The Australian Government’s proposed Rare Earths Production Scheme (REPS) sits at the centre of its plan to establish a Critical Minerals Strategic Reserve (CMSR), a $1.2 billion intervention designed to shield Australia from supply disruptions and geopolitical risk in minerals critical to defence, clean energy and advanced manufacturing. Rare earth elements, particularly neodymium, praseodymium, dysprosium and terbium, are essential inputs for permanent magnets used in electric vehicles, wind turbines, radar systems and military hardware, and Australia is one of the few countries with significant geological endowment outside China .
The logic behind REPS is straightforward. Rare earth markets are volatile, opaque and dominated by a single supplier. Price swings and limited price transparency make it difficult for Australian projects to secure financing, even where the geology is sound. REPS proposes to address this through a collared Contract for Difference, under which the government would top up revenues when prices fall below an agreed floor, and share in upside revenues when prices exceed a ceiling. Volumes would be allocated through competitive tenders and reverse auctions, with the aim of improving bankability while limiting taxpayer exposure. In design terms, it borrows heavily from energy market mechanisms already familiar to Treasury and financiers.
Where the scheme becomes more problematic is not in its financial mechanics, but in what it chooses to support. REPS is explicitly focused on upstream output — rare earth concentrates and mixed rare earth products (MREC or MREP), and in some cases oxides, where producers already have capability. The design paper is candid that downstream separation and refining are technically challenging, capital intensive, and impractical to deliver at scale in the short term, and therefore sit largely outside the initial scope of the scheme .
That pragmatic choice creates a critical unanswered question: once Australia underwrites production of upstream rare earth materials, who actually buys them?
Unlike bulk commodities such as iron ore, upstream rare earth products are not fungible. Their chemical composition varies widely, impurity levels matter, and processing flowsheets are often customised to individual deposits. Outside China, there is no deep, liquid market for mixed rare earth concentrates. Integrated producers are few and cannot absorb large volumes. Demonstration and pilot separation plants in Australia, the United States and Europe are important steps, but they operate at limited scale and with long commissioning timelines. In practice, absent firm downstream offtake, the Australian Government itself risks becoming the buyer or holder of last resort.
This is where historical experience should give policymakers pause. Australia has already lived through the consequences of government-backed price support combined with physical stockpiling in the Australian Wool Reserve Price Scheme, which operated from 1970 to 1991. Introduced to stabilise grower incomes, the scheme encouraged increased production while demand weakened. The government authority kept buying wool at the floor price, accumulating a massive stockpile financed by borrowing. Political pressure made it difficult to lower the floor price, and when the scheme finally collapsed, Australia was left with millions of bales of unsold wool that took more than a decade to liquidate at substantial loss. What began as price stabilisation ended as a warehousing and debt problem.
Rare earths present an even sharper version of that risk. Wool at least had a large and diverse global buyer base. Rare earth concentrates do not. Storage is expensive, material specifications degrade over time, and resale options are limited. Even if REPS successfully caps annual cash outlays through a collared CfD, it can still generate a growing physical inventory that sits on the public balance sheet rather than in the budget papers.
That vulnerability is magnified by a factor absent from the wool story: China’s ability and willingness to engage in deliberate price dumping. China dominates not only rare earth mining, but separation, refining and magnet manufacturing. It has repeatedly demonstrated that it can flood markets at loss-making prices, sustain those losses through state-backed firms, and force competitors out of business, before tightening supply again. The design paper itself documents China’s repeated market interventions, consolidation of the sector, and use of downstream control to entrench dominance .
In a world where REPS is operating, a sustained Chinese price-dumping strategy would not bankrupt Australian producers directly. Instead, it would trigger government support payments, keep Australian mines producing despite weak market signals, and rapidly build inventories of upstream material with limited exit options. The Commonwealth would absorb both fiscal costs and physical stockpiles, while market participants waited for the scheme to become politically unsustainable. This is not an accidental market failure, as with wool; it is a foreseeable outcome of strategic price warfare.
To its credit, REPS is more sophisticated than the wool scheme ever was. Reverse auctions, time-limited contracts and price collars are sensible design features. But they do not resolve the core contradiction: stabilising upstream production without simultaneously securing downstream conversion does not deliver supply chain resilience. It merely shifts risk from private balance sheets to the public one.
If the Critical Minerals Strategic Reserve is to be more than a holding pen for unsold material, REPS must eventually be paired with credible downstream pathways — binding offtake agreements, parallel support mechanisms for separation and refining, or hard limits on inventory accumulation that automatically constrain upstream support. Without these, Australia risks repeating a familiar policy mistake: confusing price support with market creation, and discovering too late that a strategic reserve without an exit is just a warehouse.
What would make REPS work is not abandoning price support, but finishing the job. Upstream production support must be explicitly linked to downstream outcomes: firm separation and refining offtake, parallel risk-sharing mechanisms for processors, and hard limits on how much unsold material the Commonwealth is willing to carry. Inventory build-up should trigger automatic tightening of support, not political debate. Without those guardrails, REPS risks becoming a well-intentioned subsidy that warehouses strategic minerals instead of securing them.
