September 04, 2009

Weekly News Roundup: Rare Earth Elements

Rare earth elements are the big theme this week. The New York Times focused much attention to China's ability to corner the market for rare earths. Some have accused it of artificially inflating the price of rare earth elements by restricting production and tightening exports; China does indeed have great leverage over the market for these minerals, with between 75% and 90+% of the world’s current supplies (reserve estimates, like with all minerals, vary, and different estimates likely account for different sets of minerals). Restricted exports of these elements could affect production of a huge variety of goods, from televisions to hybrid vehicles, as reported by several news sources through the week. China’s market restrictions also raise security issues, as a number of high-tech weapons and communication systems rely on elements such as neodymium (pdf), which is used in targeting lasers.

The wave of reporting this week (which built on reports last week by the Guardian and Danger Room that China was considering an outright halt to exports) took a turn away from the worry about China's intentions, however, with a follow-up piece by the Wall Street Journal (subscription required). The Journal quotes Zhao Shuanglin, the Vice Chairman of Inner Mongolia Autonomous Region (equivalent to a deputy governor, WSJ helpfully notes). Zhao claims that China is not trying to drive up the price in rare earth elements, but is trying to attract manufacturing and investment to Inner Mongolia, where most of the elements are mined. It is unclear whether this is China’s official line – as the Times noted, “Chinese industry officials have complained publicly in recent weeks that Western countries do not pay enough for their supplies.” At the same time, the deputy director general of China’s Ministry of Industry and Information Technology “called Thursday for additional development in China of high-value industries using rare-earth elements.” Mining these elements also takes a major toll on the environment, and as the Associated Press reported yesterday, China claims that reducing capacity is a way to manage related environmental problems.

This leaves affected industries and many countries wondering exactly how to react and what the impact of China's changing export regime would be. The United States, Canada, and Australia have mines that are trying to open or reopen, and China, other countries, and private companies may be going through a wave of trying to purchase stakes in companies anywhere in the world that mine rare earth elements. The CNAS Natural Security team will be watching all of these developments carefully over the coming weeks.