China’s Rare-Earth Elements Export Control Gambit Backfires?
Posted by Cheryl Rutledge on 4/29/2013 3:27:16 PM
By John L. Dobra i
Rare-Earth Elements (REE’s), it turns out, are not really all that rare, it is just that until engineers starting finding
uses for them in cell phones, windmills, lithium batteries, and other electronics applications, mining companies were not
particularly interested in looking for them. Expanded use of REE’s in the past decade has changed this and created
opportunities for mining companies, and, it turns out, for mercantilist bureaucrats in China.
A recent article in the Wall Street Journal – Asia, “Postcards From the Rare-Earth Front” by Joseph Sternberg suggests that China’s mercantilist meddling may be backfiring but to the benefit of REE consumers. In response to increased demand, China’s REE reserves expanded rapidly because, according to Sternberg, “(t)he metals are relatively easier to access in China, and China's unregulated wild-cat mines don't need to pass on any environmental mitigation costs to their customers abroad.”
With this advantage Chinese REE miners have accumulated over 90% of the world’s REE reserves, and Chinese manufacturers
use 65% of world annual supply. Seeing an opportunity to capitalize on their mineral rents, in 2010 China sharply curtailed
REE exports hoping to lure manufacturers using REE’s to China. The idea behind this brainstorm, according to Sternberg (and
others) was that “… limits on exports … suggests the goal has been to move the economy up the manufacturing value chain by
encouraging foreign companies to locate high-tech production in China.”
But mercantilism (or sometimes known as “industrial policy”) is a tricky thing. Sternberg notes that “(s)cientists in
Tokyo last week announced they have identified new deposits of so-called rare-earth metals some six kilometers below the
ocean surface. These metals—hard to extract and useful for high-tech applications from smart-phones to hybrid cars to wind
turbines—will not be easy or cheap to retrieve. But the rich concentrations found in the seabed silt promise a plentiful
supply once the technology is developed to get to them.” According to other sources, the Japanese discovery is 6.8 million metric tonnes. Compare that to current world annual production of about 110,000 metric tonnes. The Japanese discovery represents 62 years of consumption at current levels and has a grade 30 times higher than Chinese mines.
And, there’s more, Molycorp is increasing its production to 40,000 metric tonnes per year in 2013 to account for more
than 36% of current world supply from its mine in Mountain Pass, California. REE’s are being discovered in British Columbia,
the Caribbean, Greenland, Tasmania and who knows where else. On top of this, according to Sternberg, Honda has “…announced
it has developed a new method for recycling rare-earth elements used in the batteries of hybrid cars. The company says it has
been able to obtain the minerals at a 99% purity level, similar to buying them fresh from the ground. Although some media
reports imply the process is slightly more expensive, the cost difference is said not to be prohibitive. Honda now will
explore ways to commercialize the process.”
So, it turns out, REE are not that rare after all. The ingenuity of people operating through markets will result in a
Chinese mercantilist backfire.
iDirector, Natural Resouce Industry Institute and
Associate Professor of Economics
University of Nevada
Senior Fellow, Fraser Institute
Reno, NV 89557
WSJ, Business Asia, March 27, 2013, http://online.wsj.com/article/SB10001424127887324685104578385630806226760.html?mod=WSJ_Opinion_LEFTTopBucket, (link may require a subscription).