Few people in the West acknowledge how effective China’s policies have been in securing global supply chains of critical metals.
As Western nations ignored investments in commodities throughout the deep bear market years between 2012 and 2020, China capitalised, buying overseas assets for a fraction of their early 2000 boom-era prices.
As commodity prices sunk, China cultivated its raw material supply chain by investing in frontier locations throughout Asia and Africa.
It has been the West’s lack of foresight that’s left it immensely vulnerable to future disruption.
However, it’s not so much the mining aspect that’s allowed China to dominate critical metal supply chains… it’s the country’s move to develop downstream processing.
China is known for harbouring substantial mineral wealth, but its installation of refining and processing capacity has enabled it to monopolise the periodic table of elements.
For better or worse, the rise of China’s critical metal dominance shows how effective authoritarian governments CAN be in advancing national trade interests.
But with that, the West has been caught short.
Whether it’s pivoting away from fossil fuels, building up defence munitions, tech manufacturing, or simply maintaining relevance in the global economy, nations must secure stable supply chains of raw materials.
And its critical metals, with limited geographic distribution, that will be key.
So, how does Australia stack up in this future fragmented economy?
Cast your mind back to March 2024… Australia’s resource minister, Madeline King, made a well-profiled trip to the US and Canada.
Here’s the official line from King’s visit (emphasis added):
‘Australia, Canada and the United States have a shared commitment to market transparency and diverse supply chains for critical minerals, and a shared interest in promoting recognition of the high environmental, social and governance standards in our respective resources sectors.’
And this:
‘My talks in Canada and the United States will also discuss disruptions in global markets and any opportunities to address market uncertainties.’
It doesn’t take an expert to identify that the US clearly wants Australia and Canada to fill the looming critical metal shortfall as trade with China invariably breaks down.
King makes it abundantly clear that Washington is fully behind Australia’s role in developing a downstream supply of minerals.
In fact, less than a week after King returned from her ‘high-level’ meetings in Washington, the Australian Government indulged in a critical metal spending bender…
This culminated in the Federal Government team announcing a $840m package to fund Arafura’s [ASX:ARU] rare earth project in the Northern Territory. A commodity in which China accounts for around 80% of global supply.
That was followed by a further $185 million for Renascor Resources [ASX:RNU], which owns Australia’s most advanced graphite battery development project.
Again, according to some sources, China dominates this commodity, accounting for up to 90% of global supply.
But the cash splurge didn’t end there…a company known as Alpha HPA [ASX:A4N] received a $400 million package to build its ultra-high-purity alumina project in Queensland, Australia.
A commodity used in advanced tech, including semiconductor manufacturing.
So, what does all that mean?
It doesn’t take a crystal ball to see that the US is bracing for major disruption in China’s supply of critical metals. Who knows what America sees on the horizon here… Is it frontrunning an escalation in hostilities?
In my mind, nothing about this looks particularly good for global peace.
In May, the Biden Administration increased tariffs on numerous critical metals supplied by Chinese firms.
I have no doubt Washington is pushing its agenda and telling King to do whatever it takes to get Australia’s critical metal projects online. Australia and Canada are set to play pivotal roles in the US’s ambitions to reduce reliance on China.
Following the Washington visit in March, Australia’s Federal government clearly targeted advanced developers in its multi-million cash splurge—companies with the capacity to enter production within five years.
That should be another clue as to when we should expect a ramp-up in hostilities between these two major superpowers.
But here’s another angle…
Trade fragmentation = higher inflation
A 1970s-like inflationary episode looms large amid escalating trade tensions. In fact, there are very few winners in this type of economic set-up.
That’s what the 1970s showed.
But are we really embarking on another decade of decimation?
It’s certainly worth considering.
And no matter how dire the future may seem; there are always opportunities for investors.
Amid rising inflation, war and trade tensions, the 1970s offered one of the best periods on record for commodity investors.
In fact, the commodity surge during this time rivalled the early 2000s boom. According to Jeff Currie, the former head of commodities at Goldman Sachs, copper prices reached as high as US$15,000 per tonne in 1968, adjusted for inflation!
Today, copper sits below US$10,000 per tonne.
While this presents a challenging time for investors, there are ways to mitigate the risks.
I believe commodities will be your closest ally in weathering the looming inflationary storm.
That’s why we’ve just finished compiling a comprehensive report detailing which investments you should consider targeting as we brace for further hostilities and trade tensions.
To access all the details, click here.
Regards,
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James Cooper,
Editor, Mining: Phase One and Diggers and Drillers
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