Indo-Pacific partners forging critical minerals supply chains

October 5, 2023

319 2 minute read

Critical minerals, such as this chromium ore mined in eastern India, are deemed vital for the transition to solar power and other renewable energy sources. IMAGE CREDIT: THE ASSOCIATED PRESS

Tom Abke

Indo-Pacific partners continue to shift their supply chains for critical minerals away from the People’s Republic of China (PRC) for economic and national security reasons, analysts say. Critical minerals are vital components in defense technology, microelectronics, renewable energy and infrastructure. They include rare-earth elements such as cerium and neodymium used in electric motors, as well as the more widely known metals lithium, which is used in batteries, aluminum and nickel.

“There’s 50 elements on the 2022 critical minerals list published by the United States Geological Survey,” Dr. Fabian Villalobos, an associate engineer at the Rand Corp., told FORUM. Supplies of many of them, particularly refined rare earths and lithium, have been historically dominated by Chinese companies, he said.

Across the Indo-Pacific, nations including Australia, India, Indonesia, Japan, Malaysia, New Zealand, the Philippines and South Korea are taking steps to “decouple” their critical minerals supply chains from Chinese sources, Villalobos said.

“One reason that these countries are trying to decouple themselves from China is to benefit from the tax incentives included in the U.S. Inflation Reduction Act,” he said. The legislation enacted in 2022 provides tax incentives for U.S. companies to obtain their critical minerals from sources other than a “foreign entity of concern” such as the PRC or Russia.

Global demand for critical minerals is surging, particularly as nations seek to transition to renewable energy sources. India, which has significant reserves, is looking to Australian and Norwegian companies to help nurture its critical minerals industry, Kurt Tong and Charles Dunst, analysts with The Asia Group, a Washington, D.C.-based think tank, wrote in Barron’s magazine in August 2023.

They also estimate that the Philippines holds critical minerals resources valued at $1 trillion, and Manila is intensifying initial-stage extraction collaboration with the European Union and the U.S. New Zealand, meanwhile, is giving preference to domestic enterprises in exploration and is expected to collaborate with companies from partner countries such as Australia and the U.S.

The national security concerns that underpin the U.S. tax incentives are shared by other Indo-Pacific countries, Villalobos said. He cited Japan, which faced PRC curbs on rare-earths imports in 2010 following Japanese action against illegal fishing in its waters by a Chinese vessel.

Japan has since collaborated with Australia to refine Australia-sourced rare earths in Malaysia, he said.

South Korea also is seeking to build a resilient critical minerals supply chain independent of the PRC. South Korean President Yoon Suk Yeol wants to reduce reliance on the PRC for essential minerals from 80% to 50% by 2030, according to Tong and Dunst. Seoul intends to provide tax breaks and other financial assistance to offshore resource development projects, and is expanding its relations with Australia and Mongolia, which have extensive mineral deposits.

Given the role of critical minerals in defense technology, it’s vital for Indo-Pacific countries with major defense industries, such as India and South Korea, to establish independent supply chains, Villalobos said.

Tom Abke is a FORUM correspondent reporting from Singapore.