Row Over Exotic Minerals That Make Modern Life Tick

By Olivia Lang – BBC News – Published October 21, 2010

They might not dominate headlines like diamonds or oil, but rare earths are some of the world’s most valued resources.

These metals are found in almost every 21st Century household, and used globally to make high-tech products, from weapons, to flat-screen TVs and mobile phones.

What’s more, China produces 97% of them.

But with much of the world’s economy depending on these metals, a report that China is curtailing its exports to Europe and the US by almost a third next year has rattled manufacturers and policymakers.

China denies the recent claim, but has previously stated that it will restrict exports to protect supplies and prevent mines being over-exploited, while also meeting an increase in domestic demand.

Governments are now increasingly worried about shortages, while Japan has said it will need to consider stockpiling. Meanwhile, prices are soaring.

‘Stranglehold’

The 17 elements known as rare earth minerals – numbers 57 to 71, as well as a couple of others, on the periodic table – are found outside China, but most of the mines in other countries have long closed down.

Until the mid-1980s, the US dominated production, but then China entered the market. Soon, China had cornered it; as Deng Xiaoping said in 1992, “Arabia has oil, China has rare earth”.

China has been tightening export quotas since 2006, sparking increasing concern about its ability to disrupt supply chains.

The issue re-entered the spotlight in September, after the arrest by Japan of a Chinese fisherman in disputed waters initiated a row between the two countries.

Japan, whose firms account for 56% of China’s rare earth exports, claimed that China then restricted earth metal supplies in response.

In a New York Times op-ed last month, economist Paul Krugman wrote: “On one side, the affair highlights the fecklessness of US policymakers, who did nothing while an unreliable regime acquired a stranglehold on key materials.”

“On the other side, the incident shows a Chinese government that is dangerously trigger-happy, willing to wage economic warfare on the slightest provocation,” he added.

China claims it was not a policy decision, but rather the choices of individual companies expressing condemnation of Japan.

In any case, that restriction, and now the 30% reduction claim (which the US is set to investigate), has sent the future of these metals to the top of policy agendas – with observers now questioning whether the world can continue to rely so much on China.

‘Stick but no carrots’

The consequences of a squeeze on rare earths would be considerable across the developed world, says Professor Animesh Jha from the University of Leeds.

“The Chinese definitely feel they have total control of it – just like the Middle East had control over oil,” he says.

He says it is about asserting political as well as economic power – as the Japan incident demonstrates. And, in his opinion, the reason for China’s rumoured restrictions to the US and Europe are not disconnected from the US and Chinese row over currency.

“It upsets the trade balance, they are holding the stick but no carrots. They want to say, ‘We are not going to buck our currency up and we want to be tough’.”

But, then again, why shouldn’t China use its own resources for its own interests, asks Jack Lifton, director of Technology Metals Research.

“I don’t see what my right is to someone else’s property. They are on Chinese soil. The Chinese are saying, ‘You have the resources. Go mine them and use them for yourselves’.”

Besides, he says, China is not preventing other countries buying the end product: “I don’t see this as a surprise. China has openly said it does not want to be a raw material supplier, it has always said it wants to manufacture goods.”

But, he says, China will use it to its political advantage if it can, like with Japan – and other countries have been slow to wake up to this.

“It hasn’t sunk in to the Western elite that they can’t tell China what to do,” he adds.

‘Run dry’

Essentially, it underscores the need to source rare earths from non-Chinese minerals, says Professor Jha.

“It’s very dangerous to rely on limited resources from politically unsafe places. I don’t think we should be held hostage to China,” he says.

In any case, China has warned that its reserves – most of which come from mines in Chinese Inner Mongolia – dropped by 37% between 1996 and 2003, suggesting future supply could run dry.

But where else would manufacturers source them?

According to Professor Jha, there are extensive deposits elsewhere which can be tapped into. More than one third of rare earths are found outside of China.

Mines are being developed in the US and Australia, which Mr Lifton says should reassure the world of business. Molycorp, owners of the Mountain Pass mine in California, aim to produce one sixth of global supply by 2012.

“Both mines are very large and can supply the world indefinitely,” Mr Lifton says.

“This crisis is literally on a countdown clock. At one point the Chinese won’t have leverage as others come into production.”