Western nations pouring massive funding into critical mineral development to reduce dependence on China should heed historical lessons about government intervention in commodity markets, industry professionals warn.
More than a dozen mining executives, investment specialists, and market analysts told Reuters that current government spending patterns risk creating oversupply situations reminiscent of past market disasters.
“There needs to be some coordination between Western governments as they seek to incentivise new production,” said Brett Beatty, a partner at Resource Capital Funds, a mining-focused private equity firm that supplies the U.S. government with niobium and tantalum via its holdings in Global Advanced Metals.
“The biggest risk is we all do our own thing,” Beatty added. “We all generate multiples of volumes the world needs and then you just crush everything, because you’ve got an oversupply.”
Washington has committed more than $20 billion toward supporting domestic critical mineral capabilities through various initiatives and funding mechanisms, including $10 billion designated for its reserve program, Project Vault. Australia has committed at least A$13 billion ($9.42 billion) for critical mineral development through no fewer than five separate initiatives including its own stockpile program.
Rare earth elements represent just a fraction of the $320 billion critical minerals industry that the International Energy Agency projects will grow to twice its current size by 2040. The rare earths industry that manufactures powerful magnets for military applications, sophisticated manufacturing and healthcare equipment generated approximately $6.4 billion in revenue during 2024, based on IEA data. However, combined financial commitments from the U.S., European Union, Australia and Japan to rare earth initiatives worldwide already exceed that total market value, Reuters analysis reveals.
Historical precedents from the 1980s and early 1990s demonstrate how subsidies, discounted energy costs and price supports created massive overproduction of European dairy products – known as “butter mountains” – Russian aluminium “floods” and Australian wool, overwhelming global markets, causing price collapses and creating economic disruption beyond national boundaries.
Current Western investment trends are already positioned to push certain rare earth elements, a collection of 17 metallic elements, into oversupply within the next few years, according to David Merriman of Project Blue, a consultancy. However, he noted that massive surpluses might not materialize because governments could adjust their support levels.
“Government-led stockpiles can stop purchasing, which can have a market-balancing impact and there is only limited capacity supported by price floors or guaranteed purchasing by governments at present,” he said.
Currently, stockpiles do not pose any threat of overwhelming markets, said Amanda Lacaze, the CEO of Lynas Rare Earths, the world’s top rare earths producer outside China, on May 6.
“I’m pretty alert to how much rare earths are sitting in stockpiles around the world right now and it’s not very much,” she said.
Australian Minister for Resources Madeleine King told Reuters earlier this year that the country’s stockpile support was “very different from the wool situation.”
“This is about a targeted, project-based investment to make something work, for creating secure supply chains for Australian manufacturing, but also for our neighbours and like-minded partners,” she said.
International coordination efforts are underway. The Group of Seven countries are discussing establishment of a permanent administrative body to ensure critical mineral supply enhancement plans continue beyond their rotating leadership terms, five sources with knowledge of the negotiations revealed earlier this month.
Government market intervention has produced significant achievements for some nations, including the Democratic Republic of Congo (DRC), which has accumulated cobalt reserves and established export limits to increase mining revenues.
Initially, these policies elevated global prices, boosting government income, but extended restrictions threaten to accelerate movement toward alternative materials as purchasers pursue more dependable supply sources, said Geraud-Christian Neema, the Africa editor at the China Global South Project, a non-profit focused on Beijing’s role in emerging economies.
Officials now confront a challenging equilibrium: relaxing quotas might prompt export surges from companies like China’s CMOC and eliminate gains, while maintaining strict limits threatens long-term demand erosion, he said.
The DRC adopted a strategy pioneered by Indonesia, which in 2020 prohibited nickel ore exports to promote domestic processing and boost resource revenues.
Within three years, output tripled and the country solidified its dominance as the world’s leading producer. However, it has subsequently imposed mining quota restrictions to control overproduction and declining prices – and last week, it announced plans to centralize commodity export oversight.
One approach to reduce oversupply risks would involve adding processing capabilities at current operations so target metals are manufactured as secondary products, rather than responding to price incentives, said Huw McKay, a visiting fellow at The Australian National University who previously served as BHP’s chief economist.
This approach is being implemented in Western Australia through Alcoa and Japan’s Sojitz, which includes support from Japanese, Australian and U.S. governments. They are installing a facility to extract gallium at Alcoa’s alumina operations near Perth. Trafigura has begun extracting antimony from its Nyrstar lead smelter in South Australia.
Considering the capital expenditure requirements of major mining companies, McKay said Western government investments were “more like seed funding.”
