Global energy transition reshapes Australia's critical minerals landscape: RBA report reveals opportunities and challenges

Australia's Critical Minerals: Endowments and Shortcomings

The RBA report focuses on six minerals widely used in clean energy technologies: lithium, nickel, cobalt, graphite, rare earths, and copper. These minerals are core materials for electric vehicle batteries, wind turbines, and solar panels. Australia has abundant mineral deposits, contributing more than 50% of global lithium production in 2022 and ranking among the top producers of cobalt and rare earths. However, critical minerals currently account for only a small portion of Australia's total resource exports, far below iron ore, coal, and LNG.

The report notes that most of Australia's minerals are mined in the west, but processing and refining stages rely heavily on overseas facilities, with main exports going to China, the United States, Japan, and Malaysia. This industrial structure exposes Australia to risks in the supply chain—if midstream processing is disrupted by geopolitical factors, upstream mining will come under direct pressure.

Price Cycles and Investment Volatility

Critical mineral prices surged in 2021 due to the explosion in electric vehicle demand, but rapid supply expansion subsequently caused prices to fall sharply. Lithium and nickel prices have now returned to 2019 levels. Through its business liaison program, the RBA observed that a batch of late-stage lithium projects was forced to be postponed in 2024, and some mines suspended production due to profitability issues. This situation highlights the typical "price-investment" cycle of the resource industry: high prices stimulate supply, oversupply pushes prices down, and ultimately erodes investment returns.

For operating mining companies, cost control has become the top priority. Australia's labor, energy, and environmental costs are all higher than those of competitors such as Indonesia and Chile, meaning that in a medium-to-low price environment, local producers may face greater survival pressure. The RBA report implicitly points out that Australia's competitiveness depends on changes in its costs relative to the global average, and at present there is no obvious structural cost advantage.

Policy Intensification: Can It Reverse the Short-Term Downturn?

In response to market volatility and geopolitical competition, the Australian government has introduced several support measures. The Critical Minerals Strategy 2023–2030 provides a funding framework for domestic exploration and production, while the Future Made in Australia plan encourages investment in mining and processing through budget spending and production-linked tax credits. Recently, Australia and the United States also reached a framework agreement on critical minerals and rare earths supply, aimed at safeguarding the commercial and defense supply chain security of both countries.

Policy signals will undoubtedly boost long-term confidence, but the RBA reminds that it typically takes more than 10 years from exploration to production. Even if projects are moving forward, output growth will remain weak in the short term. In other words, policy is necessary but not sufficient—whether capital is willing to position itself early depends on judgments about global demand and technology pathways.

Global Demand Outlook: A Huge Divergence Under Two Scenarios RBA adopts two baseline scenarios from the International Energy Agency (IEA) to analyze global demand for critical minerals. The first scenario (STEPS) assumes that countries only implement climate policies that have already been announced or are currently being developed; the other scenario assumes stronger emission reduction efforts (the RBA did not specify names in its communiqué, but noted they are "two widely used baseline scenarios"). Demand growth rates under the two scenarios differ significantly, but the direction is the same: over the long run, the adoption of clean energy technologies will drive a structural upward shift in critical mineral consumption.

Key uncertainties include:

• Policy implementation strength: whether countries deliver on their climate commitments.
• Technology route competition: battery chemistry routes (e.g., lithium iron phosphate vs. nickel-cobalt-manganese) could change the relative demand for lithium and nickel.
• The emergence of new technologies: for example, solid-state batteries or new energy storage could reduce reliance on certain minerals.

For Australia, demand growth is a positive, but the real challenge is ensuring that domestic capacity can meet this demand at a reasonable cost. The RBA emphasizes that growth in export volumes does not equal growth in export values; if prices keep falling, even higher volumes could lead to lower revenues.

Asia-Pacific trade and geo-economic implications

Australia's critical minerals are mainly processed and ultimately consumed in the Asia-Pacific region. China controls most of the world's refining capacity, and this pattern is unlikely to change in the short term. However, the US-Australia agreement, Japan's resource diplomacy, and South Korea's battery supply chain demand are pushing Australia to build closer mineral cooperation channels with its allies.

For China, Australia's mineral exports remain strategically valuable, but dependence on processing links could also become a sensitive point in bilateral relations. The RBA report did not discuss specific trade frictions, but it pointed out that the geographic concentration of supply chains is a major source of vulnerability. Going forward, Australia may need to strike a balance between "economic rationality" and "security first"—neither abandoning the Chinese market nor failing to provide alternative supplies to allies.

Investment perspective: where will long-term capital flow?

From an investment perspective, the long-term attractiveness of the critical minerals industry depends on the pace of demand growth and the price path. The RBA's scenario analysis implies an assumption of rising relative global mineral prices, meaning that in the baseline scenario, profit margins for diversified mineral projects may improve. Recently, spodumene, copper, and rare earth projects in Western Australia remain at the feasibility study stage, with cautious capital expenditure.

Government tax credits and production-linked incentives could reduce project risks, but truly large-scale investment requires stronger price signals. If global electric vehicle and energy storage deployment accelerates after 2026, lithium, nickel, and copper markets could tighten again, and the resulting price rebound would rekindle investment enthusiasm. In addition, construction of downstream refining facilities may also receive policy support to enhance export value-added.

Long-term trends: from coal to critical minerals?## Long-term trend: from coal to critical minerals?

Australia is currently a major exporter of coal and LNG, but long-term demand for these fossil fuels will gradually shrink due to the energy transition. Critical minerals offer a hedging opportunity. The RBA points out that growth in the critical minerals sector can, to some extent, offset the reduction in economic activity caused by declining fossil fuel exports. This means that Australia's resource landscape is undergoing a structural shift from "black energy" to "green minerals."

But this process will not be smooth sailing. Technological iteration, geopolitical conflicts, and cost pressures could all delay the transition. The RBA's conclusion is that Australia has the natural endowment to become a key node in the global clean energy supply chain, but realizing this role depends on domestic policy efficiency, the pace of overseas market demand, and whether domestic production costs can remain competitive.

Conclusion: Opportunities and risks coexist; strategic choices determine standing

The RBA report clearly paints a core picture: the global energy transition will reshape the structure of resource demand, and Australia stands at a critical juncture in this transformation. In the short term, the industry will continue to feel the pain of low prices; in the long term, if policies are appropriate and investment is in place, critical minerals are expected to become a new pillar of Australia's economy.

For policymakers, the core task is not just increasing output, but building a complete industrial chain from mining to processing to enhance supply chain resilience. For investors, it is necessary to closely track global climate policy, battery technology roadmaps, and the Australian dollar exchange rate, seeking structural opportunities amid volatility.

Whether Australia can seize this historic opportunity may determine the position of its resource industry on the global map over the next decade.

--- *This article is based on the Reserve Bank of Australia's October 2025 bulletin.*