Rare Earth Ruckus

Are we at the mercy of China's mercantilist mandarins?

Earlier this year, the world was jolted when China apparently cut supplies of rare earth metals to Japan. In addition, China has announced that it is dramatically tightening its export quotas on the metals. This is big news because China produces 97 percent of the world’s supply of the 17 rare earth metals. Rare earth metals are used in everything from wind turbines to oil refineries, Priuses to iPhones, and flat screen TVs to smart bombs.

Rare earth metals are chemically similar and include cerium, neodymium, europium, and samarium. Despite the name, most rare earth metals actually are similar in abundance as more familiar elements such as copper, nickel, or zinc. However, economically exploitable rare earth ores are uncommon and they generally occur together as hard to refine mixtures. Over the past half century technologists have found many uses for these metals, one of the more important being the production of lightweight permanent magnets.

Up until the 1990s, the United States dominated the production of rare earth metals, chiefly from the Mountain Pass mine in southern California. In 1992 then-Chinese leader Deng Xiaoping, allegedly declared, "There is oil in the Middle East; there is rare earth in China." Subsequently, China began ramping up its rare earth metals mining and production, flooding the market with the metals and undercutting the price of U.S. production. U.S. Geological Survey composite price data notes that rare earths sold in real dollars for just over $11,000 per ton in 1990 falling to a low of just over $3,000 per ton in 2006. In the face of Chinese competition, the Mountain Pass mine ceased operations in 2002 when its environmental operating permit expired after a series of spills of mine tailings that contained traces of radioactive uranium and thorium.

Since the early 1990s, world demand for rare earth oxides rose from 50,000 tons per year to 134,000 tons today. By 2014, global demand for rare earth elements may exceed 200,000 tons per year. As a result of Chinese export restrictions and its arbitrary export embargoes rare earth prices have soared. In the last year, according to the Metal Pages website which tracks global metal prices, the price of neodymium oxide has risen from $20,000 per ton to nearly $80,000; praseodymium oxide from $20,000 per ton to $78,000; samarium oxide from $15,000 per ton to $25,000; and lanthanum oxide from $7,000 to nearly $60,000 per ton.

This rapid run up in prices and reports of impending shortages have produced considerable anxiety around the world. However, the U.S. Geological Survey (USGS) last week issued a somewhat reassuring comprehensive report looking at the availability of rare earth minerals in the United States and around the world. China’s rare earth domination may continue for the short run, but the world is far from running out of these minerals.

The USGS report estimates that total proven U.S. reserves of rare earth oxides are about 1.5 million tons, and reckons that total domestic resources could be 13 million tons. Domestic consumption of rare earths peaked at 10,200 tons in 2007 which implies that U.S. supplies from known reserves would last nearly 150 years and possibly up to 1,300 years after other resources are explored and exploited. But it gets even better. Nice stable countries like Australia and Canada also have substantial rare earth resources.

In response to recent higher prices, companies around the globe are beginning to ramp up production. In fact, Molycorp Minerals, the current owner of the Mountain Pass mine, is reopening it with the goal of producing 20,000 tons of rare earth oxides by 2012 and eventually producing 40,000 tons of rare earth oxides annually by the middle of this decade. The company claims that its new milling processes will enable it to produce rare earth oxides at half the cost that the Chinese currently do. The Australian mining company Lynas Corporation aims to produce 11,000 tons of rare earth oxides anually from its new Mount Weld mine beginning in 2011. A number of other projects are being considered around the world.

It’s a depressing contemporary truism: Whenever someone declares a crisis, some Capitol Hill busybody hurries to throw taxpayer dollars at it. Last March, as anxieties about Chinese export quotas were beginning to grow, Rep. Mike Coffman (R-Colo.) introduced the Rare Earths Supply-Chain Technology and Resources Transformation Act of 2010 which includes loan guarantees to companies producing and refining domestic rare earth metals.

Another truism: If the feds offer free money, there’ll be no shortage of corporations holding their hands out for it. In fact, Molycorp Minerals has already applied for a $280 million federal loan guarantee. The Department of Energy turned down the initial application, but the company has filed again.

Besides drawing out new supplies, shortages also spur innovation. In this case, several companies appear to be well on the way toward developing cheaper permanent magnets that don’t depend on rare earth metals. For example, the California startup NovaTorque has developed electric motors using low cost ferrite magnets that the company claims outperform much more expensive neodymium magnets. Hitachi in Japan is also developing a ferrite magnet that would be a cheap substitute for the neodymium magnets currently used in hybrid cars. Rare earth magnets are right now chiefly used for reading and writing hard drives, but that may not always be so. Researchers are working on new computer memories based on graphene oxide, a combination of common carbon and oxygen.

In the end, new supplies and innovation will ensure that the future of the world’s high tech economy will not depend upon the whims of the mercantilist mandarins who steer Chinese industrial and trade policy.

Ronald Bailey is Reason's science correspondent. His book Liberation Biology: The Scientific and Moral Case for the Biotech Revolution is now available from Prometheus Books. This column first appeared at Reason.com.

Ronald Bailey is Science Correspondent





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