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China and Rare Earth Metals: the good, the bad and the not as ugly as it seems

by Elizabeth C. Economy
October 23, 2010

Labourers work at the site of a rare earth metals mine in Nancheng county, Jiangxi province October 20, 2010. China on Wednesday denied a report that the government plans to slash export quotas of rare earth metals next year, seeking to ease international jitters about China's stranglehold on supplies. REUTERS/StringerGetting the facts straight never hurts, and every once in a while it really matters. The current brouhaha over China’s decision to cut its exports of rare earths falls in the latter category.  So here is my best effort to get at the facts.

What is going on?

China has pledged to cut its exports of rare earth metals or rare earths by 72 percent this year. The decision was actually announced several months ago. It is problematic but not unprecedented. China’s exports of rare earths have been falling steadily: from 53,000 tones in 2006, to 34,600 in 2008, to 28,417 in 2009. This year, China has pledged another drop of 72 percent, bringing it to an all-time-low of just under 8,000 tones.

Why does this matter so much?

Rare earths, such as neodymium and lanthanum, are critical components in products such as superconductors, iPods and wind turbines. One of the metals, samarium cobalt, is used in the navigation system for the M1A2 Abrams battle tank, and China is the only country that has samarium cobalt ready and able to export. In fact, China, which possesses slightly over a third of the world’s supply of rare earths, brings on line well over 90 percent of all rare earths, filling not only its own needs but also those of the rest of the world. Most countries, such as the United States, moved out of the dirty, expensive business of mining these metals years ago when China started to ratchet up its production, doing it more cheaply, of course, than anyone else.

So why this increasingly severe cap on exports of rare earths?

The official reason—and it makes sense—is that China is worried about its environment and its own future supply. It estimates that if it doesn’t take action, it won’t have any rare earths left in 20 years. Since 2006, Beijing has also been taking steps to centralize the industry, forcibly closing one small mine after another, both to help keep prices high and to protect the environment. Of course, another plausible explanation is that keeping rare earths at home will force foreign companies to continue to invest and base their manufacturing in China. Japan has also been complaining that shipments have stopped entirely, suggesting that there may be some merit to the claim that China is enforcing an outright ban—rather than a cut—in rare earths to Japan, as punishment for its tough response in the East China Sea .

The Good News

Several other countries, such as the United States, Australia, and Mongolia also possess rare earths. It will take time to gear up their largely dormant rare earth industries again, but it will happen. In the meantime,  stockpiles and high prices will be in everyone’s future.

The other piece of good news—when Chinese companies have come calling to buy-up rare earth reserves abroad, others have generally been smart enough to say “no.” Just a bit over a year ago, Australia barred the China Non-ferrous Metal Mining group from taking a majority stake in rare-earth producer Lynas Corp. When the Chinese were denied the majority stake, they pulled out entirely from the deal. And as a side note: remember the CNOOC-Unocal deal that fell through back in 2005? There were rare earths involved in that deal too…although CNOOC promised to “sell-back” the mine. Sometimes we do get it right or at least lucky.

What comes next?

There may well be more challenges to come. In China, the Ministry of Industry and Information Technology has proposed a five-year plan that includes a total ban on the export of five of the metals and a significant drop in the export of a number of others, such as neodymium.

Resource-scarce Japan, who might be thought of as the little piggy who built the brick house, is making deals for other sources of rare earths and trying to develop alternatives for them. It’s clear that a whole new generation of non-rare earth high-tech products will have to come on line; the United States and everyone else should follow Japan’s lead now.

Photo courtesy Reuters/Stringer

Post a Comment 10 Comments

  • Posted by Don

    Our electronic waste is mammoth as compared to any other country on the planet. I suspect a large part has landed at the bottom of the Pacific Ocean off the Gulf of California. Recycling orgs should take a close look to see if we are doing proper “urban mining” of rare earths. Also with some R&D (e.g. sorting out byproducts from nuclear experiments), it is possible to develop synthetics or alternatives. Japan is switching to alternatives wherever possible. If we can get away from using rare earths (with the exception of military apps), that would eliminate susceptibility to any future supply shocks.

  • Posted by james

    This understates the problem. It will take years for new supply to come online outside China. When it does there will still be elements that are not produced by Molycorp or Lynas. The problem may well get sorted out with the Chinese, but don’t think for a second that if they clamp down on supply there are alternatives sources that are ready to go.

  • Posted by james

    oh and to Don’s point: there are no viable alternatives for most applications. It’s rare earths or nothing. The cleantech industry (batteries, turbines, fuel cells) depend on rare earth metals and without them they can’t build their technology.

  • Posted by BulSprig

    A significant omission to Ms Economy’s summation is the fact that China not only owns essentially 96% of all the Rare Earth Oxides mined on the planet. It also processes virtually 100 percent of all the 17 Rare Earth oxides mined.

    Put those issues together, plus add the 5/10 year time frame it takes to get a mine going, say in the U.S., now you have to ship the material to China to have it processed.

    And China of course will process the material quickly for redelivery to the U.S. so the military can improve our Rare Earth starved weapons systems.

    Looks like these materials, and their scarcity will create a major supply/demand shortage scenario over the next few years.

  • Posted by villanova

    Of course nobody seems aware of the United States or Europe’s strategic resource reserves that stockpile critical resources in the event that they fall in short supply. REEs and Platinum group metals remain at the top of the lists and have been there for quite some time.

    The simple fact is that out of something like 212 commercial mineral resources in the world, China is endowed with over 200 in abundance. At times I have to wonder why it imports iron ore at all.

    On the other hand, not all 17 rare earth’s are of critical importance and many of the one’s that are harder to get are primarily used in control rods in the nuclear reactors, not ubiquitous computer components.

    Japan seems to be the largest consumer outside of China of what is currently produced and this mainly seems to create a serious bone of contention between the two of them. But I would not expect the US military or other critical industries to suffer a serious shortfall.

  • Posted by Don

    @villanova, It’s not just nuclear rod reactors where rare earths are used. Cell phones and computer parts are a goldmine of rare earths. In fact, Japan has already started off “urban mining” of rare earths:
    http://www.nytimes.com/2010/10/05/business/global/05recycle.html

    Also, permanent magnet blocks used in high-speed maglev trains use Neodymium. That’s why China stole high-speed rail technology from Japan and with its monopoly on rare earths, China is in a position to offer a $10+ billion loan to states that would let the Chinese to build their high-speed rails.

  • Posted by Sacramento

    Countries have reacted negatively to this supposed ban by China as if some crime were being committed. Now Elizabeth Economy gleefully says other countries have been doing this China for years? Where’s the crime in China’s part if this has been hypocritically done for years against China? You don’t really have a right to complain about China’s ban since you’ve been doing it longer.

    @DON, China’s maglev is from Germany not Japan.

  • Posted by mike

    Don, “stole” high speed rail from japan? A bit biased and suspicious, are we? The Chinese are too stupid to come up and improve on an old technology? Give it a rest.

  • Posted by Frank

    Any hike in raw material price especially mined minerals should be a move to the right direction for saving the earth and balancing the poor rich gap. It is good for poor countries with mineral resources like those in Africa, bad for developed countries who now have to pay reasonably instead of depressed pricing.

  • Posted by JFSC

    Thanks for this explanation and for bringing some light to this issue. I think the most salient point in China’s rare earth strategy is their hope that it will be a boon for economic development in rare earth-dependent industries like wind power, electric cars, LCD screens and a number of higher tech products. It is hoping to move up the value chain in producing these types of goods, thus creating jobs and wealth, solidifying economic development and the Party’s claim to legitimacy.

    This long-term strategic planning, however, runs counter to the claims that China has used rare earths as a political stick to somehow punish Japan over the East China Sea issue, or even the US over clean energy complaints. This would be a tactical use of a strategic advantage and risk causing the international uproar that we have seen. It would ultimately incitie countries to boost rare earth production globally and reduce China’s strategic advantage. It would give disincentive to companies who are considering relocating to China to access rare earths, bringing new technologies and expertise with them, as stated above. I don’t think China would be so careless with their advantage as to use it for a short-term political gain.

    Claims on a rare earth “ban” are more easily explained by the fact that the annual quota is close to being met. Another explanation is the question of illegal mining and smuggling. Smuggled rare earths make up a large portion of exports and it is estimated that until recently some 20% of Japanese imports, as well as large portions of shipments to other nations, were by way of the black market. China’s recent efforts to clamp down on smuggling have put the breaks on this activity and could explain why some shipments of rare earths are not making it overseas. One can’t really blame China for this.

    The world’s dependence on China for rare earths should be addressed, but we should avoid blaming China for “banning” rare earth exports to Japan (or the US) when it simply did not, nor would have any logical reason to do so. I also don’t think China would be necessarily hostile to having a more diversivied global market. This is certainly an issue that deserves attention, so thank you for shedding some light on it.

    I would also just like to propose a minor correction in the statistics. In the export quota statistics, the 8,000 tons for 2010 was for the second quarter only, constituting a 72% drop from the second quarter of 2009. The quota for the year of 2009 was more on the order of 50,000 tons, and for 2010 at 30,000 tons.

    See: “Rare Earths and Clean Energy: Analyzing China’s Upper Hand” — http://www.ifri.org/?page=contribution-detail&id=6204&id_provenance=88&provenance_context_id=4&lang=uk

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