英文讀書會

Rare earths and China

Dirty business

China is squeezing the supply of vital rare earths. But not for long

Sep 30th 2010 | TOKYO

RARE by name, though not by nature, 17 elements in the periodic table—the “rare earths”—are among the most sought-after materials in modern manufacturing. In tiny amounts, their unique magnetic and phosphorescent properties make them vital ingredients in a host of gadgets and components, ranging from hard drives to lasers. Though abundant in nature, extracting them is difficult, costly, time-consuming and dirty.

China is the world’s largest (and for some of them the only) producer of rare earths. Fears are growing about the political effects of that clout. In September Japan claimed that China was blocking supplies in response to the arrest of a Chinese fisherman in disputed territorial waters. Japan, with its electronics and car industries, uses a fifth of the global supply, making it the world’s biggest importer of rare earths.

China denies that it has interfered with shipments, but Japanese traders say that supplies were stuck in Chinese ports for a week. The Chinese dominance comes from heavy investments in the 1980s. Deng Xiaoping later said that rare earths would be to China what oil was to the Middle East. As Chinese production came on stream, prices plummeted and other producers closed.

Since 2006 China has behaved in a way that resembles OPEC, the oil-producers’ cartel, cutting exports by 5-10% a year. In July the export quota was cut by 40%. Prices have soared: the cost of cerium oxide (often used as a catalyst) has increased sixfold since the start of the year, and is 20 times higher than in 2005.

The squeeze comes as a surge in demand for high-tech equipment has sent demand for rare earths soaring. In 2003 some 85,000 tonnes were shipped, valued at $500m. This year’s sales are expected to total 125,000 tonnes, worth nearly $2 billion. Demand is forecast to increase by around two-thirds over the next five years.

For now, China’s position is strong. It holds 35% of global reserves but supplies more than 95% of demand, of which 60% is domestic, according to Industrial Minerals Company of Australia (IMCOA), a consultancy. In “heavy” rare earths such as dysprosium, which helps magnets keep their properties at high temperatures, its market share is nearly 100%.

China cites environmental concerns to justify its export curbs. The real reason is probably to persuade foreign firms to move manufacturing to China before non-Chinese mines are on stream and its market control ebbs.

Market forces should be providing an answer already. But they face peculiar snags. The quantities of rare earths used in technology components are so tiny that higher prices are invisible in the cost to consumers. Recycling is tricky: just half a penny’s worth of neodymium helps a mobile phone vibrate.

In the next four years new production is starting in Australia and in California (where it ceased in 2002). Capacity is being increased at mines in India and Vietnam. The newcomers will shrink China’s market share by 15%, says Dudley Kingsnorth of IMCOA. The only existing producer outside Asia not dependent on Chinese ores is Silmet, a rare-metal firm in Estonia, which says it is now besieged by eager customers. It hopes other producers come online soon.