China’s chokehold on rare-earth minerals raises concerns

China recently cut its rare-earth export quotas by 72 per cent for the second half of this year. According to one industry estimate, worldwide rare-earth demand is expected to exceed supply by as much as 50,000 tons by 2012 unless major new production sources are developed.

Chinese officials say that mass extraction of rare earths is causing extensive environmental damage in China and that’s why the government has tightened controls over exploration, production and trade. Poisonous chemicals are used to mine rare earths, putting local water supplies and public health at risk.

Meanwhile, the US appears to be the victim of its own astonishing lack of foresight in security-related industrial policy. Until around 1990, the US was self-sufficient in rare earths and the world leader in processing and use. Yet within a decade, the US became more than 90 per cent reliant on rare earths imported either directly from China or from countries that received plant-feed materials from China.

Environmental and regulatory problems made mining and processing unattractive at the rare-earth site at Mountain Pass in California, which closed in 2002. Meanwhile, lower costs in China, continued expansion of electronics and other manufacturing in Asia based on rare earths, and the size and concentration of Chinese rare-earth deposits drove the shift in comparative advantage from the US to China.

Although tagged “rare,” rare earths are relatively common and widely dispersed around the world. However, in contrast to ordinary base and precious metals, they’re seldom found concentrated in exploitable ore deposits.

Of the nearly 100 million tons of known global reserves that can be economically extracted, 36,000 tons are at opposite ends of China, in the south and up north in Inner Mongolia. Russia and other states of the former Soviet Union have 19 million tons of reserves; the US, 13 million tons; Australia, 5.4 million tons; and India, 3.1 million tons.

The surge in Chinese rare-earth output initially flooded the market, cutting prices and stimulating new applications. Now with China seeking to capitalise on its advantage, the US and other advanced economies are trying to rush alternative rare-earth mines into production to reduce reliance on China and improve security of supply.

While demand is forecast to increase by around two thirds over the next five years, the US Geological Survey says that undiscovered resources are thought to be very large relative to expected demand. However, bringing new mines into production will take several years. And although the GAO report said that rare-earth deposits in the US, Canada, Australia and South Africa could be mined by 2014, rebuilding the US rare-earth supply chain might take up to 15 years. Meanwhile, China will hold sway and serve a cautionary note on global interdependence and reliance of high technology.