Feature Stories | Apr 07 2026
This story features LYNAS RARE EARTHS LIMITED, and other companies.
For more info SHARE ANALYSIS: LYC
The company is included in ASX50, ASX100, ASX200, ASX300 and ALL-ORDS
China’s dominance of critical mineral refining has led to a global scramble to satisfy demand from energy transition, EVs, AI, data centres and much more.
- Only China possesses the capacity to process rare earths into metals and magnets at scale
- The rest of the world is scrambling to diversify supply
- Australia has deals with the US, EU and Japan
- Iran War increasing cost pressures for Australian critical minerals producers
By Greg Peel
It’s April Fools Day in the US and as I write, Artemis II has just left Florida for the first trip to the moon since 1972, albeit only around it.
The first landings since Apollo are scheduled for 2028. And, supposedly, Mars is next.
This is all very momentous, but at a lesser scale Morgan Stanley points out in 2025 there were 330 orbital launch attempts, up 26% year on year.
With the proliferation of rockets, the UN Office for Outer Space Affairs estimates the cumulative number of objects launched into outer space increased 136% between 2020 and 2025.
If companies and governments aim to build at scale in space, they will require numerous specialty alloys and highly engineered metals, Morgan Stanley notes.
The challenge is not simply demand, but supply. Many of the materials critical to rockets and spacecraft are already subject to tight, concentrated, or geopolitically sensitive supply chains.
As launch activity accelerates, metals could emerge as a meaningful bottleneck to the industry’s broader ambitions.
The critical constraint will be securing the materials required to build rockets and spacecraft. A meaningful share of those inputs are metals that already face significant supply limitations.
Morgan Stanley estimates spacecraft launched in 2025 required approximately 7,000 metric tons of metals.
While modest in the context of total global metal demand, spacecraft rely on highly specialised materials and alloys engineered to withstand extreme heat, stress, and radiation — often at costs reaching tens of thousands of dollars per tonne or more.
For many of these metals, production is concentrated in a single country, operationally complex, environmentally or toxicologically challenging, and/or fundamentally constrained by natural scarcity.
While stargazing is all very well, back here on earth, there is a lot more to terrestrial demand globally for critical minerals.
One problem is the dominance of a single country.
China
The core of the critical minerals crisis is not geological scarcity, but industrial concentration, suggests research published by Deutsche Bank Research Institute.
China’s capacity to exert geopolitical influence through its critical minerals sector in 2025 stems directly from its decades-long effort to industrialise its critical minerals supply chains.
Today, only China possesses the capacity to process rare earths into high-purity oxides, metals and magnets at scale. The dependency is stark: the US and the EU import a respective 71% and 46% of their rare earths from China, and the US imports 100% of its heavy rare earths from China.
Thus, the scale and impact of Beijing’s dominance over critical minerals is a clear assertion of infrastructure realism, Deutsche believes.
By establishing and scaling its control over this foundational layer of the physical economy, China has gained a powerful tool to shape outcomes and advance its economic priorities.
China’s latest strategic move amidst tensions over Taiwan exemplify this, with Beijing restricting “dual use” rare earth magnets and critical minerals to 20 Japanese companies in February.
As a side note, in March Australia’s leading rare earths producer Lynas Rare Earths ((LYC)) extended its existing Japan Australia Rare Earths agreement to 2038.
The extended agreement allows for deliveries of up to 7200tpa of neodymium-praseodymium (NdPr) with firm commitments of 5000tpa, an agreed market-linked floor of US$110/kg, and a 30% profit share at prices over US$150/kg.
Rare earths are integral components vital for defence systems, electric vehicles, power grids and data centres, Deutsche Bank notes.
Concerns that China could use its rare earth dominance as political leverage are not new. Back in 2010, for example, Japan faced shortages and price spikes after a halt in shipments from China led many to link the event to a preceding diplomatic clash.
Furthermore, critical mineral self-sufficiency has been many countries’ longstanding priority for decades (in particular Europe’s), especially as part of their goal towards a net-zero energy transition.
Yet, rare earths are only one group in minerals in a larger group deemed “critical”.
Much of the critical minerals focus of the early 2020s related to the idea of an energy transition, the Payne Institute notes. That narrowed attention to a handful of minerals that would likely be used in very large quantities in clean energy and battery storage such as lithium, nickel and cobalt.
The perception of the need for more energy has never been stronger today given burgeoning AI growth and the related demand for data centres, while there is also focus on critical minerals used in the defence –especially in the US– and electronics (again related to AI) industries, Payne notes.
These point to demand for very different critical minerals, including rare earths, gallium, tantalum, tungsten and indium, to name just a few, that are inputs for all forms of weaponry, military vehicles, satellites, communications and high-speed computer processing.
Hallgarten & Co suggests when one discards the “dross” in the critical metals lists, one is left with a few elements that can realistically be exploited with minimal environmental harm or footprint. For Hallgarten, the five elements that should receive the focus are tungsten, antimony, tin, rare earths, and helium.
Helium is required by data centres, notwithstanding the global demand for party balloons.
While Deutsche Bank anticipates competition in the critical minerals sphere will become more crowded over the next decade, analysis suggests China is well-positioned to remain the dominant actor for the foreseeable future.
In response, Deutsche expects the US to employ increasingly assertive and protectionist policies as it seeks to re-industrialise its own mineral supply chains.
Under this tense push-and-pull, minerals used as leverage will be the foremost feature of the global critical minerals system in the next decade.
The US
2025 revealed the extent to which rare earths have become an explicitly binding constraint in US-China relations. Deutsche Bank believes rare earths and critical minerals have grown to become indispensable to a country’s national security; a hallmark of an infrastructure-realist world.
In October 2025, US Treasury Secretary Scott Bessent warned Beijing’s controls pointed “a bazooka at the supply chains and the industrial base of the entire free world”. The financial implications of this are significant, Deutsche suggests.
The Atlantic Council, for instance, estimates an effective Chinese export ban on rare earths would lead to severe shortages across the energy, automotive and defence sectors within weeks.
It also calculates a one-year disruption of dysprosium, neodymium and manganese would reduce US GDP by -US$1.6bn, -US$154m, and -US$96m, respectively.
Addressing this vulnerability, the 2025 US National Security Strategy identifies critical minerals as a national security chokepoint, arguing the US “must never be dependent on any outside power” for inputs essential to defence and economic resilience.
Because some critical minerals are required in much smaller volumes, there are more opportunities to raise supply and at a cost, the Payne Institute points out, that can be considered quite small in the context of defence budgets or overall governmental outlays.
Payne estimates, for example, the cost to stockpile enough gallium to supply the US military for the next ten years could be less than US$15mpa.
Stockpiling enough lithium to satisfy the needs of US batteries over the same period could cost several orders of magnitude more.
These defence minerals are also very accessible, Payne notes. The US is currently mining dozens in reasonable quantities. Separation and then refining capacity can be plausibly bolted on to existing mining and processing infrastructure.
Research at Colorado School of Mines suggests with modest (less than 10%) recovery of domestic ore, the US could be able to satisfy its needs (ie without imports) of 27 minerals. Government support appears necessary in part because of how China is exerting its influence across all critical minerals processing.
Private mining and processing industries are currently facing meaningful challenges, Payne notes, with low prices squeezing profits and “squashing” economic return-based assessments for expansion, thereby squeezing out would-be competitors to Chinese entities.
Examples abound, but include lithium, cobalt, and nickel, for which pricing has given up gains that were fuelled by long term demand growth outlooks set in the “headier” days at the beginning of the decade, and are now below thresholds required to support new (Western) investment.
In rare earths, current pricing for NdPr oxide, a non-substitutable component of batteries, is around half of what US mining companies say they need to be profitable, Payne reports, even at scale.
Notably, Payne suggests the same can be said for copper, although only at an intermediate stage. Prices for semi-finished product (cathodes) set new highs in the US in 2025. But refining margins are negative as a surge of Chinese-backed capacity has swamped the refining market.
Support also appears necessary because the lower-volume requirement defence minerals –often byproducts that are left in mine tailings/wastes– are too small to be “worth it” for businesses to pursue.
If these minerals are indeed deemed critical, it will fall on government to structure demand support to supplement the market to foster the necessary investment.
The Biden Administration embraced support for critical minerals development and processing domestically (as part of a broader industrial policy agenda), and, to a lesser extent, in friendly countries.
Domestic critical minerals project support came from (1) the Department of Energy’s Loan Program and Department of Defense, which issued US$4bn in grants and loans (dominated by lithium and rare earths by virtue of large investments in Lithium Americas and Australia’s own Lynas Rare Earths), and (2) Inflation Reduction Act tax credits.
The energy transition is not something supported by Donald “drill baby, drill” Trump. However, with regard critical minerals, Payne reports the Trump Administration appears to be willing to expand the number of levers it might employ to support specific projects, including taking equity stakes and providing pricing guarantees.
This was illustrated in dramatic fashion by the Department of Defense’s recent significant investment in MP Materials –America’s only fully integrated rare earths producer; mining, refining and then manufacturing magnets– which had previously received loan support during the Biden Administration.
Notably, an Executive Order from March 2025 appears to lay some groundwork to empower the US Development Finance Corporation to promote domestic mining and processing projects to supplement its (more narrow) international mandate.
Meanwhile, Payne notes, the current administration has made access to critical minerals an integral part of diplomatic efforts in Ukraine, Democratic Republic of Congo, and elsewhere.
At the same time, for both smaller and larger volume minerals, it is important for the US/OECD to develop more of its own separation/refining/processing capabilities, as has been recognised and encouraged in legislation including the Inflation Reduction Act and the EU’s Critical Raw Materials Act.
Investing to support recycling capacity creates clear potential to make the most of existing finished product versus exporting scrap to other countries.
Europe
“The many decades of delusional policy towards mineral self-sufficiency have come to a screaming halt since the onset of the Pandemic at the turn of the decade. But old habits die hard.
“The initial response to rising unease about Chinese (and Russian, to a degree) dominance, and attendant dependence upon, for the supply of critical/strategic metals was recourse to the toybox of slogans, buzzwords and soundbites.
“The Eurocrats trotted out “The Circular Economy” as the universal panacea for the generalized lack of mineral production within the bloc´s borders.
“This resort to sloganism only succeeded in staving off the evil day in which the EU states grappled with the unpleasant (and dire) truth that the economic bloc was dependent for almost all its mineral inputs upon distant, and possibly unfriendly (dare we say, threatening) nations.”
Hallgarten & Co does not pull any punches when assessing the EU’s response to the bloc’s critical mineral demand/supply crisis.
More recently, the EU Critical Raw Materials Act (CRMA) entered into force in May 2024 and identified 34 critical raw materials and 17 strategic raw materials based on their economic importance and supply risk.
This aimed to secure the EU’s supply of essential raw materials by reducing import dependencies and promoting domestic extraction, processing, and recycling, Hallgarten notes.
The initiative laid out ambitious targets for EU-based production and processing. It nevertheless fostered strategic partnerships with producer countries and streamlined (in theory) permitting for key projects to meet the growing demand for green and digital technologies.
In March 2025, the European Commission identified 47 strategic projects across 13 EU countries to boost domestic production and processing capabilities.
Australian and Canadian companies, in pursuit of some of these funds and, moreover, to put themselves on the EU’s radar, participated in the European Institute of Innovation and Technology Raw Materials Summit in Brussels, in May 2025, seeking out funding and strategic partnerships.
On the pricing side, Hallgarten notes, the bilateral frameworks concluded with Australia and Japan in October 2025 include explicit commitments to cooperate on price floor mechanisms — standards-based systems designed to ensure allied producers can operate competitively against subsidised Chinese supply.
The multiple new frameworks announced at the Critical Minerals Ministerial hosted by US Secretary of State Rubio in early February 2026 –covering Argentina, the Cook Islands, Ecuador, Guinea, Morocco, Paraguay, Peru, the Philippines, the United Arab Emirates, the United Kingdom and Uzbekistan– may incorporate similar provisions and aim to boost investment in processing in certain partner countries, though the full substance has not yet been publicly disclosed.
Negotiations are reportedly in progress with an additional 17 countries. The Trump Administration has also announced plans to hold negotiations with the EU and Mexico regarding cooperation on price floor mechanisms.
Australia
As has been well noted, some 20% of global oil exports pass through the Strait of Hormuz. The strait also handles 20% of LNG, 18% of fertiliser, around 35% of helium, as well as aluminium and industrial chemicals.
Macquarie notes the Strait of Hormuz is a critical shipping route for chemicals that are integral for critical minerals refining, with much of this trade currently disrupted. Roughly 45% of globally traded sulphur and 15% of processed phosphate product is transported through the strait.
Refining cost pressures thus exist for Lynas Rare Earths. On Macquarie’s assumptions, producing 1kg of NdPr requires around 10kg of sulphuric acid.
Macquarie estimates some 80% of Indonesia’s sulphur imports are sourced from the Middle East, exposed to Strait of Hormuz disruption. Producing one tonne of nickel via High Pressure Acid Leach (HPAL) requires around four tonnes of sulphuric acid, with usage varying by ore grade.
The analysts forecast sulphur-related costs account for circa 45% of Nickel Industries’ ((NIC)) HPAL cash costs.
Synthetic graphite production costs are largely driven by petroleum coke and energy, accounting for some 70% of the total cost base on Macquarie’s forecast. Petroleum coke prices have historically shown a strong correlation with oil prices, and combined with the energy-intensive nature of graphitisation, leave synthetic graphite costs exposed to oil price volatility.
A prolonged oil supply disruption could lift petroleum coke and energy costs, driving higher synthetic graphite production costs and improving the relative attractiveness of natural graphite products from Syrah Resources ((SYR)), in Macquarie’s view.
The impact of the conflict on lithium markets is likely to be mixed, the analysts suggest. On the demand side, a sharp rise in petroleum prices could temporarily incentivise EV purchases; however, a prolonged conflict may erode consumer confidence, dampening EV demand over the medium term.
On the supply side, emerging phosphoric acid-related cost headwinds reduce the down-stream’s ability to absorb a materially stronger lithium price.
Macquarie views lithium as the “white oil”, a key component of today’s energy mix.
When oil and gas prices rise due to supply disruptions, lithium should also benefit given its role in energy firming. Recent Middle East tensions have lifted oil and gas prices, while lithium prices have remained broadly flat.
Risk-off sentiment has weighed on both base metals and lithium-exposed equities.
Contemporary Amperex Technology Co’s (CATL) Jianxiawo lithium mine in Yichun in China’s Jiangxi province is part of a broader lithium production hub in Yichun, often referred to as the “Lithium Capital of Asia.”
Jianxiawo is set to resume operations around China’s 2026 New Year after renewing its mining permit and completing an environmental assessment.
Macquarie’s base-case forecast assumes meaningful volumes from Jianxiawo from mid-2026. However, recent channel checks point to downside risk due to ongoing tailings management focus and water quality concerns in nearby river systems.
Mineral classification changes remain underway across a further six Jiangxi operations, although operators have implemented mitigating measures.
In the near term, shipments from major Zimbabwean producers are expected to resume once the government completes the export tracking system, though risks around reagent supply and reliable energy could add medium term production variability.
Higher oil prices provide a potential tailwind for EV demand, depending on the duration and severity of supply disruptions.
While Energy Storage System (ESS) batteries remain a smaller share of lithium demand (29% of 2026 primary demand), growth is accelerating following a stronger than expected 2025, supported by a robust 2026 order book and high utilisation at ESS cell manufacturers.
Among Australia’s lithium producers, Elevra Lithium ((ELV)) shows the highest earnings leverage on Macquarie’s forecasts, with a 10% increase in spodumene prices driving earnings upgrades of 24% and 14% in FY27-28.
PLS Group ((PLS)) also exhibits elevated sensitivity, with circa 17% earnings movements for a 10% price change. On valuation, Elevra’s net present value increases by 18% for a 10% lithium price uplift, followed by PLS at 15%, while Liontown Resources ((LTR)) and IGO ((IGO)) each show 12% sensitivity.
Find out why FNArena subscribers like the service so much: “Your Feedback (Thank You)” – Warning this story contains unashamedly positive feedback on the service provided.
FNArena is proud about its track record and past achievements: Ten Years On
Click to view our Glossary of Financial Terms
CHARTS
For more info SHARE ANALYSIS: ELV - ELEVRA LITHIUM LIMITED
For more info SHARE ANALYSIS: IGO - IGO LIMITED
For more info SHARE ANALYSIS: LTR - LIONTOWN LIMITED
For more info SHARE ANALYSIS: LYC - LYNAS RARE EARTHS LIMITED
For more info SHARE ANALYSIS: NIC - NICKEL INDUSTRIES LIMITED
For more info SHARE ANALYSIS: PLS - PLS GROUP LIMITED
For more info SHARE ANALYSIS: SYR - SYRAH RESOURCES LIMITED