Insight - Green shift in US to boost Australian critical minerals

Demand for critical minerals in the US is set to increase.

New, ‘green economy’ initiatives from the Biden Administration will trigger aggressive plans for renewable energy development, smart grids and a large electric vehicle (EV) industry. The renewables sector will now surpass the defence sector as a customer for critical minerals.

Global supply chains will continue to re-align. The new US administration has approached critical minerals policies and initiatives as a bipartisan issue. It will continue Trump-era policies of stimulating production in the US and allied countries.

Increased demand and supply chain diversification will boost demand for Australian critical minerals in the medium term. Opportunities for Australian exporters include:

  • supplying rare earth materials for EV permanent magnet motors among tiered suppliers
  • selling custom battery-grade lithium, nickel, manganese, cobalt and graphite cathode/anode precursors into US-based EV battery manufacturing clusters
  • improving prospects for Australian rare earth companies to partner with US manufacturers and processors.

This insight will examine policy changes in the US, and identify specific opportunities for Australian resources and manufacturing companies. For more information, please contact:

Bede-Julian (BJ) Hampton: Director, Critical Minerals, Austrade, US
David Grabau, Head of Resources & Energy team, Austrade, Melbourne

 

What’s changed: The Biden Presidency’s energy policy

The Biden Administration has signalled its intention to pursue an energy policy that strongly encourages renewables sources and protects the environment. This includes re-joining the Paris Accord and cancelling the Keystone XL Pipeline project.

The new administration’s electric vehicle and clean energy policies will complement policies that support US critical minerals mining projects. They will lead to a major increase in demand for EVs. Clean energy policies will also spur development of off-shore wind power.

The change in energy policy is encapsulated in three presidential orders – on renewable energy, domestic production and a supply chain review.

1.  Renewable Energy

A new Executive Order was issued on January 27 to give immediate effect to the Biden Administration’s energy priorities, called ‘Tackling the Climate Crisis at Home and Abroad.’ This Order:

  • ends subsidies for fossil fuels (for oil, gas and coal) from 2022 and reviews related royalty systems.
  • commits to doubling offshore wind capacity by 2030.
  • requires agencies to develop a plan to procure carbon pollution-free electricity by 2035.
  • requires government agencies to transition to fleets of zero-emission vehicles.
  • orders a review of bottlenecks to the development of offshore wind power. It also re-affirms that the Jones Act will apply to offshore wind power facilities, ensuring that the vessels built to install and service turbines will be made in the US.
  • ensures transmission infrastructure investments are targeted at emissions reduction.
  • enacts a moratorium on new coal and oil leases on federal land, which currently accounts for 25% of US petroleum production.

The Order does not ban fracking and the moratorium does not apply to non-fossil energy materials, such as elements for batteries and rare-earth materials.

The Order decisively shifts US policy towards developing renewable sources – especially offshore wind – as a source of power. This will most likely impact north-eastern coastal states, including New York, New Jersey, Connecticut and Massachusetts. In these states, energy prices are high, offshore wind leases have been allocated, and public policy supports renewables integration.

The Order will also trigger increased demand for electric vehicles (EVs) – including from federal agencies. This alone will have a powerful effect on the EV industry as federal agencies currently own 645,000 vehicles.

For example, the United States Postal Service has already awarded a contract to Oshkosh Defense for a new design of postal delivery van, to include up to 165,000 vehicles. The vehicles will be equipped with either fuel-efficient internal combustion engines or battery electric powertrains.

2.  Domestic production

Another executive order, called ‘Made in America’ was issued on January 25, and it seeks to protect US manufacturing.

The order revokes similar orders issued during the Trump Presidency, but it generally maintains the protectionist stance through regulations that “require, or provide a preference for, the purchase or acquisition of goods, products, or materials produced in the United States, including iron, steel, and manufactured goods offered in the United States.”[i]

This Order has two principal impacts:

  • It signals to federal agencies, including the Department of Defense, that they should source minerals and ores that are mined in the US.
  • It underpins a commitment to invest in American manufacturing, including in aspects of manufacturing that relate to clean energy and critical supply chains.

3.  Critical Supply Chains review  

On February 24, President Biden signed an Executive Order concerning America’s supply chains. The Executive Order launches a comprehensive review of US supply chains and directs federal departments and agencies to identify ways to secure US supply chains against a wide range of risks and vulnerabilities.

The review will investigate how to boost the resilience of US supply chains for high-capacity batteries, rare earth metals and semiconductors.

The new Biden Administration represents a change in strategy. The Trump administration invoked national security as a reason for US manufacturing to diversify critical minerals supply chains. In a change of tack, the Biden administration is expected to stimulate the end-markets that will induce more demand for these minerals.

The commitment to supply chain diversity will remain. In effect this means not being dependent on traditional suppliers of critical minerals.

   

 

What can Australian producers expect to see over the short and medium term?

The impact of these policy changes is likely to be a steady increase in demand for critical minerals mined in Australia. Australian mining and processing companies will become comparatively more attractive to US-based manufacturers who need to adapt and conform to incoming policies.

Australian mines may be a better option in terms of cost, but partnerships will have to demonstrate that opportunities to ‘make in America’ have been maximised. Continuous commercial, political and environmental pressures will influence calculations of whether processing and pre-cursor manufacturing should occur in Australia or the US.

Australian producers can help US manufacturers to on-shore production

US domestic policy will prioritise the on-shoring of manufacturing. It will also promote the development of metal and battery production in the US for domestic vehicle manufacturers.

This on-shoring move will have implications for Australian producers’ value chain strategies. For example, Australian mining companies could consider partnering with US processing companies to help them achieve supply chain diversification.

Austrade expects:

  • an increased level of interest in Australia-sourced rare earth materials for EV permanent magnet motors among tiered suppliers.
  • that major original equipment manufacturers will seek to meet the Responsible Mining standard to align with US policy. Australian projects should consider aligning to the standards observed by US end-users.
  • that US processors will be looking to partner with mining companies that can guarantee supply from friendly countries. Australian mining companies will find themselves in a strong competitive position as US-based critical minerals processors seek to expand capacity.

Supply of battery pre-cursors into the emerging US EV industry

The combination of supply chain diversification policies and ‘Made in America’ initiatives will improve the attractiveness of Australia-mined critical minerals.

As other suppliers are nudged out of supply chains, there will be improved prospects for Australian processing and the manufacturing of battery precursors.

Currently, it appears that EV battery manufacturing is likely to be co-located with North American lithium supplies in California, Nevada and North Carolina. Austrade considers that upcoming opportunities will likely fall into three, distinct scenarios:

  1. Australian nickel-manganese-cobalt mines could secure offtake partnerships for precursors that can be fed into a co-located battery manufacturing facilities in the US.
  2. Australian companies could produce refined precursors at a battery manufacturer’s refinery close to the source of raw materials in Australia. These precursors could be shipped directly to multiple US facilities. This option reduces overall transport costs.
  3. Australian mining companies could ship crudely refined product for custom refining to EV OEM quality standards or specific patented process. EV OEMs may consider controlling precursor production by refining an upstream product (such as Mixed Nickel-Cobalt hydroxides) to gain a competitive or technical advantage.

Politics will remain a vital consideration. US manufacturers will have to balance their obligation to source domestically-sourced minerals with the need to create competitive products in the new renewables sector.

There is likely to be political support for US domestic manufacturing that partners with allied countries to integrate supply chains for rare earth magnet materials, battery precursors and other strategic critical minerals that are essential to energy transition and national security.

Austrade support

Austrade helps Australian critical minerals companies to pursue opportunities in the US. This includes encouraging US-based investment in Australian mining projects.

To find out more about how to pursue opportunities in the US, please contact.

Bede-Julian (BJ) Hampton, Director, Critical Minerals, Austrade, US
David Grabau, Head of Resources & Energy team, Austrade, Melbourne

[i] Executive Order on Ensuring the Future Is Made in All of America by All of America’s Workers. January 25. Section 1 (b).