates minerals to ensure key industries have enough supply amid rising global demand. And Fastmarkets, a price reporting agency, says Beijing stockpiles minerals ‘to protect the functioning of China’s military and industry in a national emergency’.

China does not disclose the quantities of its mineral stockpile. But its inventory reportedly includes aluminium, antimony, cadmium, cobalt, copper, gallium, germanium, indium, molybdenum, rare earth elements, tantalum, tin, tungsten, zinc and zirconium. It may hold up to 2 million tonnes of copper, 900,000 tonnes of aluminium, 400,000 tonnes of zinc and 7000 tonnes of cobalt. In comparison, the US government holds 6460 tonnes of zinc, 316 tonnes of cobalt, no copper and no aluminium (although it may acquire 18,500 metric tons of the latter).

The US has been more serious about critical mineral inventories in the past. Amid Cold War strategic competition in the 1960s, it held large volumes, including nearly 835,000 tonnes of aluminium and more than 900,000 tonnes of copper. Given the deterioration of the Indo-Pacific security environment, it’s time for the US, Australia and partners to build stockpiles again.

China may have domestic reasons for mineral stockpiling, but its activities affect prices globally. In particular, it can force prices below the minimum levels needed by foreign producers to remain operational. For example, its largest cobalt company, CMOC, continues to produce in an oversupplied market. That’s driven the Australian company Jervois to pause construction of a cobalt mine in Idaho.

New and smaller mineral companies, like junior mining companies, suffer particularly from depressed markets because they rely heavily on strong mineral prices to secure investment and financing for mining projects.

In establishing or expanding stockpiles, the US, Australia and partner countries should set price floors and ceilings that they would defend with purchases or sales.

The price floors should be levels just above those that jeopardise upstream mineral projects, whether operating or prospective. Purchases should prioritise minerals produced domestically, with a secondary focus on those that are not produced locally but are available from partner countries.

Stockpiling amid low mineral prices is also cost-effective. For example, amid weak markets in 2008 and 2009, the Chinese government bought 400,000 metric tons of aluminium, 165,000 metric tons of copper, and 150,000 metric tons of zinc.

The price ceilings should be just below levels that jeopardise manufacturing by downstream mineral-consuming industries. If those firms have thin margins due to elevated mineral prices, the Australian, US and partner governments should sell minerals to them, imitating Beijing’s policy. The sales should be directed to companies in key sectors, such as defence firms. China reportedly favours crucial industries such as the electricity sector when it sells large mineral batches.

Sales from stockpiles amid high prices can generate high returns. Yet mineral sales from the stockpile would not be as common as purchases in the next few years, because Chinese companies generally overproduce, reducing global prices, due to state subsidisation. However, with global mineral demand projected to soar later this decade, mineral sales may become more common due to heightened mineral prices.

The stockpiles should also have volume floors to ensure sufficient minerals are on hand in a national emergency. Volume ceilings should be flexible because Chinese overproduction could demand prolonged purchases to protect domestic output.

Countries should prioritise growing their own inventories, rather than coordinating stockpiling with partners. They shouldn’t rely on each other’s stocks, because sea supply can be disrupted, as demonstrated by the rerouting of ships away from the Red Sea due to Houthi attacks from Yemen. Such disruptions would be magnified vastly in a US-China conflict over Taiwan. Also, if each county attends to its own needs, none will be free riding on its friends.

However, the US, Australia, and partner countries could collaborate in stockpiling minerals that some of them produce and others among them don’t. For example, the US, which has no identified geological reserves of manganese, could build a stockpile of the material by buying from Australia, thereby supporting the industry of a trusted supplier.

China’s economic mineral stockpile policy offers lessons for the West. Done right, such an approach can both prepare a country for national emergencies and support its domestic industries.

China shows how Western governments should stockpile minerals

The US, Australia and partner countries should take a page from China’s stockpiling playbook. They should build up stockpiles of critical minerals, managing inventories to optimise prices for domestic mineral producers and consumers and to guard against decreased supply and increased demand in wartime.

The United States, Japan, and South Korea have strategic mineral stockpiles, but China is the master of the game. Its policy of building up or running down stocks has a significant impact on global mineral prices. This policy serves two purposes.

It provides a strategic stockpile for national emergencies, such as a war, and defends local industries against severe price fluctuations. When a critical mineral is cheap, China buys, increasing its stockpile and pushing prices higher. Doing so protects the profitability of China’s mineral producers. Conversely, when prices of a mineral are high, China sells down its stock, pressing down on the price and helping industries that consume the mineral maintain profitability.

For example, China bought zinc amid low prices in 2009 and 2012 and sold zinc amid tight supply in 2021.

If the US, Australia and partners established and similarly managed mineral stockpiles, they’d have an important capability: dampening market manipulation by foreign actors, including the Chinese government and major Chinese companies.

China’s National Food and Strategic Reserves Administration oversees the country’s minerals stockpile. The administration is under the powerful National Development and Reform Commission and was formerly known as the State Reserves Bureau.

Various authorities and analysts have analysed China’s stockpiling activities. The White House, for example, says that, whereas the US National Defense Stockpile is strategic and only meant for use in a national emergency, China’s stockpile is economic, ‘more interventionist in markets, actively combatting price volatility or supporting particular industry segments’.

A European Parliament study emphasises the strategic angle: ‘China’s stockpile is growing to secure reserves in the event of a conflict,’ it says. Alternatively, an analyst told Bloomberg that China accumulates minerals to ensure key industries have enough supply amid rising global demand. And Fastmarkets, a price reporting agency, says Beijing stockpiles minerals ‘to protect the functioning of China’s military and industry in a national emergency’.

China does not disclose the quantities of its mineral stockpile. But its inventory reportedly includes aluminium, antimony, cadmium, cobalt, copper, gallium, germanium, indium, molybdenum, rare earth elements, tantalum, tin, tungsten, zinc and zirconium. It may hold up to 2 million tonnes of copper, 900,000 tonnes of aluminium, 400,000 tonnes of zinc and 7000 tonnes of cobalt. In comparison, the US government holds 6460 tonnes of zinc, 316 tonnes of cobalt, no copper and no aluminium (although it may acquire 18,500 metric tons of the latter).

The US has been more serious about critical mineral inventories in the past. Amid Cold War strategic competition in the 1960s, it held large volumes, including nearly 835,000 tonnes of aluminium and more than 900,000 tonnes of copper. Given the deterioration of the Indo-Pacific security environment, it’s time for the US, Australia and partners to build stockpiles again.

China may have domestic reasons for mineral stockpiling, but its activities affect prices globally. In particular, it can force prices below the minimum levels needed by foreign producers to remain operational. For example, its largest cobalt company, CMOC, continues to produce in an oversupplied market. That’s driven the Australian company Jervois to pause construction of a cobalt mine in Idaho.

New and smaller mineral companies, like junior mining companies, suffer particularly from depressed markets because they rely heavily on strong mineral prices to secure investment and financing for mining projects.

In establishing or expanding stockpiles, the US, Australia and partner countries should set price floors and ceilings that they would defend with purchases or sales.

The price floors should be levels just above those that jeopardise upstream mineral projects, whether operating or prospective. Purchases should prioritise minerals produced domestically, with a secondary focus on those that are not produced locally but are available from partner countries.

Stockpiling amid low mineral prices is also cost-effective. For example, amid weak markets in 2008 and 2009, the Chinese government bought 400,000 metric tons of aluminium, 165,000 metric tons of copper, and 150,000 metric tons of zinc.

The price ceilings should be just below levels that jeopardise manufacturing by downstream mineral-consuming industries. If those firms have thin margins due to elevated mineral prices, the Australian, US and partner governments should sell minerals to them, imitating Beijing’s policy. The sales should be directed to companies in key sectors, such as defence firms. China reportedly favours crucial industries such as the electricity sector when it sells large mineral batches.

Sales from stockpiles amid high prices can generate high returns. Yet mineral sales from the stockpile would not be as common as purchases in the next few years, because Chinese companies generally overproduce, reducing global prices, due to state subsidisation. However, with global mineral demand projected to soar later this decade, mineral sales may become more common due to heightened mineral prices.

The stockpiles should also have volume floors to ensure sufficient minerals are on hand in a national emergency. Volume ceilings should be flexible because Chinese overproduction could demand prolonged purchases to protect domestic output.

Countries should prioritise growing their own inventories, rather than coordinating stockpiling with partners. They shouldn’t rely on each other’s stocks, because sea supply can be disrupted, as demonstrated by the rerouting of ships away from the Red Sea due to Houthi attacks from Yemen. Such disruptions would be magnified vastly in a US-China conflict over Taiwan. Also, if each county attends to its own needs, none will be free riding on its friends.

However, the US, Australia, and partner countries could collaborate in stockpiling minerals that some of them produce and others among them don’t. For example, the US, which has no identified geological reserves of manganese, could build a stockpile of the material by buying from Australia, thereby supporting the industry of a trusted supplier.

China’s economic mineral stockpile policy offers lessons for the West. Done right, such an approach can both prepare a country for national emergencies and support its domestic industries.

The ‘critical minerals’ bubble has seemingly burst. What does it mean for Australia’s geopolitical strategies?

Early 2024 has not been kind to investors in critical minerals. Media outlets across Australia have run with headlines talking of ‘crash’, ‘crisis’ and ‘collapse’, with many blaming China and Indonesia for the slump— especially in nickel prices. This is in stark contrast to the extreme bearishness in 2022 and 2023.

Alarmingly, some players are using this ‘crisis’ to call for government bailouts and softer regulation. Others, including Minister for Resources and Minister for Northern Australia Madeleine King, are pushing for global green mining standards and a premium price for nickel produced with higher environmental standards.

Since January 2023 the spot price of nickel on the London Metals Exchange has fallen by over 50%, while the price of spodumene (the raw mineral containing lithium) in China has fallen by almost 70% from all-time highs. However, the story here is more about the exceptional prices of both nickel and lithium, through 2022 and into 2023 when global demand outstripped supply and stockpiles dwindled.

Benchmark Minerals Intelligence analysts argued recently that we have witnessed a classic commodity bubble bursting—this is more of a correction than a crash. Lithium is still priced at more than double pre-pandemic levels, while nickel is up 28% on 2019 prices. Likewise, Adamas Intelligence point out that long term demand driven by growth in EVs remains strong. Of course, this is cold comfort to workers being laid off in WA’s nickel mines and refineries.

The fortunes of lithium and nickel—along with all other critical minerals—are entwined with intersecting geopolitical and security strategies of states and multinational corporations.

Before making knee-jerk reactions like reducing regulation or providing corporate bailouts—which would undermine the social licence to operate—it is worth considering the geo-strategic context and particularly the rise of Indonesian nickel and the US Inflation Reduction Act.

Indonesian nickel has been the standout success of ‘down-streaming’. Through a series of export bans alongside Chinese investment in smelters, Indonesia went from exporting unrefined ore pre-2014, to becoming the second largest producer of steel grade nickel products by 2019. In 2021, the government created the mega state-owned enterprise, the Indonesia Battery Corporation (IBC), which aims to control 51% of nickel mines and smelters and 25-40% of cathode and battery production. The IBC has partnered with Chinese and Korean investors to build a new generation of H-PAL (high pressure acid leech) smelters to produce battery grade nickel products.

However, there are serious concerns about labour standards, deforestation and deep-sea tailings placement around Indonesian nickel projects.

With massive state coordination, economies of scale, lax regulations, and massive investment from Chinese and Korean capital, Indonesian nickel products are always going to be cheaper than anything Australia can produce.

However, complaining about ‘cheap’ and ‘dirty’, Indonesian nickel ‘flooding’ the global market won’t achieve anything—except alienating our neighbour with borderline racist language.

Australia’s advantage in nickel is our ESG (environmental, social and governance) reputation, as clearly identified in every state and commonwealth government strategy on critical minerals. While Indonesia sells its low-cost nickel products to China, Australian companies and governments should double down on our existing advantage. However, our research shows that governments are not upgrading environmental or social regulation at the same time as they seek to upgrade the industry.

Australian nickel does have a crucial advantage over competitors in its eligibility to supply North American manufacturers attracting subsidies from the US Government.

The US Inflation Reduction Act provides subsidies of US$7,500 for each electric vehicle produced in North America, using critical minerals sourced from mines or refineries in countries with which the USA has a free trade agreement and where those projects are not controlled by a ‘foreign entity of concern’ (FEOC). Australia has an FTA with the USA, while Indonesia does not yet have an agreement.

Proposed US guidelines on FEOC definitions rule out critical minerals produced by a mine or refinery with 25% or more ownership by any Chinese company. Notably, if applied as proposed, the definition will exclude lithium sourced from Greenbushes, including the lithium hydroxide from WA’s two most advanced refineries. This is because Chinese company Tianqi owns 51% of a joint venture with Australian firm IGO that then owns 51% of the mine.

As things stand the big winners from the FEOC definitions are other lithium projects in Australia—mitigating the impact of the recent price correction. Pilbara Minerals, in particular, which runs a joint venture with Korean giant POSCO to refine its spodumene in South Korea, stands to benefit.

For Indonesian nickel operations to sell into US IRA compliant supply chains, the Indonesian government would need to sign a limited FTA with the USA and, even then, only projects with less than 25% Chinese equity would be eligible (currently none exist). Such a prospect is hypothetically possible in the longer term, of course.

The ultimate impact of US IRA subsidies on critical mineral prices is debated, it is but one mechanism that could facilitate a premium price. The EU’s battery passport is another. There are also investor led initiatives. Australia should continue to support all such initiatives.

As mentioned, Indonesia does have ambitions to continue building out downstream battery manufacturing. To do this at scale, it may well need Australian lithium. The Western Australian Government has already signed an MoU with Indonesia to work towards lithium supply and cooperation on research, and the Commonwealth government has begun similar talks.

Given this latest price correction, some WA nickel miners have criticised this cooperation, failing to recognise that Australian lithium could stand to benefit from closer ties. Of course, there will be difficult questions about how best to engage with Indonesian nickel producers given their environmental and social impacts, but this should be done in collaboration with Indonesian civil society and community advocates.

Cooperation with Indonesia could be even more attractive if the US FEOC definitions in the IRA do exclude lithium from WA’s Greenbushes mine. Indonesia could be a destination for WA’s battery grade lithium hydroxide and cooperation between the two nations’ industries could help downstream development on both sides.

In Australia we must upgrade our competitive advantage—our environmental, social and First Nations outcomes to ensure stable, sustainable projects. High ESG standards may eventually provide potential price differentiation, and access to US and EU markets. But more importantly, a genuine social licence to operate facilitates in a secure, ‘de-risked’ investment for capital and supply for downstream producers and our strategic allies.

Different critical minerals have different geopolitical realities and demand different approaches. As the world’s largest lithium producer, we can pursue multiple simultaneous strategies. Until 2020 we only exported spodumene concentrate, 98% of which went to China for processing. Now, 10% is refined into lithium hydroxide domestically. Australia can export multiple differentiated products to general and niche markets.

In sum: for nickel, Australia should sell premium product into North American and EU supply chains, and advocate on the global stage for a ‘sustainable’ price while upgrading the social and environmental outcomes in regions to ensure a genuine social licence to operate.