This downturn threatens the nation’s financial stability, largely due to its heavy reliance on China as a primary market. Known as the world’s mining powerhouse, Australia’s vulnerability is exposed as the nickel sector’s decline unveils a significant price manipulation controversy, echoing a supermarket scandal but on a monumental scale.
The concept of competition shifts dramatically when the victor uses unfair advantages. This situation has led Canberra to allocate billions in emergency aid to corporations and forego significant royalty revenues following a dramatic drop in global nickel prices, which have decreased from $US50,000 per metric ton in 2022 to roughly $US16,500 currently.
The crisis jeopardizes thousands of jobs as multinational mining corporations consider the feasibility of their Australian operations. However, nickel isn’t the sole mineral affected by severe market disturbances. The prices for steel, iron ore, and lithium have also fallen, with China flooding the market with excessive supplies, rendering competition practically impossible.
The Australian Strategic Policy Institute (ASPI) cautions that Beijing’s near-monopoly over the global supply chain of rare earth elements and critical minerals could be strategically exploited, as seen in past tensions with the US and Japan. Nickel, vital for high-capacity batteries and advanced alloys, along with other rare earth elements, are essential for modern technology and efforts to combat climate change.
China’s dominance in the production and processing of these materials, backed by subsidies and a disregard for environmental impacts, positions it as a leading force in the global market. This includes processing about 35% of the world’s nickel, a figure that increased with new operations in Indonesia.
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Australia’s approach of exporting raw materials without adding value contrasts sharply with China’s strategy to dominate markets through significant investment in advanced industries and green technologies. This includes leading the entire lithium production chain, a position bolstered by environmental sacrifices and innovation.
Indonesia’s decision to enhance its nickel value chain in 2014, supported by Chinese investment, underscores the shift towards processing and adding value to raw materials, highlighting the competitive advantage gained through such strategies.
China’s use of trade restrictions and embargoes as economic leverage, exemplified by its actions following Australia’s call for a COVID-19 inquiry, showcases its readiness to wield its economic power to influence global trade dynamics. The implications of China’s control over crucial minerals for the semiconductor industry and clean energy sector raise concerns globally, emphasizing the strategic importance of these resources in international relations and economic security.
Falling Behind
The Australian Strategic Policy Institute (ASPI) has raised alarms about a critical issue facing the global market: the sharp decline in lithium prices. Lithium, which stands as Australia’s second biggest investment in terms of committed capital expenditure up to 2030—surpassing even that of iron ore—has seen its value plummet over the past year.
In reaction to growing apprehensions regarding China’s dependability, Australian authorities have eagerly pursued the ambition of becoming the primary supplier of minerals to the Western world. Last year, the Australian government pledged an extra $2 billion in subsidies to attract mining and processing companies for essential minerals to establish operations domestically. The aim was to diminish dependence on China and aid the United States in rejuvenating its overlooked processing industries.
However, the recent downturn in metal market prices is casting doubts on the financial sustainability of such strategies without the continuation of substantial subsidies from Western nations.
“From a supply perspective, Australia holds a strong position in the lithium market,” states Dr Zhang. But the market’s demand dynamics pose a risk, with buying power concentrated in China, Australia’s major purchaser, highlighting a significant vulnerability.
This risk is becoming evident across regional Australia, with the Finniss lithium mine in the Northern Territory halting its operations in January and expectations of more shutdowns looming. BHP has deemed its Nickel West division in Western Australia as having no value, gearing up to cease operations, while Australian tycoon Andrew Forrest is closing his nickel mines in the same state. Similarly, Australian lithium and steel producers are reassessing their operations’ financial viability.
Sovereign Tales
“Australia is a leading producer of critical minerals, supplying all ten of the elements needed for lithium-ion batteries, and has the advantage of better environmental, social, and governance (ESG) standards that make it an attractive destination for investment,” argues Monash University Associate Professor Mohan Yellishetty.
Yet, a significant piece is missing from the puzzle: domestic demand. The collapse of Australia’s automobile manufacturing sector and the sluggish progress in the green energy transition resulted in weak local demand, deterring multinational corporations from establishing production bases in the country. An alternative could be the government backing the development of national processing plants for nickel, lithium, and other abundant rare earth elements in Australia. These facilities could then be marketed to eco-conscious regions like the European Union as cleaner options compared to their rivals.
However, recent decades have seen Canberra’s focus shift towards the privatisation of national assets rather than investing in them. ASPI cautions against the political and economic risks of over-reliance on a single market, underscored by policies under President Xi Jinping that amplify China’s influence and increasingly obscure the distinction between China’s private sector and its government.
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