Prospects for Rare Earth Elements Trade Between India and Australia
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2022-03-10
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India and Australia are currently working on a tight deadline to finalize their interim trade agreement, which is expected sometime in March. This is to be followed by a Comprehensive Economic Cooperation Agreement (CEPA) 12-13 months thereafter. Among key components of the interim agreement is bilateral commercial cooperation across the rare earth elements (REEs) supply chain.In February, Dan Tehan, the Australian Minister for Trade, Tourism, and Investment, highlighted the need for ‘deeper cooperation’ between the two countries on REE. Rare earths have wide ranging applications, ranging from use in smartphones to complex defense equipment.Australia is the fourth largest producer of rare earths, accounting for 6.99 percent of global production. It also holds the sixth largest reserves of REEs in the world.India, on the other hand, is seeking to modernize its defense ecosystem with new technology and expand renewable energy use. Such developments will require a slew of rare earth minerals.Partnership potential: India-Australia rare earth elements tradeWhile India has the world’s fifth largest reserves of rare earth minerals, it has not guaranteed self-sufficiency. Rare earths mining and extraction processes are capital intensive, consume large amounts of energy, and release toxic by-products. Also, processed minerals usually take the form of a rare earth oxide (REO), which then needs to be converted into a pure metal before it can be used to manufacture anything.Currently, the Indian REE ecosystem is controlled by a single government-run corporation – Indian Rare Earths Limited (IREL). IREL is involved in the production of rare earth oxides, which are then sold to foreign corporations for extraction and manufacturing of finished products. This process is part of the upstream industry, which is low cost and yields low returns. Meanwhile, India’s midstream and downstream REE industries are not well developed and is why the country remains dependent on imports of rare earth magnets.India currently does not have direct programs to facilitate the development of REE value chain. However, the government has launched key initiatives that will increase the demand for REEs exponentially. By 2030, India plans to have 30 percent of its automobiles powered by electric energy. To facilitate this transition, India has invested INR 100 billion in the Faster Adoption and Manufacturing of Electric Vehicles (FAME II) initiative, allocating 86 percent to incentives and 14 percent to vehicle charging infrastructure. This will create demand for permanent magnets and related products. Permanent magnets and the related high-tech industry are among key drivers of REE demand.Further, the technology required for converting rare earth oxides into metal or alloy is proprietary, and closely held by a small number of countries. India imports majority of its midstream and downstream value-added products due to lack of local technology expertise and absence of the transfer of commercial-scale proven technology. Significant investments, technological transfers, and information support are thus required to develop the processing units that could place India at any sort of consequential position in the global REE value chain.Australia is the fourth largest producer of rare earths and holds the world’s sixth largest reserves. Yet, while the country has well developed extraction and processing capabilities, it does not currently possess the equivalent manufacturing demand.
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