Rare Earth Elements Becoming Rare Exports


[Image source (original): IUPAC]

Right on the heels of a recent post where I compared China with Golman Sacks, news came this past week that confirm how China sees the environment as a strategic race.

Rare earth elements are the ones at the bottom of the periodic table that seldom get mentioned in high school chemistry classes. As it happens, they are crucial for a myriad of modern technologies, from flat screen TVs and hard drives, to oil refining, NiMH batteries, and high efficiency electric motors (for both wind turbines and EVs).

Their extraction and processing is an environmental nightmare, which is the reason China gave when justifying its decision to cut exports by 72% by the end of the year. This would not be much of an issue except for the fact that China produces 97% of the worlds' rare earth oxides. Although the elements in question are relatively common, it will take at least five years to get any production facility elsewhere up to speed. Predictably, the immediate consequence has been a huge spike in their prices.

It looks like there are other strategic considerations (besides the environment) behind China's move: to force world producers of finished products (batteries, TVs, turbines, even missiles) to move their facilities to China (the production cut only affects exports), or risk sure shortages of these key materials.

This kind of hoarding sure looks like a breach of World Trade Organization rules, and in fact Japan is already planning to file a complaint. Market forces will also work against China in the long run, as other countries have already expressed interest in opening up old mines (the elements are rare because they are hard to separate, but they are relatively common and easy to find). The US Congress is also seriously looking into it, as you can read in this report (pdf here) by the Congressional Research Service from last July 28 (a recommended read for a complete overview of the problem). Since many military applications are also affected, it is likely that the US government will pressure hard on the issue.

In any case, it is another interesting battle to watch, between free markets and international trade, and the strategic will of the Party. In the mean time, China continues to position itself to profit both when CO2 goes up, and when it will eventually go down. Very smart, don't you think?

(Further read at Reuters and Telegraph).

PS.- As an interesting aside, Li-ion batteries do not use any rare earth elements. If NiMH production, the battery of choice for hybrids, gets disrupted, we might see a faster transition from hybrid vehicles to pure EVs (although magnets inside their electric motors will still need rare neodymium).