China reacts to US-Australia critical minerals deal

China responded to the U.S.-Australia critical minerals deal on Tuesday by saying countries rich in rare earth resources should play “a proactive role” in stabilizing their critical mineral supply chains.

A Chinese Foreign Ministry spokesperson was asked about the critical minerals deal between the United States and Australia, billed as an effort to counter Beijing’s dominance.

“The formation of global production and supply chains is the result of market and business choices,” Guo Jiakun said, according to NBC.

“Countries rich in resources and possessing essential minerals should play a proactive role in safeguarding the security and stability of industrial and supply chains, and ensure normal economic and trade cooperation,” he added.

Rare earths are a class of minerals essential to a wide range of products, from cars to semiconductors.

US President Donald Trump and Australian Prime Minister Anthony Albanese signed an agreement at the White House on Monday aimed at increasing the supply of rare earths and other essential minerals.

The framework agreement, described as an $8.5 billion deal between the allies, comes shortly after China imposed tighter controls on the export of rare earths.

China’s Commerce Ministry announced expanded restrictions on exports of rare earths and related technologies earlier this month, seeking to prevent the “misuse” of the minerals in the military and other sensitive sectors.

Western auto industry groups have been among those sounding the alarm over the new export controls, saying the measures could usher in a period of supply chain chaos.

Demand for rare earths and critical minerals is expected to grow exponentially in the coming years as the transition to clean energy accelerates.

China is the undisputed leader in the critical minerals supply chain, accounting for approximately 60% of global production of rare earth minerals and materials. U.S. officials have already warned that this poses a strategic challenge amid the transition to more sustainable energy sources.

George Cheveley, natural resources portfolio manager at Ninety One, described the US-Australia deal as a long time coming, but “a good deal” intended to boost supplies of critical minerals outside China.

“From an investment point of view, it’s not that obvious. It’s a very small sector,” Cheveley told CNBC’s “Squawk Box Europe” on Tuesday.

“And clearly, when you’re dealing with a sector that’s so politicized and where government money is basically invested in subsidies, that tells you that it’s difficult to make it work economically,” he added.

Shares of some of Australia’s biggest critical metals and rare earths companies jumped on Tuesday, while others lost ground after an early rally.

Lynas Rare EarthsAustralia’s largest producer of rare earths by market capitalization, fell 7.6% after posting gains earlier in the session. Mineral sand miner Iluka Resources slipped 0.1%, while lithium producer Pilbara Minerals added about 2.6%.

Latrobe Magnesium, Australia’s leading producer of the critical metal magnesium, recorded gains of more than 15 per cent.

In the United States, rare earth stocks were last seen falling slightly pre-market. Critical Metals fell 3.8%, USA Rare Earth fell 2.4% and MP Materials fell 1.8%.

— CNBC’s Evelyn Cheng and Dylan Butts contributed to this report.