China Flexing Muscles Over Rare Earth Minerals For Strategic Reasons

China is tightening up on its near stranglehold over rare earth mineral exports in order to secure strategic advantages.

According to the New York Times, (all bold highlights mine)

``China currently accounts for 93 percent of production of so-called rare earth elements — and more than 99 percent of the output for two of these elements, dysprosium and terbium, vital for a wide range of green energy technologies and military applications like missiles.

``Deng Xiaopeng once observed that the Mideast had oil, but China had rare earth elements. As the Organization of the Petroleum Exporting Countries has done with oil, China is now starting to flex its muscle.

``Even tighter limits on production and exports, part of a plan from the Ministry of Industry and Information Technology, would ensure China has the supply for its own technological and economic needs, and force more manufacturers to make their wares here in order to have access to the minerals.

``In each of the last three years, China has reduced the amount of rare earths that can be exported. This year’s export quotas are on track to be the smallest yet. But what is really starting to alarm Western governments and multinationals alike is the possibility that exports will be further restricted."

``Beijing officials are forcing global manufacturers to move factories to China by limiting the availability of rare earths outside China. “Rare earth usage in China will be increasingly greater than exports,” said Zhang Peichen, the deputy director of the government-linked Baotou Rare Earth Research Institute..."

``China produces over 99 percent of dysprosium and terbium and 95 percent of neodymium. These are vital to many green energy technologies, including high-strength, lightweight magnets used in wind turbines, as well as military applications...

``The Ministry of Industry and Information Technology has cut the country’s target output from rare earth mines by 8.1 percent this year and is forcing mergers of mining companies in a bid to improve technical standards, according to the government-controlled China Mining Association, a government-led trade group.

``General Motors and the United States Air Force played leading roles in the development of rare-earth magnets. The magnets are still used in the electric motors that control the guidance vanes on the sides of missiles, said Jack Lifton, a chemist who helped develop some of the early magnets.

``But demand is surging now because of wind turbines and hybrid vehicles....

Additional commentary from Telegraph's Ambrose Evans Pritchard, (emphasis added)

``New technologies have since increased the value and strategic importance of these metals, but it will take years for fresh supply to come on stream from deposits in Australia, North America, and South Africa. The rare earth family are hard to find, and harder to extract...

``No replacement has been found for neodymium that enhances the power of magnets at high heat and is crucial for hard-disk drives, wind turbines, and the electric motors of hybrid cars. Each Toyota Prius uses 25 pounds of rare earth elements. Cerium and lanthanum are used in catalytic converters for diesel engines. Europium is used in lasers.

``Blackberries, iPods, mobile phones, plams TVs, navigation systems, and air defence missiles all use a sprinkling of rare earth metals. They are used to filter viruses and bacteria from water, and cleaning up Sarin gas and VX nerve agents.

``Arafura, Mountain Pass, and Lynas Corp in Australia, will be able to produce some 50,000 tonnes of rare earth metals by the mid-decade but that is not enough to meet surging world demand.

``New uses are emerging all the time, and some promise quantum leaps in efficiency. The Tokyo Institute of Technology has made a breakthrough in superconductivity using rare earth metals that lower the friction on power lines and could slash electricity leakage."

``The Japanese government has drawn up a “Strategy for Ensuring Stable Supplies of Rare Metals”. It calls for `stockpiling’ and plans for “securing overseas resources’. The West has yet to stir."

My comments:

1. Forcing high tech companies dependent on rare earth resources to invest in China could be a ploy to "pad" statistical economic growth in today's highly turbulent times.

2. Another reason could be to use such resources to extract technology or knowledge transfer concessions.

This applies most especially to "green" technology and importantly for security (military) reasons.

Since the US Air Force has been instrumental to the development of rare earth for its use, then it would be forced to negotiate or compromise for continued access to these.

3. Prices of rare earth metals would surge as supply is constrained as demand increases.

4. Investments in scouring for alternative sources for such exotic metals will likewise explode.

5. Technological advances could materially slow, especially for those companies unwilling to shift to China, on high prices as access to these rare metals will be severely limited.

6. Another sign of creeping protectionism which could provoke heightened geopolitical tensions.