Update: A Global Rare Earth Element Crisis on the Horizon?

by Bill Chameides | July 28th, 2010
posted by Erica Rowell (Editor)

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The green revolution is not the only thing threatened by China’s stranglehold on rare earth elements.

They may be called rare earth elements, but they’re not all that rare. Their earthly abundance is much larger then metals like gold and silver, which we call precious but not rare. The rare appears in their name because they rarely show up in concentrated form in a mineral or deposit or vein. From an economic point of view, therefore, they are rare.

In any event, rare or not, rare earth elements are essential to a plethora of modern high-tech stuff including the new green technologies we’re betting on to transform our fossil-fuel intensive economy to a low-carbon one (see here and here). So we care about them and definitely want access to them. And there’s the rub.

China Dominates the Market for Rare Earth Elements

While China holds only about a third of global reserves for rare earths, it produces a staggering 97 percent of the global supply [pdf] — meaning that in today’s market, for rare earth elements, you almost certainly have to turn to China.

Over the past few years, China has been gradually ratcheting down on rare earth exports. Since 2006, Chinese exports have declined annually by anywhere from three and a half to 12 percent [pdf], and most analysts expect a comparable reduction on the order of six to seven percent over the next several years. These cuts are no doubt uncomfortable for nations that import rare earths, but probably manageable.

All that appears to be changing. Earlier this month China announced it would cut its export quota for rare earths to 30,250 this year — a staggering 40 percent reduction from its 50,100 tons in 2009. What does this mean?

  • Current global demand for rare earths, excluding China, is about 50,000 to 55,000 tons.
  • Non-Chinese production capacity is currently 10,000-12,000 tons,
  • So we can expect a production shortfall of about 10,000-15,000 tons of rare earths.

High-tech and/or green manufacturers need not immediately panic because stockpiling should guarantee enough rare earths for the next year or two. But the longer-term prognosis is not so good.

  • World demand for rare earths is on the rise. Estimates of global demand range from roughly 124,000 tons today to more than 200,000 tons by 2014.
  • Meeting that increased demand, given current production rates, would be challenging, but there are indications that China intends to ban rare-earth exports altogether by 2015. Were that to occur, we would have a full-blown rare-earth trade crisis.

Why would China do this? To dominate the manufacture of green and high-tech products that require rare earths? To jack up the price for rare earths that we and the rest of the world have to pay? Quite likely. But the consequences for the United States could far more serious.

It’s Not Just a Green Problem …

China’s growing stranglehold on rare earths is also commanding attention from the Department of Defense. While rare earths are key to advanced batteries, wind turbines and other green technologies, a number of other high tech applications important to the Department of Defense rely on rare earths magnets — radar systems, lasers, and precision-guided munitions.

A threat to America’s competitive position in green technologies is one thing; a threat to our national security is another. Being dependent on foreign countries for oil is bad enough; are we now going to be held hostage by China for the rare earths we need for our national defense? Hell no, you say. But how can we avoid it? Simple, right? Let’s just produce our own rare earths. Great idea. Buy can we?

Can the United States Become a Rare-Earths Player?

The answer is almost certainly yes. While our reserves (~13 percent) are not as large as China’s 33 percent [pdf], they are sufficient to meet our needs for the foreseeable future.

The problem is timing. Last spring an initial inquiry [pdf] by the General Accountability Office on behalf of both the House of Representatives and the Senate Armed Services Committees concluded that rebuilding the U.S. supply chain in rare earths could take up to 15 years.

  • Although production at California’s Mountain Pass is expected to get up to steam in 2012, this ore lacks substantial amounts of heavy rare earth elements, such as dysprosium, used in permanent magnets.
  • Deposits in Idaho, Montana, Colorado, Missouri, Utah, and Wyoming that may include more heavy rare earth element are just in the exploratory stages of development and will require an additional seven to 15 years before production can even begin once capital is secured. 
  • Industry officials estimate it would take from two to five years to develop pilot plants capable of refining the rare earths to pure metals.

A related complication involves the non-green aspects of the rare earths used for green technologies: ironically, the mining and processing of these elements can exact a heavy environmental toll, something China may tolerate but doubtful the United States would.

The arithmetic is not so great. Some speculations put China ceasing rare-earths exports just five years from now — up to a full 10 years before the GAO thinks we could be up and running with our production system. Are we witnessing a new global crisis in the making? Is it conceivable that a global squeeze in the supply of rare earths could even lead to heightened tensions between China and the United States? Hopefully not. The defense department is expected to release its own study assessing our dependency on rare earths by September. Maybe then we’ll have a better idea.

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