Magnesium Market Highlights Continuing Fragility of Global Supply Chains

About a year ago, the central government began actively monitoring consumption across China. In September 2021, Shaanxi Province fell victim to the country’s ‘double control’ when it failed to meet energy consumption targets. The government swiftly shut down high-energy-intensity industries, including aluminum production. An international supply crisis ensued, and prices have soared.

Of course, higher prices could make entering the market more attractive to new players. But establishing magnesium value chains—from mines to producing unwrought magnesium and aluminum—takes time. Then there’s the added complexity of climate and trade policies. Plus, investors know that the supply chain shortages relate to Chinese domestic policy, which could be reversed just as quickly to prevent market entry.

Canada, the EU, Japan, the UK and the US are all reeling from the sudden disruption of the magnesium and aluminum supply chain. All are trying to find a way to address the issue and reduce prices to avoid further disruption in manufacturing. While markets are part of the solution, they alone won’t resolve this problem. Like Australia, most of these countries have limited experience in intervening in markets of this type. A resilient global supply chain will require work from each nation, both individually and in cooperation with one another. Resilience will have a price premium attached to it. Still, this latest episode shows that inaction has a price too.

Australia is an established magnesium producer. Companies like Magneto Metals, with its Batchelor magnesite project in the Northern Territory, are poised to provide supply-chain resilience. Like other companies, Magneto Metals knows that ‘to succeed, projects will need to have an integrated low-cost, low-carbon energy strategy and carbon footprint, meet increasingly stringent ESG [environmental, social and governance] policies and a competitive operating cost’.

But unlike similar projects in China, Australian companies face additional costs for infrastructure development, such as roads and affordable power supplies. In the Northern Territory, the future of magnesium rides on investments in facilities like Darwin Harbour’s Middle Arm Sustainable Development Precinct. China’s market domination still allows it to manipulate pricing, however, and Chinese state-controlled companies have arguably used their market dominance to affect commodity prices in the past in order to inhibit the growth of competitors in the market for rare-earth elements.

A small grouping of like-minded countries could ensure carbon pricing along these supply chains. Such an approach would reward companies that adopt less emissions-intensive processes, resulting in greater competition among suppliers.

Globalization in one form or another is no doubt here to stay, but the age of predictable, reliable supply chains is over.

John Coyne is head of ASPI’s Northern Australia Strategic Policy Centre and strategic policing and law enforcement program.This article is published courtesy of The Conversation.