Rare earth elements are in high demand.
They are the essential minerals that are needed to manufacture thousands of high-tech products; mobile phones, rechargeable batteries, missile systems, electro-magnets, satellites, and electric cars.
As demand for these products grow, raw material analysts are looking at the world’s limited access to these materials. The fear is that China, who control more than 80% of the world’s supply and refining capabilities may stop exports to the USA in retaliation against the Huawei technology sharing ban and US tariffs imposed on Chinese goods.
The high demand and rising prices for rare earth elements (REEs) coupled with an improved understanding of their strategic significance, has led to increased exploration and production outside of China. This has weakened China’s strategic hand, although America’s dependency on Chinese exports remains strong.
As Simon Moores, managing director of Benchmark Mineral Intelligence, notes, “Until the rare earths crisis of 2010, governments were unaware of the supply imbalances that can exist in niche minerals and metals that are key to the most crucial defence and technology applications. It was the coming of age for a wide variety of niche minerals that are used in 21st century technology. If you consider the iPhone was launched in 2007, it was quite an early warning sign for the world.”
Following the 2010 REE supply restrictions (as discussed in Part 1 of this article), Japan was forced to react to avoid further threats of being cut off from such vital raw materials and invested heavily in a mining company based in Western Australia called Lynas. The relationship has been a positive one for both countries and has stabilised Japanese supplies.
Considering the current trade war, America will also need to move to secure its sources. As David Merriman, manager of battery and electric vehicle materials at Roskill, explains, “With Chinese supply into the USA becoming more questionable and production from Lynas being hoovered up by Japan, the USA could turn to Russia (unlikely because of political reasons) or India (unlikely because of technical reasons) to supply their material.”
According to Merriman, this leaves the US with one other alternative; “… the USA could look to nurture an REE company like Japan did to ensure a sustainable source of materials, though they will have to be willing to support it through a potentially volatile pricing period.”
While the US government did invest $40 million in REE exploration and production in 2017, it can take many years for supply chains to come online. At present the US has only one domestic source of REEs, California’s Mountain Pass rare earths mine, which was offline from 2015 to 2018.
As Luisa Moreno, managing director of Tahuti Global, notes, “The US will not be able to produce refined REEs at home in the short term. Surely not to replace the imported volumes from China, (which were) about 13,000 tonnes in 2018. Can it source REEs from somewhere else? Yes, but again, considering the volumes, not immediately. Unless it gets it indirectly via Japan and Europe.”
But for the US to source REEs from outside of China would have repercussions in itself. As Merriman explains, “Theoretically, there is sufficient REE production outside of China to meet the USA’s consumption, though this would cause the USA to compete with the EU and Japan, which have established REE supply contracts with producers, mainly Lynas.”
However, he continues by stating that, “Overall, the USA would be in a difficult position to replace its imported REEs from China without causing massive market disruption.”
Many in the mining industry believe that the global economy needs a wake-up call to ensure a consistent supply of REEs, as the current turbulence in markets could worsen trade wars and lead to severe manufacturing restrictions.
As Moores states, “The fear that gripped the US and other countries that are heavily reliant on Chinese rare earth supply, such as Japan and Korea, is now being played upon again. In many ways, China has every right to do what it wants with its own natural resources. The rest of the world has had nearly 10 years to correct this huge supply imbalance and has failed to do so.”
Moreover, Moores believes that the situation could spill over into other mining sectors, as limited supply, geopolitical tension, and increasing demand could restrict supplies of, “energy storage raw materials such as lithium, graphite, cobalt and nickel.”
For too long, China has been seen as a land short of raw materials, while America has been viewed as being rich in the materials of industry. But as technology evolves, so too do the materials needed to supply manufacturing. America may have plentiful supplies of iron, coal, timber, and oil, but these raw materials alone will not be enough to fuel economies in the 21st century.
Instead, Western economies must invest further in sourcing the raw materials that modern industry needs. A fact that industrial raw material purchasers and chemical supply companies would also do well to learn.
Amendment: On June 6th the US Dept of Commerce released a public document requesting all government departments to actively source domestic deposits of critical raw materials (REE and uranium) to “ensure that we are never held hostage to foreign powers for the natural resources critical to our national security and economic growth.”
Yet this will take time, as David Anonychuck, managing director of M.Plan International, highlights, “Most rare earth juniors are at an exploration or early project stage, so it will take considerable time to fully develop projects, perhaps seven to 10 years from resource estimate to project production. The exploration phase can last two to three years.” Adding that, “The project study phase for mineral resource through to feasibility study can take five to seven years or more, with environmental permitting and social being the longest path. Project construction is about two years to get to commissioning.”
With the US/China trade war in full flow China’s threat to cut off REE supplies may be the killer blow to break the deadlock in negotiations. To block this the US needs to find, mine, and refine new REE deposits yesterday. However, as Investing News is quick to highlight, “When you add it all together, it could take the US as long as 20 years to build a reliable, steady supply of rare earths.”
If this is so, then are rare earth elements the ace in Xi’s hand to call Trump’s trade war bluff?
To discover more about China's hold over American imports of rare earth elements, take the time to read the first part of this article; How Geopolitics Could Collapse Rare Earth Element Supplies Part 1.