“We need to do more with the natural resources the world needs, and that Australia can provide.”
Australia would initially set aside A$1.2 billion (NZ $1.28b) to get the reserve up and running.
Albanese’s government has previously suggested Australia could use its critical minerals as a bargaining chip in tariff talks with the United States.
Australia sits on some of the largest lithium deposits in the world, and is also a leading source of lesser-known rare earth metals such as neodymium.
Major manufacturing nations such as the United States, Germany and Japan are eager to obtain these critical minerals from sources other than China.
Japan has its own critical minerals stockpile, while the United States has been investing in metals refineries and other processing technology.
Rare earth ransom
“The ability for the government to stockpile is an important safeguard against market pressure, as well as interventions from other nations,” Albanese said in a speech later on Thursday.
“It means Australia has the power to sell at the right time to the right partners for the right reasons.”
Critical minerals loom as a likely new front in the unfolding trade war between Washington and Beijing.
US President Donald Trump last week ordered a probe that could result in new tariffs targeting China.
Trump’s order stated that the United States was dependent on foreign sources of critical minerals, putting its military and energy infrastructure at risk.
China has shown a willingness to hold rare earths to ransom in the past.
At the height of a diplomatic dispute in 2010, China effectively banned the export of rare earths into Japan.
The move rattled Japan’s car-making industry, which was heavily reliant on certain rare earth alloys to build magnets used in motors.
China controls some 90% of the world’s supply of rare earths, a subset of critical minerals, and is fiercely protective of its position.
Beijing has banned the export of processing technology that could help rival nations, and has been accused of using state-imposed quotas to control supply.
© Agence France-Presse