Dragoman Digest

Politics catches up with Australia’s data centre boom

Operators are seeking to get ahead of an international regulatory sequence now repeating in Australia

The Australian Energy Market Operator (AEMO) is set to lift its base-case forecast for data centre (DC) electricity consumption to one-eighth of current national use within a decade, up from less than three percent today. Its high-demand scenario, which models stronger-than-expected growth, now runs to 35 terawatt-hours by 2036, against 25 terawatt-hours in AEMO’s most aggressive estimate a year ago. Underlying DC demand in the second-largest state, Victoria, jumped 94 percent year-on-year to 187MW in the March quarter alone, and New South Wales (the most populous state) rose 18 percent to 398MW. Politicians are becoming more sensitive to the concerns of large power users and households. Federal and state energy ministers met on 8 May to design rules requiring DCs to “fully offset” their power draw with additional renewable supply, tasking the Australian Energy Market Commission with developing implementation options by July. A six-month Senate inquiry into the sector’s impacts and the government’s recent MoUs with major DC players was also established on 13 May. The DC industry has begun pushing back publicly, casting DCs as enablers of the renewable build-out.

Abroad, the regulatory arc has run from voluntary commitments through soft expectations to binding rules tied to grid connection. Australia, it would appear, has reached the second of these stages. In the US, 67 percent of planned new DCs are now sited in rural America. There, organised opposition has stalled some major developments and seeded bipartisan state legislation. Electricity bills in mid-Atlantic states with heavy DC concentrations rose 10 to 19 percent through end-2025, well above the six percent national average. The difference is widely attributed to DC demand.

Leading operators in Australia are already acting. Microsoft and Anthropic have signed MoUs on the federal DC expectations framework released in March, while Amazon committed AU$2.8 billion to nine new renewable PPAs across NSW and Victoria in April. Industry estimates each gigawatt of DC demand requires three to four gigawatts of new renewable generation – roughly the total renewable capacity added to the Australian grid in a typical year. The question is no longer whether binding requirements arrive, but how tightly they are designed, and which operators have built the necessary firm renewable supply.

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The US bid to emulate China’s low-cost drones

Washington’s ambitious drone dominance programme will require a major effort to overcome supply chain bottlenecks

Conflicts in Ukraine and Iran have highlighted the destructive effectiveness of low-cost unmanned aerial systems (UAS). They have also underscored the US’s inability to manufacture low-cost drones at scale. As part of efforts to boost nascent production, Defence Secretary Pete Hegseth outlined a US$1.1 billion ‘Drone Dominance’ program. The initiative aims to rapidly scale low-cost US drone manufacturing through committed Pentagon volume orders. An adjacent objective of this program is to overcome acute reliance on Chinese supply chains. Beijing has already weaponised its supply chain mastery, particularly in the supply of critical (and associated) minerals. In 2024, Beijing imposed export controls on Californian drone manufacturer Skydio, in response to its sales to Taiwan.

Disassembling drones from the Middle East to Ukraine shows the extent of Chinese supply chain dominance. Drones’ brushless motors, for example, require rare earth magnets – China controls 90 percent of global supply. Despite the Trump Administration pouring billions into mine to magnet domestic supply chains, it will take years to break China’s stranglehold. Similarly, the lithium polymers that power a drone’s battery are sourced entirely from China. These are just two of many parts of the supply chain where China operates a potential chokepoint. Other components like antennas and flight stack semiconductors have non-Chinese suppliers but incur a cost premium. Washington is hoping that its effective ban on new models from Chinese drone manufacturer DJI – which supplies 80 percent of the US domestic drone market – will combine with Pentagon contracts and help build economies of scale for budding US drone manufacturers. As likeminded Western and Asian militaries build up their own drone industries, there is also the potential for broader multilateral cooperation.

Indonesia eyes rapid aluminium growth

Breakneck expansion in aluminium smelting raises fears of another metals price glut

Indonesia’s growing role in the global aluminium market has been driven by a timely constellation of factors. In 2023, Indonesia banned exports of bauxite (the primary raw material for producing aluminium) as part of its broader “downstreaming” agenda. The ban coincided with Chinese aluminium producers reaching a production cap set by Beijing in 2017. In response, globally dominant Chinese smelters increasingly turned offshore to Indonesia for growth. In 2025, Indonesia produced six million tonnes of alumina, up from three million in 2022. The Iran war has provided a further tailwind for Indonesian production. Iranian attacks and shipping blockages on Gulf producers have taken 10 percent of global aluminium exports offline. With Russian production remaining inaccessible due to Western sanctions, the aluminium market has increasingly tightened, with prices recently returning to 2022 levels.

This is not the first time that Chinese investment in Indonesia has catalysed a major increase in metals production. Chinese companies have invested over US$30 billion in Indonesian nickel smelting since export bans were re-introduced in 2020. Indonesia accounted for 65 percent of global refined nickel in 2025, up from just six percent in 2015. Indonesian oversupply, caused in part by a switch towards Lithium Iron Phosphate batteries, crashed global nickel prices in 2023. At its current rate, Indonesia is set to contribute to 40 percent of global growth in aluminium supply and account for five percent of global primary aluminium production by 2030, up from one percent now.

There are reasons to be more sanguine about Indonesia’s push into aluminium. Even prior to the Iran war, global aluminium stocks were seen as relatively thin, with a deficit looming that could easily absorb Jakarta’s growth. High power costs will put pressure on Indonesia’s competitors, and it remains unclear when Gulf smelters will resume business as usual production. Most new Indonesian aluminium plants will also only come online in 2027 allowing time for the market to adapt. For now at least, fears of an aluminium glut are likely overblown.

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The US bets big on fledgling rare earth miners

The Trump Administration’s scramble to build domestic rare earth supply chains has showered money on unproven companies

The Trump Administration’s recent US$1.6 billion funding package with USA Rare Earths is one of several funding commitments that Washington has made to early-stage companies. Under the agreement, announced in early 2026, the US government will acquire a 10 percent stake in USA Rare Earths and inject a separate US$1 billion in private capital. China currently dominates every stage of the rare earths supply chain. Export controls in 2025 effectively gave Beijing the ability to shut US production lines. With critical US security and economic interests at stake, the Trump Administration has moved aggressively to build a domestic mine to magnet supply chain. In the six months following China’s first round of export controls, the Trump Administration completed loans and equity deals cumulatively worth US$3.5 billion with six companies including MP Materials, USA Rare Earths, ReElement, and Vulcan Elements. The US is trying to rebuild a meaningful position in an industry that it once dominated.

The scale of investment has invariably led to scrutiny on the recipients of Washington’s largesse. USA Rare Earths is one example. Founded in 2019, the miner has pledged to develop a vertically integrated domestic supply chain producing magnets at scale by 2029. USA Rare Earths’ flagship Round Top deposit in Texas, which boasts 15 of the 17 rare earth elements, has never been mined. Nor has Round Top completed its definitive feasibility study.

Some within the industry have suggested that Round Top contains a very low concentration of rare earths compared to other mines in production. Even if it is found to be commercially viable, Round Top will still likely take around 10 years to develop, far outside of the company’s 2028 production deadline. It’s perhaps unsurprising that USA Rare Earths recently announced that it would spend US$2.8 billion to acquire Serra Verde in Brazil, one of the largest rare earths mines outside China. Washington is betting that the potential failure of some of these investments is a risk worth taking to break China’s near monopoly.