Rarer Rare Earths

The Global Business section of the New York Times had an article yesterday about an announcement, by China’s commerce ministry, of a significant reduction in export quotas for rare earths, beginning in the first half of 2011.

The reduction in quotas for the early months of 2011 — a 35 percent drop in tonnage from the first half of this year — is the latest in a series of measures by Beijing that has gradually curtailed much of the world’s supply of rare earths.

The rare earths are the elements that lie in the periodic table from Lanthanum [La], atomic number 57, to Lutetium [Lu], atomic number 71, plus Scandium [Sc] and Yttrium [Y].  They are used in a wide range of technological products.  Depending on which element we select, China currently mines 95-99 % of the world’s supply.  The announcement has heightened concerns about the long-term supply of these elements, a concern also stimulated by China’s temporary threat to stop rare earth exports to Japan in September, over a relatively trivial maritime dispute.

Despite what their name suggests, the rare earth elements are not particularly rare in the Earth’s crust. The problem is that they are usually widely dispersed, and mineral deposits with enough concentration for effective and economic mining are rare.  Up until the 1980s, most of the world’s supply came from the United States and South Africa, with lesser amounts coming from Brazil and India.  The shift to China as the primary supplier was motivated primarily by low prices.  China’s production costs are lower, in part, because the rare earths are mined together with iron; but they are also probably due, in part, to lax-to-nonexistent Chinese environmental standards — rare earth production is a dirty business.

Although China is now saying that its quota reductions are motivated by environmental concern, that represents a relatively recent change.

Until a few months ago, Chinese officials said that their rare earth policies were aimed at forcing foreign industries to move high-tech factories to China so as to have access to Chinese rare earths. But as trade frictions have increased, they have given greater emphasis to environmental concerns.

This is probably related to the prohibition of export quotas and tariffs by the World Trade Organization [WTO], except on the grounds of environmental protection or national security.

Because of the uncertainty about Chinese supplies, there are moves underway to restart production at mines in the US, Canada, Australia, and South Africa, which were closed because of the Chinese dominance of the industry.  Technology Review reports that a mine in Mountain Pass, California, once the world’s leading producer of rare earths, is to be re-opened by Molycorp Minerals in 2011.

By 2012, the revamped U.S. mine is expected to produce around 20,000 tons of rare earth materials per year. Molycorp plans to use new processing techniques that it claims are more environmentally friendly and less expensive than conventional methods.

Although there have been various alarmist news articles about a strategic shortage of rare earths, it seems likely that the main risk is a short-to-medium term run-up in prices, until alternative sources are fully operational.  But the situation does point up the risk of relying on a single supplier for critical materials, especially when that supplier may be pursuing an agenda not entirely based on economics.  No one with sense is suggesting that we should adopt some sort of Soviet-style industrial policy; but completely ignoring the long-term risks to supplies of essential raw materials is not very sensible, either.