Australia’s rare earth policy and pricing out of sync – East Asia Forum

In 2024, the Australian rare earth industry faced challenges despite government support and pricing strategies. Low prices affected project development, leading to production cuts by Lynas, Australia’s sole rare earth producer. Shareholder disputes further complicated matters, highlighting a disconnect between government initiatives and private sector progress in the market.

The reluctance of Western companies to support rare earth producers due to low market prices has left a gap filled by Chinese firms offering essential offtake agreements for pre-production miners. These miners require these agreements to start constructing and producing, further solidifying Chinese dominance in the sector. Concerns have been raised about Chinese firms manipulating prices to maintain their global market control by preventing supply developments outside China, similar to the situation in the mid-2010s post-China’s dispute with Japan.

Past instances like Molycorp’s bankruptcy and Chinese control over a U.S. mine indicate the need for policies to investigate or ensure minimum prices for rare earth producers. Critics also emphasize the need for ethical and environmentally friendly production practices, pointing out the risk of investing in destructive mining operations in Myanmar when prices are low.

Iluka Resources, aiming to establish a rare earth refinery with government support, identified low prices as a hindrance to project advancement. They proposed a unique pricing system involving ‘cap and floor’ agreements, distinguishing themselves from conventional pricing benchmarks. However, Iluka’s struggle to attract customers highlights the complexity of challenging existing pricing norms in the industry. Renegotiations around pricing structures are often influenced by market power dynamics rather than mutual benefits.

While the proposal addresses the importance of maintaining Western strategic goals and project development outside China, there are doubts about its practicality and relevance. Lynas, an industry player, already implements various pricing methods, questioning the necessity and effectiveness of Iluka’s approach. Consumers worldwide benefit from low rare earth prices, regardless of the potential monopolistic intentions behind these price actions. As a result, Iluka’s proposal faces skepticism towards its feasibility in the industry.

The rare earth industry remains at a crossroads, balancing the need for sustainable mining practices, fair pricing structures, and global supply chain security. The challenges faced by Australian rare earth stakeholders underscore the importance of finding innovative solutions that align with the interests of both producers and consumers. While efforts to diversify pricing strategies are commendable, the industry must navigate complex market dynamics to ensure fair and sustainable growth.