This article was originally published in the January 2010 issue of the Journal of Energy Security.
Rare earth metals are most simply defined as those chemical elements that have atomic numbers between 57 to 71. These include lanthanum, from which rare earth metals get their collective chemical name of lanthanides, to lutetium. For reasons of chemical similarity, two additional metals, scandium and yttrium, are commonly found in rare earth metal deposits, and so are frequently referred to as rare earth metals, resulting in a total number of 17 rare earth elements — all of which are metals.
These 15 consecutive lanthanide elements have, uniquely among all the elements in the periodic table, chemical properties so similar that they are difficult and expensive to separate from one another. However, once these metals have been separated from one another, the individual physical properties of these materials put them in today’s top tier of the rarest and in many cases the most critical of metals for technological application. These metals are used to manufacture environmentally friendly products such as electric cars and in alternative power generating technologies such as wind turbines.
By way of example, according to a December New York Times article two elements,
“dysprosium and terbium, are in especially short supply, mainly because they have emerged as the miracle ingredients of green energy products. Tiny quantities of dysprosium can make magnets in electric motors lighter by 90 percent, while terbium can help cut the electricity usage of lights by 80 percent. Dysprosium prices have climbed nearly sevenfold since 2003, to $53 a pound. Terbium prices quadrupled from 2003 to 2008, peaking at $407 a pound, before slumping in the global economic crisis to $205 a pound.”
In discussing ‘rare earth elements’ the term rare can be thought of in two different ways. First, rare can be defined by how much of a particular metal is actually produced and made available to end-users who require its use. Second, rare can be thought of in terms of its uncommonness or scarcity. When speaking of ‘rare earths’ in current, manufacturing terms it is the production of these metals (high or low) and their availability (large or small) that can be used to establish which of them are rare and which are not. In short, ramping up production of some of these rare metals is one way of diminishing their value by increasing their availability on world markets and most importantly their availability to manufacturers which require their use.
China’s Monopoly Over Rare Earth Elements
All is not well in the world of rare earths. The main accessible concentrations of the rare earths are found in China, where more than 95% of rare earths are now produced. Over the last seven years, China has reduced the amount of rare earths available for export by some 40%.
Earlier in 2009, concern over rare earths and their availability caught fire with the US Congress when it ordered the US Government Accountability Office to undertake a comprehensive review of US dependence on rare earths for military applications (night vision goggles, range finders, precision guided munitions and cruise missiles to use but a few examples). The American public’s attention, apparently unaware of their use in national defense and in the production of “green” technologies, was heightened by this development. Then in December 2009 the PBS broadcast a series of interviews by a British journalist in Inner Mongolia. The topic of the interview was “Are Rare Earth Minerals Too Costly for the Environment?” The theme of the story was that the levels of pollution in the Bayanobo region of China where most of its and the world’s production of the rare earth metals takes place, are now so high that industry must be reformed if new mineral production is to continue.
Even existing mineral production may be in danger. The necessity for industry restructuring seems to be the case. It is obvious that in order to clean up the damage from decades of mining and refining operations, China’s rare earth industry must slow or even stop temporarily its activities. This must be carried out in order to assess the environmental impact of past mining operations and then to plan strategies for mitigating future environmental damage. Such steps would allow China to resume and perhaps ultimately to enlarge its production of the rare earth elements.
The PBS program also took note of the fact that Chinese officials are openly concerned that the elements mined in the Bayanobo region are so valuable and important to China’s technological future that they must be conserved for future Chinese use. Rare earth production is or may soon be too low to keep up with growing demand.
Six months ago, a story was circulated concerning China’s State Council which is the arm of the government that sets the agenda for China’s command economy. The story, supported by a white paper from the Chinese Ministry of Industry and Information Technology (MIIT), suggested that the export of the rarest of the rare earths, the higher atomic numbered (or heavy ones) be immediately terminated and that the export of the rare earths should be reduced in the next five-year plan (2010-15).
The story could have been floated as a trial balloon to measure world reaction to a curtailing of the rare earths’ supply. Another possibility is that the story was released to the Western press because the Chinese government had become aware of the importance of rare earths to China’s technological and green future and that this importance is sufficient enough to curtail the export of rare earths at current levels. This is particularly important since rare earth production may soon have to be reduced while environmental problems are remedied.
For the rest of the world, the problem is that the rare earths which the Chinese deem so important to their technological and green future are already critical for maintaining the West’s technological and green present, let alone a future of green growth and sustainable production. For example, China has announced that over the life of the next two five-year plans, 2010-2020, it will construct some 133 gigawatts of wind turbine generated electricity. This is likely to dramatically impact the supply of the rare earth metal neodymium. (it could take up to half a ton of neodymium to make a permanent magnet for a very large wind turbine) If China chooses to go with the wind turbine generator design that uses a rare earth permanent magnet based on neodymium, praseodymium, dysprosium, and terbium, (the last two of which are among the rarest of the rare earth metals) then this will require that China increase its current production levels in order to meet additional demand. The alternative is that China substantially reduce its exports of the required metals under the terms of present production levels. Modern, smaller, high performance and high efficiency electric motors and generators are also increasingly dependent on the unique properties of these metals.
The interruption of the supply of these metals to non-Chinese manufacturers and end users would upset both the civilian and military markets in the West. A shortage would surely mean that, first of all, the West would have to choose between “guns and butter.” Secondly, it would mean that technological advancements would stagnate or stop altogether in alternative energy production and uses where these metals are critical.
This is a direct challenge to the West’s march toward a greener future.
In 2002 the United States’ most important rare earth mine, operated by Molycorp in Mountain Pass, California was shut down. This was due, at least in part, to Chinese predatory pricing. Rare earths from China’s Bayanobo region were shipped to California and sold for less than the cost of producing the same rare earths at Mountain Pass, even with a 5% duty assessed against the imports. It was unknown then, as it is now, whether Chinese mining companies were “dumping” their product, i.e., selling it for less than the cost of production.
Certainly today it is obvious that if China had capitalized its environmental liabilities and the true costs of its mining operations in their own country, production costs may not have been competitive with Molycorp’s production costs. However, lowball pricing had its effect. Molycorp ceased mining its immense, high grade California deposits of the light rare earths (with lower atomic numbers), and South African mining operations also abandoned their supply space to the Chinese.
This happened even though the resources and reserves available and accessible to modern clean mining operations outside China were (and still are) loaded with immense verifiable quantities of high grade ores.
Mountain Pass was, as early as 1984, the largest rare earth mine in the world; it produced then fully one-third of all of the global supply of rare earths and 100% of the US demand for them. Mountain Pass has proven reserves of more than 30,000,000 tons of ore when measured using a lower cut-off grade of 7.6%. Much of the ore is at 9.5%, which means that at today’s American demand of 20,000 metric tons a year, Mountain Pass could provide “light” rare earths, lanthanum through samarium, in sufficient quantities to supply current demand for 150 years. If this mine were operating and its output were merged with other known US deposits containing “heavy rare earths,” such as dysprosium, terbium, and europium, in commercial quantities, then America would be self-sufficient in rare earths.
It is important to note rare earth supply security may now be on an even keel with rapid return on investment as a driver for developing American domestic rare earth resources. Market forces are the preferred avenue to bringing US production of rare earth resources back online, but the issue is so vital to the US manufacturing sector and to US national security interests that Congress should address the it a priority. Indeed these observations catalyzed the proposed the Rare Earths Supply-Chain Technology and Resources Transformation Act of 2009 (RESTART Act) referenced earlier.
China’s gradual reduction of its export of raw ores and ore concentrates has forced the rare earth refining, separating, metal and alloy production industries to move to China. Therefore investment in China and the employment of Chinese laborers and engineers is the surest way for a foreign company to assure a supply allocation of rare earths for its own end-use.
The West has now been essentially denuded or contrarily has denuded itself of almost all its rare earth mine-to-market supply and value chains. Only some of the final assembly of permanent magnet using devices such as DC electric motors and electric generators for civilian use remain anywhere outside of China today. The US military and the allies it equips require that the final manufacture and assembly of all munitions or guidance devices and components be within the US or in an allied country such as the UK. Even so, rare earth metals — from which military components such as permanent magnet electric motors and generators, lasers, and infrared and sonar sensors are constructed all or in part — are exclusively imported from China and then alloyed and fabricated in the US or in another allied military contractor’s country.
This is an incredible and truly inconvenient truth. It should also be noted that Canada also has large and high grade deposits under development.
It is important to realize that the situation regarding the supply security of rare earth supply elements has been fundamentally driven by China’s growing domestic demand. Western industry, both civilian and military, could be cut off with little or no notice from these elements at a time when there is no alternative supplier of these elements from someplace other than China.
Western free-market mining, banking and institutional investors have to use this current reality to reassess factors such as the availability of strategic or critical rare metals, and the valuation of the entire supply chain to political and economic advantage. US policy makers should consider all options, including government incentives if necessary, to return US supply back to the point that it can satisfy at least US national defense requirements.
The US Department of Interior must now, through the Bureau of Land Management (which supervises mining claims) and its subsidiary the US Geological Survey, (which monitors the market and end use of natural resources) step forward. It needs to identify and measure US domestic reserves of rare metals which are strategic and critical for America’s industrial and military needs. These steps should be administratively codified by the Departments of Defense and Commerce and be used to catalyze the sourcing of these resources in the most beneficial way for the US economy.
To be clear, the security of the US supply chain for rare earths, and their availability, must be the focus of whatever actions are undertaken.
Also equal to supply concerns regarding rare earths is the fact that even if tomorrow the US would restart the mining of heavy rare earths it lacks the capacity to refine these elements. Thus, should the United States begin to mine its heavy rare earth oxides, it would still be dependent on overseas refineries for further elemental and alloy processing.
Transportation alternatives such as electric cars, electricity generating technologies such as wind turbines, communications’ technologies, such as iPhones, and even medical equipment such as X-ray machines and MRI machines all require rare earths for their manufacture.
Getting onto the green road is not the same as staying on it.