Western governments investing heavily in critical minerals projects to reduce dependence on China are being cautioned that poorly coordinated intervention could eventually create damaging global oversupply, according to industry executives, investors and analysts interviewed by Reuters.
Concerns grow over potential repeat of past commodity gluts
Governments across the U.S., Europe, Australia and Japan have committed tens of billions of dollars to critical minerals development, stockpiling initiatives and supply-chain security programs. However, market participants warn that excessive support without international coordination risks creating supply gluts similar to historic episodes such as Europe’s “butter mountains,” Russian aluminium surpluses and Australia’s wool oversupply in the late 20th century.
“There needs to be some coordination between Western governments as they seek to incentivise new production,” said Brett Beatty, partner at mining-focused private equity firm Resource Capital Funds. “The biggest risk is we all do our own thing. We all generate multiples of volumes the world needs and then you just crush everything, because you’ve got an oversupply.”
Billions committed as rare earths market remains relatively small
The United States has allocated more than $20 billion to support its critical minerals industry through multiple financing and stockpiling programs, including roughly $10 billion for its Project Vault reserve initiative. Australia has earmarked at least A$13 billion for critical minerals development and strategic reserves.
Although the International Energy Agency expects the broader critical minerals market, currently valued at around $320 billion, to double by 2040, the rare earths sector itself remains comparatively small. According to IEA data, the rare earths market was worth approximately $6.4 billion in 2024, despite governments already pledging financial support exceeding that figure for projects globally.
Analysts say governments could still manage supply risks
David Merriman of consultancy Project Blue said Western investment is already likely to push some rare earth elements into surplus in coming years, although he believes governments still retain tools to manage market imbalances.
“Government-led stockpiles can stop purchasing, which can have a market-balancing impact and there is only limited capacity supported by price floors or guaranteed purchasing by governments at present,” Merriman said.
Amanda Lacaze, chief executive of Lynas Rare Earths, said existing stockpile levels remain relatively modest.
“I’m pretty alert to how much rare earths are sitting in stockpiles around the world right now and it’s not very much,” she said.
Australian Resources Minister Madeleine King also rejected comparisons with previous commodity oversupply episodes.
“This is about a targeted, project-based investment to make something work, for creating secure supply chains for Australian manufacturing, but also for our neighbours and like-minded partners,” King said.
G7 and emerging economies seek tighter control over supply chains
Efforts to improve international coordination are already underway, with G7 nations reportedly discussing the creation of a permanent secretariat aimed at ensuring long-term continuity for critical minerals supply initiatives beyond rotating presidencies.
The article also highlighted examples of direct government intervention in markets such as cobalt and nickel.
The Democratic Republic of Congo has used cobalt stockpiling and export quotas to support prices and government revenues, while Indonesia previously banned nickel ore exports to encourage domestic processing and strengthen its position in global supply chains.
However, analysts warn that prolonged restrictions could encourage buyers to develop substitute materials or alternative supply sources.
Processing investments seen as lower-risk approach
Some experts argue that expanding processing capacity at existing mining operations may represent a safer strategy than aggressively boosting primary production volumes.
Huw McKay, visiting fellow at Australian National University and former chief economist at BHP, said Western government support currently resembles early-stage development funding rather than full-scale industrial expansion.
Projects already under development include a gallium extraction facility backed by Alcoa and Sojitz Corporation in Western Australia, as well as antimony recovery initiatives led by Trafigura at its Nyrstar smelter operations in South Australia.