Extract from ABC News
Analysis
China has been underpricing rare earths for decades. (Reuters: Stringer)
The big question from the magnet shock of 2025 is who gets to be the North Sea.
It's not necessarily Australia.
The OPEC oil embargo against the United States on October 19, 1973, precipitated the first oil shock and a burst of global hyper-inflation and economic misery.
It also led directly to the development of North Sea oil production because the quadrupling of the price had suddenly made offshore production from the fields that had been discovered just a few years earlier immediately viable.
The US was desperate for alternative supplies at any price.
On April 4 this year China effectively embargoed rare earth and critical minerals by announcing that the export of them would henceforth require a licence, and exporters to the US wouldn't get one, especially for military use.
Panic ensued.
The main use of rare earths is for permanent magnets, which are needed in electric motors.
Weapon systems, especially drones, are full of electric motors. So are electric cars, obviously, and humanoid robots have dozens of them, one for every joint.
Anyone who controls the supply of magnets controls the future, and China has been quietly working on this under America's nose for decades, through the time-honoured tactic of underpricing rare earths and driving the big Californian mine, Mountain Pass, out of business at one time.
Anthony Albanese and Donald Trump signed a new deal on rare earths last month. (AAP: Lukas Coch)
Trump looks to Australia
After China's announcement in April, the Trump administration immediately began talks with Australian officials. This culminated in the recent meeting between Donald Trump and Anthony Albanese where they signed the "United States-Australia Framework For Securing of Supply in the Mining and Processing of Critical Minerals and Rare Earths".
Marketing the deal back home, the prime minister declared that it "means jobs in Australia, it means economic growth, it means more economic resilience".
The deliberate impression was that Australia is in the box seat, because of the "personal relationship" he has with Trump, as he told Nine's Today show: "I've had such warm discussions with the president and we had a warm meeting in New York with Jodie and Melania being present there as well.
"We had a walk around the grounds looking at what he's doing with building the ballroom that's going to be in place there. And it was a terrific meeting, can't have gone better."
Yes, well, Albanese's new best friend is playing the field now.
Shopping around
Last week Trump hosted officials from five central Asian countries — Uzbekistan, Kazakhstan, Kyrgyzstan, Tajikistan and Turkmenistan — to talk about rare earths, saying: "I'm committed to making America's partnership with each of these countries stronger than ever before."
Mountain Pass, which used to supply 70 per cent of the world demand, is also operating again with a price guarantee, and so is the Serra Verde mine in Brazil. There's a mine being built in Angola and another one in Tanzania due to start construction in December.
Of course, there's room for more than one supplier — after 1973, oil industries were rapidly developed in both Mexico and Canada as well as the North Sea.
But rare earths and critical minerals are not like oil: you just don't need that much of them. Each EV, for example, has less than a kilogram of the stuff, worth less than US$100.
The key to rare earths is not mining them but refining them to an oxide which then gets sent to a smelter to turn into metal. At the moment, 90 per cent of the refining is done in China and the US is now desperately trying to do it itself.
Australia has two rare earth oxide refineries on the way: Iluka has started building one at Eneabba in WA to process the rare earths in its stockpile of mineral sands tailings, and Arafura Rare Earths is expecting to make a final investment decision (FID) for its refinery 140 kilometres north of Alice Springs, to process the ore from the nearby Nolans deposit.
The Australian rare earths projects capturing US attention.
From refining to production
Could Australia take the next step and produce magnets, instead of leaving it to the US and Korea?
Probably not. Darryl Cuzzubbo, the CEO of Arafura, told me last week that while there's nothing to stop Australia from making magnets, "I just don't see it as likely". The existing suppliers of parts to car manufacturers will do it.
But Cuzzubbo went on: "Where Australia could play a role is processing to an oxide [which] represents 95 per cent of the value chain of getting to a rare earths metal.
"The second role Australia can play — and you would have noted Australia's talk about strategic reserve — [is] where they basically guarantee supply to their trading partners, which is a bit of a bargaining chip for Australia."
Arafura's refinery is three years from completion and five years from full production. Iluka's is closer because construction has started, but the resource life is relatively short because they're using a pile of tailings.
China's bargaining chip
Apart from Trump's understandable promiscuity with other potential suppliers, there's the matter of whether China will always be a problem.
As the 1973 oil embargo stretched into 1974, and at the same time as president Richard Nixon threatened the Saudis with military strikes, US officials were working behind the scenes to repair relations and get a deal done.
The Saudis were suddenly very rich and were keen on buying a lot of American military technology. America, in return, was happy to sell it to them.
In the 1975 fiscal year, they signed $2 billion worth of military contracts, and importantly, Saudi Arabia agreed to price oil in US dollars, and to invest the money back into US bonds.
Trump met with China's president, Xi Jinping, at the APEC summit last month in Korea and came out extravagantly praising him and, importantly, with a 12-month pause on the rare earths embargo.
But that doesn't mean it's over. China is not Saudi Arabia and certainly doesn't need American military equipment. It only needs semiconductors, and not for long.
And it will only have leverage over magnet production for a few years — as long as it takes for the four of five rare earths mines and refineries that America is now supporting to get built.
And as Cuzzubbo told me: "China set themselves up to pull this card, but you can only pull it once, right?
"Because as soon as you pull it, then you've just motivated these other global manufacturing powerhouses to solve the problem and that's what they've done. They've pulled it, but they can only pull it once. They're going to get maximum leverage. Until the US and other countries have got an independent supply, which I'm going to say is some years away,
"China's still got a bargaining chip that they're going to use to the maximum effect."
What that means, exactly, we'll have to wait and see, but it's unlikely to mean smooth sailing.
Alan Kohler is finance presenter and columnist on ABC News and he also writes for Intelligent Investor.
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