CRITICAL MINERALSChina Shows How Western Governments Should Stockpile Minerals
The US, Australia and partner countries should take a page from China’s stockpiling playbook. They should build up stockpiles of critical minerals, managing inventories to optimize prices for domestic mineral producers and consumers and to guard against decreased supply and increased demand in wartime.
The US, Australia and partner countries should take a page from China’s stockpiling playbook. They should build up stockpiles of critical minerals, managing inventories to optimize prices for domestic mineral producers and consumers and to guard against decreased supply and increased demand in wartime.
The United States, Japan, and South Korea have strategic mineral stockpiles, but China is the master of the game. Its policy of building up or running down stocks has a significant impact on global mineral prices. This policy serves two purposes.
It provides a strategic stockpile for national emergencies, such as a war, and defends local industries against severe price fluctuations. When a critical mineral is cheap, China buys, increasing its stockpile and pushing prices higher. Doing so protects the profitability of China’s mineral producers. Conversely, when prices of a mineral are high, China sells down its stock, pressing down on the price and helping industries that consume the mineral maintain profitability.
For example, China bought zinc amid low prices in 2009 and 2012 and sold zinc amid tight supply in 2021.
If the US, Australia and partners established and similarly managed mineral stockpiles, they’d have an important capability: dampening market manipulation by foreign actors, including the Chinese government and major Chinese companies.
China’s National Food and Strategic Reserves Administration oversees the country’s minerals stockpile. The administration is under the powerful National Development and Reform Commission and was formerly known as the State Reserves Bureau.
Various authorities and analysts have analyzed China’s stockpiling activities. The White House, for example, says that, whereas the US National Defense Stockpile is strategic and only meant for use in a national emergency, China’s stockpile is economic, ‘more interventionist in markets, actively combatting price volatility or supporting particular industry segments’.
A European Parliament study emphasises the strategic angle: ‘China’s stockpile is growing to secure reserves in the event of a conflict,’ it says. Alternatively, an analyst told Bloomberg that China accumulates minerals to ensure key industries have enough supply amid rising global demand. And Fastmarkets, a price reporting agency, says Beijing stockpiles minerals ‘to protect the functioning of China’s military and industry in a national emergency’.
