China the New OPEC for Rare Earth Elements?
If it is a daunting thought that the OPEC controls 40% of the world’s crude oil supply, think again. China has 95% of the world’s rare earth elements (REE) leading the late Deng Xiaoping to presciently remark that “the Middle East has oil, but China has rare earths.”
While oil gets a lot of attention, what does REE have in relevance to consumers? REE, which include 17 hard-to-pronounce names of chemical elements (e.g. praseodymium, yttrium, europium, dysprosium, erbium), are important ingredients in many high-tech devices and clean technologies. You need them in iPod, laptop, cell phones, TV, hybrid cars, batteries, wind farm facilities, military applications etc.
Until the mid-1980s, a single US mine was the world’s main source of REE. It was shut down due to environment concerns and low prices and China cornered the market. Outside of China, there are 3 big potential sources of REE – in California, Canada and Australia. The California mine has not produced since 1998, the Australian mine was due to start production in 2011 but has just lost its financing and the Canadian mine is aiming at 2011. Together their annual production could amount to one third of China’s.
It is no surprise then that Chinese companies have bought stakes in the Australian and Canadian projects but were so far unsuccessful in buying the Californian project. China’s State Council, or Cabinet, recently was considering tightening export restriction or even banning the export of certain elements and closing mines. While this will increase prices, secure supply for its own needs and create jobs for its own people, this will cause fear among foreign companies and governments as they may not have access to the metals and this will lure more foreign companies to the country to set up manufacturing plants there.
But foreign and Chinese industry sources doubt Beijing’s dominant goal is to create an Opec-like price cartel as China has flooded the world market with cheap REE for more than a decade. Now, Beijing needs to ensure that it has enough materials to grow its own advanced and clean technology industries, especially in Inner Mongolia where it contains 75% of China’s REE deposits.
However, foreign companies and governments know that if the supply is suddenly stopped, production outside of China will be stopped as well. While the Pentagon has raised alarm over the US military’s vulnerability in the event of an armed conflict with China, the US has been slow in focusing on securing the supply of REE as compared to its supply of oil. Meanwhile, the Japanese firms such as Sumitomo Corp and Toyota Motor Corp have begun developing alternative sources of REE in Kazakhstan and Vietnam. The Japanese has great incentives to explore new sources and diversify its supply risks because it imports over 90% of REE from China. It would be interesting to see how these countries’ resource strategies will work out in this new century.
Sources:
Will China Tighten ‘Rare Earth’ Grip?
China predicts rare earths shortage
Beijing may tighten grip on rare earths
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