The Oil and the Glory

Is China’s rare earth power play really such a big deal?

Is China’s rare earth power play really such a big deal?

The supply of so-called strategic rare earth metals — needed for wind turbines, advanced batteries, disc drives, flat-screen TVs, and smart bombs, among other things — has definitely either slowed or stopped from China. The question is why: Has China cut off Japan in a pique of ill-will triggered by festering resentment over World War II or over the maltreatment of a fisherman? Is the U.S. now suffering because it has dared to challenge China’s clean-energy industry subsidies? Or are there more benign reasons, such as the possibility that widely announced quotas for the minerals have run out in the late part of the year?

Chinese Premier Wen Jinbao says that China isn’t using its near rare-earths monopoly as a “bargaining chip,” China Daily reports. Beijing also says it is not violating its pledges under the World Trade Organization, as the Financial Times’ Leslie Hook and Mure Dickie write.

The rare-earth hullabaloo is reminiscent of the alarm bells raised over Middle East control of oil — it is inherently concerning, after all, when one country or a set of countries wield leverage over a desperately and widely needed product. The more so when those holding that near-monopoly shrink the product’s availability, as China has done. China retorts that it’s a bunch of Sturm und Drang: It is not embargoing anyone, and if shipments are down, it is because China must husband a limited resource, protect its environment, and supply its own industries.

Unsurprisingly, some are benefitting from the chaos, namely traders — prices for the 17 rare earths are going through the roof, report Bloomberg’s Mark Drajem and Gopal Ratnam. According to their report, prices for cerium oxide (used for polishing semiconductors) have risen nine-times, to $36 a kilogram on Tuesday from about $4.70 a kilogram on April 20. Neodymium, used in magnets, doubled in price to $92 a kilogram from about $41 in April.

I emailed a couple of rare earth experts to try to make sense of what is really going on. Jeff Green, a rare earth specialist who runs a consultant firm called J.A Green and Company, says that if China is reducing rare-earth exports next year by 30 percent, as reported, on top of the 40 percent decrease this year, industries could see problematic supply disruptions. So what is behind the reduction? Green told me:

As best we can tell, there is no official “embargo” against the United States or Europe regarding the export of rare earth materials. Nevertheless, companies worldwide have seen an ongoing delay in delivery of materials. It is reported that these materials are delayed by Chinese customs officials and are not leaving the country. Some companies speculate that this may be a result of a lack of material available for export under China’s reduced export quota system, meaning most or all of the 8,000 tons of material for export have already been sold or will be sold in the near future. Another possibility is an unofficially sanctioned response to U.S. government action on the rare earth issue such as the recent 301 case filed by the United States Trade Representative or other measures directed at China such as recent House passed currency manipulation and rare earth legislation. It is likely that the answer lies on many levels with no single motivation driving the current situation in China.

I also emailed Jack Lifton, a rare-earths maven at Technology Metals Research. He had a lot to say, namely that China is conducting a quite conventional industry restructuring. One takeaway: The U.S. military is in no crisis, but the green-energy industry is. Lifton’s note to me:

I am amazed at the parochialism of the press on this issue. It would seem as if the NYT thinks the tail is wagging the dog. China is restructuring its rare earth mining industry to reduce 129 legal, and no one knows how many illegal, producers of rare earth mine concentrates to just 3 or 4 entities controlled by regionally based, state-owned base metals giants. Currently 3 have been officially named: BaoSteel, Ziangxi Copper, and China MinMetal (This last is a trading company, not a miner per se). Chinalco seems to have added itself to the list also.

The purpose of this “consolidation” is to discover the industry’s pricing and actual production both for the purpose of central planning. China, in my view, is acting quite rationally in order to organize an industry it has long recognized as too important to be left to the fierce and often destructive competition arising from China’s wild west approach to capitalist development of new industries. The next two five-year plans feature a massive green development drive that cannot happen without the regular and smooth production and delivery of technology metals to the manufacturers whose green economy products critically depend upon them.

If you consider that man is trying to conquer the environment before it destroys his way of life and his hope for a better way of life then you must, I think, applaud the Chinese for going forward with a plan to strengthen their hand while Western nations leave such “planning” to the operations of a market economy that is subject to lowest common denominator political pressures by unschooled and unskilled legislators being advised by those with narrow self-serving special interests.

America’s military will be just fine regardless of its direct access to rare earth raw materials. America’s green industry will die in childbirth without such access. The fact that the lobbying in the USA to get federal subsidies for mining is focused on a fantasy military supply crisis tells you the unfortunate truth that Americans can’t handle the truth. The green economy begins in the black earth. The first step in the construction of a wind turbine, a solar cell, an electrified vehicle, or a nuclear power reactor is to MINE the specialized metals, the technology metals, critically needed to make such devices work.