I note that the Sunday New York Times last weekend, had an article in its business section with the title, “Japan’s Economic Gloom Runs Deeper This Time.” Of particular interest to those of us following the rare-earth-supply issue is the following paragraph in the article (emphasis is mine):
“…since the collapse of the bubble economy of the 1980s …the Nikkei 225 stock index is still three-quarters off its peak. And the economy has been hit by blow after blow, from sagging property prices to mounting debts and intensifying competition from China.”
Nowhere is China’s current stranglehold on the supply of rare earths more deeply felt than in Japan, and nowhere else, I repeat, nowhere else, is obtaining an alternate supply more important than in Japan.
The reason for this is that Japan’s rare-earth permanent-magnet (REPM) industry is considered to be the best on earth. Its largest REPM maker, Hitachi Metals, in fact still holds more active patents in the technology than anyone else in the world.
Japan is very protective of its REPM industry. If a Japanese manufacturer uses a REPM made by Hitachi Metals or which is covered by a Hitachi Metals patent license, then that magnet must have been made in Japan, under the terms of the patent licenses that Hitachi Metals manages.
The Chinese REPM industry, now the world’s largest, and twice the size of Japan’s by volume, considers this system to be a form of Japanese protectionism, and it wants to break into the Japanese market, the world’s largest after China, itself.
I believe that this competition more than any other external factor, is what is driving the current Chinese agenda on limiting the exportation of the rare earths as raw materials. Chinese magnet makers would like to make the magnets for Japanese end users to incorporate into permanent-magnet motors and permanent-magnet generators as well as into speaker magnets. Japanese manufacturers know that if this were to happen, then it would only be a matter of time before China pressured Japanese manufacturers to move all of their subcomponent operations to China in the same manner as they did to American manufacturers and continue to do.
Japan cannot afford the luxury of lower domestic costs disguising the transfer of an industry, its jobs, and its future developments in technology to another country. The Japanese economy simply cannot afford to take such a gamble, and the Japanese look at what happened to the American rare-earth supply chain as an object lesson in sheer short-sighted greed.
I find it intriguing that American investors who know or should know the above facts, even so still believe that a company like Hitachi Metals which is way ahead of any American company in terms of the manufacturing technology for REPMs, would agree to compete with itself, by letting a raw-material supplier become a new Hitachi Metals licensee. I think it is as unlikely that Hitachi would do this with an American supplier, as that it would with a Chinese raw-material supplier. I do believe that Hitachi Metals would like to re-enter the US REPM market by manufacturing in the USA, with American raw materials. Structured carefully as to ownership and control, this would give Hitachi Metals a definite competitive advantage when dealing with the US Defense Department, which now has prohibitions against buying certain types of rare-earth-based magnets, which are made in Japan (and elsewhere).
Japan is a particularly resource-poor country. Its military ruling elite dominated the populace for centuries by, among other things, controlling the production and use of metals such as iron and copper (as bronze). A razor-sharp samurai sword wielded by a man in iron chain mail and bronze armor, was the most effective means of controlling the Japanese peasants until Western “traders” brought firearms, and large quantities of both fabricated and fabricated metals to Japan in the mid-nineteenth century.
Japan’s attempt to create a self-sufficient natural-resource supply by force of arms, failed precisely because its principal enemy had an unlimited (from the Japanese perspective) supply of natural resources, especially of energy and metals. Japan will never again give up any advantage based on natural resources.
Japan won’t give up nuclear-generated electricity for dependence on imported coal and oil, nor will it give up independent technological prowess. Japanese private industry is actively seeking independence in natural resources, and this is evidenced by the activity not only of Hitachi Metals and Toyota, among many others, but also of the giant Japanese trading companies seeking to buy and operate sources of iron, copper, and the rare earths, as well as indium, gallium, and many other technology metals.
The rare earths are a critical component of Japan’s competitive stature in the world of technology.
China isn’t the only game on the planet, and, by the way, South Korea has begun its own quest for technology metals too.