Power Politics in the 21st Century: The Battle for Rare Earths

The quarrel between China, the United States, Europe, and Japan about China’s rare earth export policy has heated up again over the past week. Rare earth minerals are indispensable in the transition to a low-carbon world, as they are used in clean energy technologies such as wind turbines, solar photovoltaic (PV) cells, and batteries. At the moment, the most troubling aspect of rare earths is the power that China—which mines 95 percent of the world’s supply—currently enjoys. China stopped delivering the minerals to Japan on September 21 and to the United States and Europe on October 18.

The race for rare earths is well underway – Flickr Creative Commons / Juanedc

The latest sparring began in Europe on October 22, when Werner Schnappauf, Director General of the Federation of German Industries, announced that German companies are facing shortages in the supply of lanthanum, a rare earth used in PV cells. Simultaneously, industrial giants Bosch and Siemens disclosed that they might face bottlenecks in their production if China continues its protectionist path.

On October 24, Japan’s trade minister urged China to resume exports of rare earth materials that are crucial for manufacturing. The next day, the United States banded with the EU and Japan to consider filing a World Trade Organization lawsuit to protest China’s illicit export restrictions. Simultaneously, the U.S. Chamber of Commerce wrote a letter to the G20 heads of government highlighting the “acute threat” of lack of open access to rare earths. On October 26, Germany asked France, which will assume the presidency of the G20 next month, to put raw materials at the top of the agenda for the group’s November meeting in Seoul, Korea—with the goal of drafting a strategy paper on combating China’s restrictive rare earth policy.

The conflict reached its climax on October 28, when U.S. Secretary of State Hillary Clinton pressed China to clarify its position, mentioning fears that Beijing could use its export policy as a “political weapon.” In a joint press conference, Clinton and Japanese Foreign Minister Seiji Maehara stated that both countries recognize that they will have to look for additional sources of supply. China then abruptly ended its rare earths embargo against Japan, the United States, and Europe. Clinton’s decision to visit China unexpectedly this Saturday (October 30) during her Asia trip may be not an unimportant detail in this modern drama.

Why all the posturing? Rare earths are not, in a purely physical sense, rare, but they are not often found in minable concentrations. Global rare earths production is estimated at 124,000 tons annually, and world reserves are estimated at 99 million tons, with 36 percent of them in China. China’s 2010 export quota was set at 30,350 tons, down 40 percent from 2009 and far less than the 50,000–55,000 tons of demand forecasted outside of China.  Production capacity outside of China is estimated to be no higher than 10,000–12,000 tons, suggesting a significant supply shortfall.

Although rare earths mines are currently under development in the United States, Canada, Australia, and elsewhere, all but two—Mountain Pass mine in California and Mount Weld mine in Australia (which together can supply only a small fraction of world demand)—are a long way from starting production. Fortunately, the overall volume of rare earths outside of China is large enough that demand can be met in the long run. In the short term, however, industries that rely on rare earths may suffer as supply tightens and prices continue to rise.

China is the world’s largest consumer of rare earths, and domestic demand is rising faster than supply. Many industry experts foresee a day in the not-too-distant future when China will be a net importer of rare earths because of its manufacturing sector’s endless appetite for raw materials. Thus, bickering with China over its export policy may not pay long-term dividends. And while the U.S. and European countries are busy crying foul, Japan (and Japanese companies) are wasting no time in ensuring access to the rare earths they will need. Japan’s Prime Minister has already reached agreements with Vietnam and Mongolia to jointly develop resources in those countries, and companies such as Toyota have signed contracts for exclusive rights to mines in Vietnam and elsewhere.

Simply getting enough rare earth oxides out of the ground is only part of the problem. The oxides must then be converted to alloys or powders, and then made into magnets in order to be usable in wind turbines or hybrid automobile motors. Almost all of the companies that are capable of performing these processes are located in China or Japan. Rare earths mining in the United States ended in the late 1990s due to an inability to compete with cheap Chinese export, and the entire supply chain went with it. Meanwhile, China and Japan continue to dominate rare earths-related knowledge and human capital. Four research laboratories in China focus on rare earths, each of which is well-established with dozens of professors, research fellows, and graduate students. The U.S. Colorado School of Mines only recently began offering a class on rare earths and is the only university providing such education in the country.

Western nations have a lot of catching up to do to make up for the rare earths supply shortfall and must prepare for the day when China can no longer be the world’s dominant supplier. Japan, as the leading importer of the minerals, is rumored to have been stockpiling rare earths for years, and is now gobbling up supplies around the world. Elsewhere, meanwhile, preoccupation with a Chinese bogeyman appears to be getting in the way of constructive action.

The Worldwatch Institute is examining the role of rare earths and other strategic material inputs as part of our “Energy Security 2.0” initiative exploring the transition to low-carbon energy. (Our first policy paper, on the implications of this transition for U.S. national security, is available here). The Institute is researching the changes in material resource needs and trade relationships that accompany an economy-wide transition to low-carbon energy and transport systems. We base our analysis on the International Energy Agency’s 450 Scenario, aimed at keeping the increase in global average temperature below 2 degrees Celsius.

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