China’s restriction on exports of two niche metals — germanium and gallium — is a warning shot to both the US and Europe.
The next logical step will be rare earths.
But the warning also applies to Australia, which could be crippled if China expands the germanium and gallium restrictions to solar panels and blades for wind turbines.
Over the last two decades, China has built manufacturing capacity to dominate the key ingredients required for the world electrification and renewables boom.
Australia is becoming more and more dependent on China because we are not properly maintaining our coal power generation plants, which are breaking down at a faster pace than was first envisaged.
We plan to replace them with solar and wind generation, making us reliant on China in a way that is akin to the 1950s when Australia depended on Middle Eastern oil prior to the discovery of resources in the Bass Strait in the 1960s.
We have been rattling the sabre at China, but our foolishness in past decades means we can be brought to our knees at any time it wishes.
But the same applies to the US and Europe, which has led to a massive drive to increase rare earths production, where Australia finds itself in the box seat.
It is fascinating that, coincidentally, China imposed its restrictions on germanium and gallium at the same time as Indonesian President Joko Widodo was in Australia.
Indonesia wants to be a centre of electric car manufacturing and is looking to Australia as a source of the required lithium, rare earths and other minerals.
This is a great opportunity for Australia to establish a global position in supplying the essential ingredients for batteries, although in the case of nickel, Indonesia will be a big producer, helped by Chinese capital.
In past mineral booms Australia has been happy to export concentrates or in the case of iron ore, we export the product direct from the ground usually without any processing.
In materials like rare earths and lithium, the wealth generation will come from producing the treated minerals, and we must take a stand to ensure our products are upgraded.
A difficulty will be the mess we have made with the introduction of renewable energy.
In April, I described the various thrusts Australia is making to challenge China’s dominance in rare earths production.
We are working closely with the US, which has given Australian investment special status.
Over Easter, ASX-listed Australian Rare Earths detailed a rare earths discovery that has the potential to rank with China and Myanmar’s ionic clay mines.
China’s mines and treatment plants supply 95 per cent of global output of the rare earths required in permanent magnets that are an essential part of the motors in EVs and wind turbines.
The Australian deposits are in ionic clay – similar to the low-cost deposits in China – and contain not only the neodymium and praseodymium rare earths, but also dysprosium and terbium that on current technology are essential for EVs and wind turbines.
Since the Easter announcement, Australian Rare Earths’ drilling program has greatly expanded its reserves on the South Australian-Victorian border.
Ironically, after Alcoa established its WA bauxite treatment operation in the 1960s the French set up a plant to extract gallium from the Alcoa material, but it was not economic and the plant was closed. Now an American company is looking at reopening the plant.
Germanium is used in fibre optic products and night-vision goggles, while gallium is a critical material for semiconductors.
China produces 60 per cent of the world’s germanium and 80 per cent of gallium. China will now require exporters of these metals to get a licence to ship them. It has not banned the exports.
China realises that there are other sources of the metals and substitute materials can be used.
China and the US have been engaged in a technology trade war since 2019.
The US has used widespread export restrictions to cut China off from key technology components, plus semiconductors and chips.
Those restrictions threaten China’s technology development, but the US is such a big market for Chinese products that it has been reluctant to retaliate.
But when the US Commerce Department put trade curbs on Chinese memory chipmaker Changx after Beijing banned the sale of some chips by US-based Micron Technology, the trade war became hotter.
The West has basked in the low prices offered by China in so many areas, including rare earths, germanium, gallium, computer chips, solar panels and wind turbine blades.
Western production operations were shut down because costs were too high.
It was a brilliant strategy by the Chinese, who gained world dominance in the industrial revolution that was as part of decarbonisation.
The West embarked on decarbonisation without realising it had become dependent on the Chinese.
The US, Europe and Australia all walked into the same trap, and it will take time and high costs to reduce dependence on China. It will also boost world inflation.
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