Building Up Global Supply of Rare Earths

gansu metal mine

China has limited exports of so-called rare earth elements for years, frustrating foreign trade partners who want to access the metals used to make everything from cell phones to weapons systems.


The European Union, United States and Japan asked the World Trade Organization to establish a dispute settlement panel last year, claiming that China’s tariffs and quotas break the trade group’s rules. But a number of companies have also been ramping up production outside China, where a U.S. Congressional Research Service report last year said 97 percent of rare earth elements are mined, in an effort to establish a more diverse global supply chain.


Reasonably priced supplies of rare earths, a group of 17 elements in the periodic table, is vital for consumer electronics, green tech companies and a whole host of other industries. A little dose of erbium, for example, amplifies the light pulses that carry the growing amounts of data we send surging through fiber optic cables that crisscross the globe. By boosting the light output from lasers, erbium reduces the heat they radiate, making the light beams safe to point at human skin during laser surgery. Hybrid cars have a secret workhorse in the breakthrough nickel-metal hydride battery, which contains lanthanum and is twice as efficient as conventional batteries.


But perhaps the most pressing reason for diversifying supply chains is that rare earth elements are also critical components of an array of military technologies that depend on their special properties of luminescence, magnetism and ability to enhance the strength of materials.


“The probability of (supply) disruption is probably fairly low, but the consequences of disruption would be pretty disastrous, particularly on the military side,” Gareth Hatch, a rare earths expert and co-founder of U.S.-based Technology Metals Research, told The Financialist. “But the same goes for the general industrial scene as well.”


The funny thing about the scramble for supply is that rare earths are actually not rare. There is more lanthanum on the earth, for example, than lead or silver. Even the rarest of the metals, such as thulium, are approximately 200 times more common in the Earth’s crust than gold.  But the elements appear in small concentrations, and extracting them involves complex, chemical-heavy processing that is expensive and highly polluting. These environmental concerns have acted as a brake on establishing rare earth production and processing centers outside China.


But in Southern California, Molycorp Inc. is investing about $1.25 billion to revive the Mountain Pass mine, which was shut down in 2002. In Western Australia, Lynas Corp. is extracting rare earths and shipping them off for refining into commercial-grade material at a large processing facility in Malaysia that’s expected to cost up to $900 million to develop. Most other new ventures could take up to a decade to come online, according to a Congressional Research Service Report from last year entitled “Rare Earth Elements: The Global Supply Chain.”


Together, the Molycorp and Lynas facilities are expected to add roughly 30,000 tons of rare earths to global supply in 2013.  In 2010, rare earth elements demand hovered at around 136,100 tons.


Both ventures, however, are mostly producing light rare earths, leaving the West dependent on Chinese exports of heavier elements, notes James Hedrick, who was Washington’s foremost rare earths expert before he retired from the U.S. Geological Survey.


Hedrick says establishing a U.S.-based integrated rare earth industry that would not depend as much on expensive imports might require the creation of strong private-public partnerships.


Such partnerships exist in Asia and Europe and have helped producers navigate the significant drop in prices from the peaks of 2011. The Japan Oil, Gas and Metals National Corp. operates globally to secure raw material supplies and has allocated $2 billion to extract and refine critical metals.  The Korea Resources Corp. operates similarly, and Germany also has a government-backed industry effort, the Resource Alliance, that is actively investing abroad for rare earths and other critical metals.


But no such partnerships exist in the U.S., which frustrates people like Hedrick, who are advocating for greater involvement, particularly by the Defense Department. Estimates have said the Defense Department consumes 5 percent of all rare earths used in the U.S., according to the Congressional Research Service report. Hedrick insists the figure is closer to 20 percent.


The U.S. government is not expected to promote the sort of public–private partnerships established in Asia and Europe, but earlier this year the Energy Department did commit $120 million to set up the Critical Materials Institute. The organization will try to “develop solutions to the domestic shortages of rare earth metals and other materials critical for U.S. energy security,” the DOE said in a release announcing the launch of the new research center.


But that still leaves the mining side of the equation largely unaddressed – at least in the U.S.


At the Pentagon, the prospect of supply disruption has not gone unnoticed. In its 2011 Annual Industrial Capabilities Assessment to Congress, the DOD said, “it is essential that a stable non-Chinese source of REO (rare earth oxides) be established so that the U.S. RE (rare earths) supply chain is no longer solely dependent on China’s RE exports.”


The development of Molycorp’s Mountain Pass mine and Lynas’ projects are positive steps toward building a truly diverse and global rare earths supply chain.  Until this happens, though, when it comes to supplying these critical materials, Chinese companies will remain in the driver’s seat.