SPEAKING
FREELY Rare earths - the next
oil By Elliot Brennan
Speaking Freely is an Asia Times
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Former Chinese
president Deng Xiaoping recognized the importance
of rare earth elements (REEs) almost two decades
ago. "The Middle East has oil and China has rare
earth," he said in 1992. His foresight was
impressive.
Today, REEs are used in most
high-tech products predominantly in the form of
heavy-duty batteries and magnets. They are pivotal
in defense technology - lasers, radars and
electromagnetic weaponry - as well as green
technology. It is therefore not surprising that
China's near monopoly of their production has
industry and government
worried.
Several governments have begun
fast-tracking new policy to increase production.
Backroom debates over whether to stockpile the
strategic resource have been taking place for
several years now, most notably by the US
Department of Defense. These debates, prompted by
recent Chinese export restrictions, have
culminated in the US, European Union and Japan
filing a joint case against China to the World
Trade Organization - the first such cooperation by
the three powers. Yet this official complaint is a
latecomer to a dispute that has been playing out
for several years in China's favor.
In
rare abundance The name, rare earth
element, is a misnomer. The elements are far more
abundant than many precious minerals. Yet their
dispersion means they are rarely found in
economically viable quantities. There are 17 REEs
- 15 lanthanides, and scandium and yttrium. The 15
lanthanide elements occupy atomic numbers 57 to 71
on the periodic table. The similarity of their
chemical properties, demonstrated by their close
proximity on the table, makes them very difficult
to separate. Their extraction is capital- and
skill- intensive.
In 2011, the US
Geological Survey (USGS) updated its global
reserve-estimate data of rare earth elements as it
narrowed its definition of recoverable minerals.
The result saw reserve estimates in China rise
from 36 megatons (Mt) to 55Mt - exactly half of
the world's reserves. US estimates remain at 15Mt;
the Commonwealth of Independent States (Russia and
former Soviet republics) are reported to have
reserves of 19Mt; while estimates of Australia's
reserves declined from 5.4 to 1.6Mt.
Yet
the untapped reserves of the resource mean little;
it is the production that counts. And it is China
that is a clear leader supplying 95% of world
production.
Driving recent policy
initiatives is the upsurge of global demand for
REEs. According to the USGS, demand is increasing
10% annually. Demand is similarly rising in China
- the country's consumption of the resource has
quadrupled since 2000. The growing domestic demand
has been cited as the reason for sharp declines in
export quotas, cut by 37% in 2010 and 35% cut in
the first half of 2011.
China's near
monopoly on production, and its subsequent
reductions in exports, have seen prices of REEs
increase 10-fold on 2010 per kilo prices. Just as
worrying has been China's predatory pricing, which
has run other REE mines and companies out of
business, or at least into the red.
The
curbing of exports has similarly forced high-tech
manufacturers to relocate to China to ensure
adequate supply, thereby harming the growth of
high-tech industry in many other countries such as
Japan, South Korea and Europe. In doing so China
appears to be creating a high-tech industry almost
overnight.
A strategic
resource End uses for REEs are varied.
Figures cited by the USGS noted that in the US in
2009 the distribution of rare earths for end use
was largely for chemical catalysts (22%),
petroleum refining catalysts (21%), automotive
catalytic converters (14%) and approximately 40%
was for battery alloys, ceramics and magnets
(sectors which are growing 4% to 10% annually).
The extent to which REEs are used in
defense technology is such that without their
production modern warfare - fighter jets, drones,
and most computer controlled equipment - would not
be possible. A sovereign production monopoly of
such a resource is therefore a serious concern for
any nation. The next generation of warfare, in
which the US government continues to invest
significantly, is heavily dependent on REEs.
Electromagnetic weapons minimize human
casualties and are therefore considered better
weapons for military interventions and vessel
defense. Such technology is emerging as the future
of defense; as such, REEs will be crucial to this
future. It is therefore not surprising that the US
is scrambling to implement new policy to secure
the resources.
It was this state of
urgency to secure reserves that saw the US propose
the 2011 RESTART (Rare Earths Supply-Chain
Technology and Resources Transformation) Act. The
measure would promote greater research and
innovation within the REE sector. Also included in
the Act is the proposal to start a national
stockpile of REEs within the US Department of
Defense to supply the defense and technology
industry in the event of future shortages.
The US is not the only country boosting
exploration and production. Economic assessments
to determine the viability of mining have recently
taken place in numerous locations across the US,
Canada, Australia and Malawi amongst others.
Sweden has also returned to the fray, beginning a
significant exploration and production program.
In the past 12 months REE mines have been
opened in the US and Australia, which may ease the
dependence on Chinese resources. However, given
the previous several years of uncertain supply,
many factories have already relocated to China,
leading many to believe that this move is too
little, too late.
In May 2011, China
expanded the definition of REEs to include iron
alloys containing more than 10% of REEs. As a
result they became subject to the same export
quota. This expansion of the quota was to curb the
export of the elements under different guises such
as in alloys. The practice, according to sources,
had become very common in order to avoid the
quota.
In 2010, China halted shipments of
REEs to Japan for two months following a
diplomatic crisis. China's move scared the
Japanese, whose industry is vitally dependent on
REEs. In February 2011 a trade official announced
that Japan would try to reduce its dependency on
Chinese REEs by cutting consumption by 10,000 tons
annually over the coming years. Almost half a
billion US dollars would be paid in subsidies to
support the initiative.
In July 2011,
Japan reported the discovery of significant
deposits of REEs in the mud of its sea bed. While
the finding is important, it does not change the
playing field in the short-term, given the
difficulty of recovering the elements.
At
the end of last year, Japan's Trade Minister Yukio
Edano met his Chinese counterpart, Chen Deming.
Edano was the first minister in the recently
inaugurated Noda cabinet to meet Chinese leaders.
On the top of Edano's agenda was a request to
China to ensure a stable supply of REEs and
address their price differences in the country and
abroad. It has also been revealed that Japan has
initiated REEs trade talks with Myanmar. In its
attempts to diversify its supply chain, Japan
plans to jointly, with Myanmar, develop REEs and
other natural resources.
Towards a
sustainable future REEs have become an
economic and diplomatic power for China to wield.
Just as oil is used as a coercive instrument of
foreign policy in other parts of the world,
similarly China will try to use REEs to its
advantage. Indeed, they have played their cards
well, now it is time for other governments and
industry around the world to try and catch up.
This in itself may prove a long process.
While substitutes are available for most
applications of REEs, they are usually less
efficient and undesirable. In our modern-day race
for more efficient high-tech devices and the
greater government spending in high-tech weaponry,
REEs look set to become "the new oil".
It
will be increasingly important for governments to
secure national reserves of rare earth elements to
support local high-tech industries and prevent
future conflicts over the resource.
Elliot Brennan is Editor at the
Institute for Security and Development Policy
(ISDP), Stockholm, Sweden. This piece is a revised
version of a Policy Brief for ISDP. The opinions
expressed in this Policy Brief are those of the
author and do not necessarily reflect the views of
the Institute for Security and Development Policy
or its sponsors. Further information about ISDP
can be found at www.isdp.eu.
(Copyright 2012 Elliot Brennan)
Speaking Freely is an Asia Times
Online feature that allows guest writers to have
their say. Please
click here if you are interested in
contributing.
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