Rare Earth Metals

By Allston Mitchell, October 28, 2010

Rare earth oxides

Rare earth oxides

Rare earth metals have hit the headlines after a diplomatic spat between China and Japan but the panic has spread worldwide. China produces 97% of the world's rare earth metals and it looks like they have become the new diplomacy and trade weapon of choice.

Yes, China again. It started innocently enough with a diplomatic row on the high seas. A Chinese fishing boat captained by Zhan Qixiong with his crew of 14 fishermen collided with (some say it was rammed by) the Japanese Coast Guard. It was all about some contested rocky islands that the Japanese call Senkaku and the Chinese call Diaoyu. The crew were released within a few days but the skipper Zhan Qixiong was held under arrest for weeks by the Japanese authorities until some pressure was applied.

This is where the story begins, with the application of pressure, and of a truly unusual variety. China decided that a quick resolution to the problem could be achieved by cutting off Japan’s supply of rare earth metals. Until a few weeks ago, rare earth metals were known about only in certain geological and hi-tech circles. That is no longer the case.

Neodymium, Erbium and Gadolinium
What are they? They are a group of 17 different metals with unlikely sounding names such as neodymium, erbium and gadolinium. They are important as they allow for the miniaturization of common gadgets and hi-tech appliances such as computer memories, lasers, magnets, hybrid cars, laptops and mobile phones.

China’s retaliation for the arrest of the Chinese skipper was bound to succeed as China produces 97% of the world’s rare earth metals. Japan had nowhere else to turn for supplies so China had Japan over a barrel, or over a hybrid car in this case.

Rare earth metals monopoly
How did China manage to obtain an almost complete monopoly of rare earth metals? It was not always the case but China, with its very low wages and non- existent environmental regulations can produce these rare earths at a much lower price – a familiar story. Low salaries and zero health and safety, but nobody has been complaining until now.

They are not complaining about the working conditions of the miners but the possible violation of international trade laws and the use of rare earths as a trade and foreign policy weapon. An Asian version of Gazprom turning off the gas to Europe.

Chinese Gazprom
Like what happened in Europe when the Russians switched off the gas supplies to Ukraine and, as a consequence, to Europe, sending European governments to look for alternative and more reliable suppliers in North Africa, buyers of rare earth are looking desperately for an alternative supply. The problem became even more acute when China appeared to extend the rare earths embargo on Japan to the US and Europe. The alarm bells started ringing – Hillary Clinton insisted on a clarification from the Chinese. The Chinese denied that an embargo was in place but it appears that exports of rare earths have been capped for the second half of this year. Why? A show of force, a negotiating tactic, an attempt to boost the price (successful) of rare earths, an attempt to convince multi-nationals to move their operations to the Chinese mainland? The likely explanation is that China does not want a monopoly of rare earths but wants a monopoly of rare earth final products.

Rare earths are now a bargaining tool. So the reaction is obvious, Japan, the biggest importer of rare earths is looking elsewhere for supplies, mainly, Canada, Australia and the USA.

Many would not be sorry to see the back of rare earth metals as they are used for hi- tech military equipment like missile guidance systems and night vision goggles but the new green economy would suffer too. Rare earth magnets are used in alternative energy applications and in hybrid car batteries.

Everyone wanted cheap rare earths and China supplied them so now only China supplies them. The consequences could probably have been foreseen.

Raw material or the product?
In terms of economics the amount of rare earths in a mobile phone or a laptop is negligible and even if the price skyrocketed the retail prices of these items would not be drastically affected. The issue is one of access to raw materials and respect for WTO regulations and a desire to avoid any disruption of business. What this may lead to is China having a monopoly over the production of those products that need rare earths to actually work or to retain their miniature size. It is unlikely that in 10 years’ time, all mobile phones, hybrid cars and laptops will be made in China for lack of rare earths elsewhere, but as a scare tactic it is potent – for the moment.

So what is the solution? One is research into alternatives that can be used as substitutes for rare earths but that could take years even if the research is successful. At what point will Japanese manufacturing be disrupted? Very soon, if things carry on this way.

Recycling is the immediate answer. A veritable industry may well take shape that sifts through old discarded mobile phones and laptops to recover the rare earths that have been lying on technological rubbish heaps.

Countries have started to stockpile rare earths to avoid disruption to manufacturing. They are also looking in their own back yards to see what outdated mines could be revived and re-commissioned, particularly in California and Australia. The hunt for alternatives is now on, but for the moment China still has a winning hand. However, although China may have won a quick battle, they have also highlighted a problem and sparked renewed interest in a permanent alternative that will eventually undermine their monopoly.

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