Australian minerals sector navigate geopolitical complexity and risk
As an integral part of our mining industry, Australia’s minerals sector is a major contributor to our economy. However, major shifts in geopolitics are shaping how Australian mineral companies operate. A new major report from KPMG explores how minerals companies can build resilience and navigate geopolitical complexity to manage risk and capture market opportunities.
As the world’s largest exporter of iron ore and coal, and the second-largest exporter of gold globally, Australia has a well-deserved reputation as a mining and minerals powerhouse. By trading partners, Australia is among the world’s top six producers of bauxite, coal, copper, gold, iron ore and industrial minerals.
For decades, demand from China and other key Asian markets has underpinned favourable international trade conditions. In 2019–20, the mining industry delivered more than 10 percent of our national economy — about $202 billion of Australia’s gross domestic product (GDP).
However, the broader strategic environment is undergoing dramatic changes. Geopolitical megatrends such as increased strategic competition, inequality, protectionism, nationalism, cyber disruption and disruption from climate change are at the fore, layering complexity on global trade relations.
The new report from KPMG, Geopolitics and the Australian Minerals Industry, examines the dramatic changes in the broader strategic environment and how they affect the Australian minerals industry. The report explores some key case studies of where geopolitics is intersecting with the Australian minerals industry. For example, the challenges in Australia’s bilateral relations with China may have significant implications for some of our key mineral exports, including coal and iron ore.
In the case of iron ore, China currently sources 60 percent of its imports from Australia, but is actively seeking alternative sources to diversify its supply and reduce its dependency. China is evaluating possible iron ore mines in Africa, including large deposits in Madagascar and Gabon, and is also investing in infrastructure to assist in shipments from Vale, a Brazilian producer that’s aiming to regain its title as the world’s leading producer. While there’s still a long way to go before China could realistically substitute Australian iron ore, there are strong signals of intent that should not be ignored.
Nationally, coal is another major Australian export. Challenging bilateral relations have already been played out in Australia’s coal exports, when from September last year, ships carrying Australian coal were barred from offloading their cargo at Chinese ports.
Another challenge to the Australian coal industry comes from climate change, as countries and businesses take action on decarbonising. As of mid-2021, 189 countries have signed the Paris Agreement to limit their CO2 emissions. In some of Australia’s biggest coal exporting markets, governments have enacted climate-targeting policies that will impact coal demand over coming decades. For the Australian minerals industry, the impacts of climate change are also affecting infrastructure and equipment, practices around environmental protection and site closures, the health and safety of employees, and — importantly — the stability and reliability of supply chains and transportation routes.
Additionally, decarbonisation and demand for more sustainable living practices raise strategic considerations for the Australian minerals sector. While China has the majority market share of rare earth elements (REEs) and critical minerals, which are vital to the transition to carbon neutral economies, Australia is estimated to have the world’s sixth-largest resource. As newer, greener technologies such as hybrid and electric vehicles (EVs) increase in popularity, REEs and critical minerals, including lithium, will remain in hot demand.
Metals such as arsenic, gallium and indium, and the rare earth elements cerium, europium, gadolinium, lanthanum, terbium, and yttrium, are used in semiconductor technology too. With the growing role of technology and data in our lives — which the report describes as the ‘Industrial Revolution 4.0’ — developments in semiconductor production, and competition, will reshape demand, and in turn, could also reshape the geopolitical map .
The report also explores how another geopolitical megatrend, the rise in real and perceived inequality around the globe, is impacting the Australian minerals sector. According to the United Nations, inequality is rising for more than 70 percent of the global population, with political and economic implications. Inequality and the resultant social discontent are destabilising in and of themselves, and also provide fertile ground for populist and authoritarian leaders to take power. Authoritarian leaders can have strong tendencies towards nationalism and protectionism, and this could bring ramifications for the Australian minerals sector. Of course, nationalising and protecting mineral resources is nothing new. In 2011, all Venezuelan gold mines were nationalised by the President at the time, Hugo Chavez. However, in this era of increased instability, this trend looks set to grow.
For each of these geopolitical trends, COVID-19 has led to an acceleration of changes already underway in the international landscape before the pandemic started. Australian mineral businesses should seek to be on the front foot, with strategic foresight vital to navigating geopolitical risk and making the most of opportunities arising from disruption and broader structural shifts in the international system. Comprehending the volatile geopolitical landscape puts Australian mineral businesses in a stronger position to be resilient and responsive to global strategic risks and opportunities.