The Potential of Rare Earth Elements for Strategic Leverage

Author: Sean Wolfgang

 

What are Rare Earth Elements?

Rare Earth Elements (REE), also known as Rare Earth Minerals and Rare Earths, are a group of 17 elements composed of the chemical category known as lanthanides and the elements yttrium and scandium1. REE have several unique properties that make them valuable in a variety of civilian and military high-technology applications. Small amounts of REE enable the miniaturization of a number of high technology components, especially permanent magnets. On the civilian side, REE are integral to LCD screens, fiber-optic cables, rechargeable batteries, various appliances, and are increasingly becoming valuable for their use in ‘green’ technologies such as wind power generation and hybrid motor vehicles. Their military utility is enormous and includes applications ranging from aircraft engines and precision-guided munitions to communication and tracking satellites2.

REE oxides. Image: Wikimedia Commons3

Despite their name, lower concentration Rare Earth Elements are as common as more familiar metals such as nickel, chromium, copper, zinc, tin and others. And even the least common REE are nearly 200 times more common than gold. However, what makes them difficult to extract in large quantities is their diffusion rather than concentration in large, exploitable ore deposits4. With such a variety of uses to modern industry and technologies, REE have become increasingly valuable. But due to factors involved in their extraction and global market prices, the production of REE has greatly diminished in the US and become almost exclusive to China.

Trends in REE Production and Exports

Until about 1990, the US was nearly self-sufficient in the production of REE. But over time several factors have combined to make the US completely dependent upon imports of REE. Environmental regulations have been one source of the decline in US REE production. One ore source for REE, monazite, contains thorium; the radioactivity had made the processing of this element prohibitively expensive to mine in the US. But even in other ore types, the separation and refining of REE involve caustic chemicals that require expensive equipment and procedures to meet US environmental standards5. While the US once supplied a large percentage of world demand from the Mountain Pass Mine in California, the facility ceased operations in 2002.

China, in contrast, has made increased production a priority and, from the 1950s onwards, developed the scientific and academic foundation for further research into the refining and use of REE. Chinese production increased 40% between 1978 and 1989, and the production of finished REE magnets increased from 2,600 tons in 1996 to 39,000 tons in 20066. This increased production has driven down global prices, making investment by the US in REE production even less economically appealing. On the research side, “State-Key” laboratories in China have greatly advanced Chinese knowledge in the extraction and use of REE, while at the same time the US has only a few scientists who specialize in them7. While China does not contain the majority of world REE deposits, its focus on production has led it to supply 97% of the world demand for these elements8.

Chart: USGS Fact Sheet 087-02.

Strategic and Economic Leverage and Responses

In recent years, and in 2010 in particular, there has been growing concern by the US over its total dependence on REE from one country, a country that could possibly become a geopolitical rival. Given the expanding demand for these minerals and their importance to many advanced military technologies, there appears to be a growing desire to prevent China leveraging the monopoly on REE. Most reports and discussions about REE have originated in 2010, though the unfavorable trends in REE production were noted by reports such as USGS Fact Sheet 087-02 in 2002. Reports released in 2010 indicate US government interest in the issue; and future reports from various government agencies are forthcoming9. The issue also appears to be on the agenda of Congress and various US government departments.

As if to confirm the concerns, the political spat that began on 7 September 2010over a Chinese fishing boat captain held by Japan on charges of ramming a coast guard vessel near the disputed Senkaku/Diaouyu Islands demonstrated the first use of REE as leverage. In response to the captain being held by Japanese authorities for investigation, China exerted significant political and diplomatic pressure. Having to maintain its claim on the disputed islands and to appease domestic nationalist pressure, China responded by ceasing REE exports to Japan shortly before the captain was released. The unofficial export ban to Japan widened to include the US and Europe, before ending on 29 October 2010. While stopping exports to Japan most likely had political origins, the halting of shipments to the US and Europe appeared to reflect confusion over new export quotas10. Nevertheless, China’s use of its monopoly over REE for political leverage could accelerate plans by the US and others to develop alternate sources of REE or find effective substitutes. Indeed, the Department of Defense is already considering providing financial assistance to US REE projects11.

Both the 2010 GAO and CRS reports have estimated that it could take 10 to 15 years to develop alternate production and supply chains to meet US needs, but noted that dense (by REE standards) deposits of REE-rich ore do exist in the US, Canada, Brazil, Greenland, and other countries. To meet US needs, alternative sources would need to include the full chain of REE processing, from extraction to separation to purification of metals. Patents held by countries such as Japan, which refines raw REE from China and US stockpiles, would likely be useful in forming this alternate production system12. With China reducing exports by 72% this year13, beginning to worry about environmental impacts, and seeking to foster its domestic REE-dependent industries such as wind turbine and consumer electronics manufacturing14, the development of alternative sources will be a necessity as US and global demand grows. In the short term, China will have ‘softer’ economic leverage from its REE dominance, attracting companies to China, with easy access to REE as the incentive to relocate manufacturing15. Rising global demand would then cause higher prices and potentially delay or complicate US production involving REE elements.

Conclusion

Despite all the attention that REE have attracted, they do not necessarily constitute a major source of geopolitical leverage. Certainly China’s control of REE in the current market generates power in the business and economic realm. However this seems unlikely to persist in the long term given that REE are not as rare as petroleum or natural gas, which have been used for strategic leverage in the past. And since concern over overdependence on China for REE has been growing recently in the US, Japan, and other countries, investment in alternate sources seems likely.

There are also costs to China for using REE as leverage in the way that Russia has used natural gas. China’s neighbors are already nervous about its rise as a major regional and perhaps global power and have sought closer ties with the US as a hedge against this. Several disputed territorial claims in the region’s seas have been a cause of this concern, and banning REE exports to Japan in the most recent confrontation over one could lend credence to the concerns of China’s neighbors. Additionally, a targeted restriction of exports is in violation of WTO rules15, and that institution might be used to retaliate against export bans. In the short term the world’s dependency on Chinese REE is likely to produce economic leverage. But as global demand and US concern increases, government policy and the global market appear likely to facilitate the growth of alternate sources of REE.

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  1. Associated Press. China ends earth elements embargo. 2010 29-October.
  2. D’Altorio, Tony. Investing in Rare Earth Elements As China’s Exports Decline. 2010 12-October.
  3. Dillow, Clay. “China has Halted Rare-Earth Exports to Japan, Reports the Times.” Popular Science, 2010 23-September.
  4. GAO. Rare Earth Materials in the Defense Supply Chain. Congressional briefing, Government Accountability Office, 2010.
  5. Gordon Haxel, James Hedrick, and Greta Orris. Rare Earth Elements – Critical Resources for High Technology. USGS Fact Sheet 087-02, United States Geological Survey, 2002.
  6. Humphries, Marc. Rare Earth Elements: The Global Supply Chain. CRS Report for Congress, Congressional Research Service, 2010.
  7. Hurst, Cindy. “China’s Ace in the Hole: Rare Earth Elements.” Joint Forces Quarterly, 2010: 121-126.
  8. Levine, Steve. “Why is China hoarding its rare earths?” Foreign Policy, 2010 13-October.
  9. Ratnam, Gopal. U.S. Defense Department Sees No Rare-Earths Crisis; May Aid U.S. Producers. October 31, 2010.
  10. STRATFOR. China and the Future of Rare Earth Elements. 2010 13-October.
  11. U.S. Department of Interior, Geological Survey. Minerals Yearbook, Volume I, 2007, Rare Earths. U.S. Department of Interior, Geological Survey, 2007.
  12. Xinhua News Agency. Observer: China Not the Only Rare Earth Exporter. 2010 14-October.