China for months has blocked shipments of rare earth metals intended for Japan in retaliation for a regional dispute. Now, China appears to have expanded its rare earth embargo to include Western countries – a move that has U.S. and European authorities scrambling to formulate a backup plan.
Rare earth metals are essential to the production of high-tech devices like computers, display screens, smart bombs, and hybrid-car batteries. And despite their name, rare earth metals aren't particularly rare. However, they are difficult to produce and many rare earth production companies have moved their operations to China to capitalize on cheaper extraction costs and the nation's commitment to growing its alternative energy sector.
China, which has one-third of the world's rare earth deposits, accounted for 97% of global production last year. Of course, the near-total monopoly China wields over the sector wasn't a major concern until just a few months ago when the country cut its production and export quotas.
China cut export quotas for rare earth elements by 72% for the second half of this year, capping foreign shipments at 7,976 metric tons, down from 28,417 tons for the same period in 2009.
The stiff reduction in rare earth exports was highlighted by a territorial fracas with Japan. Japanese authorities had detained the captain of a Chinese fishing boat that collided with a coast guard vessel in disputed waters. China retaliated by withholding shipments of rare earth metals destined for Japan.
Japan released the captain, but the Chinese rare earth embargo remains in place. This development has alarmed Japan, which accounts for 65% of China's rare earth exports. But what's more alarming is that the rare earth embargo appears to have been extended to the United States and Europe.
A number of industry officials in the United States and Europe told the New York Times that restrictions on China's rare mineral exports to the West went into effect on Oct. 18.
"The embargo is expanding," said one of the officials. All of The Times' sources insisted on anonymity for fear of business retaliation by Chinese authorities.
Still, it's unclear why.
"Materials are still being held up in customs and shipments are delayed," Jeff Green, president of J.A. Green & Company LLC in Washington, who represents miners and users of the elements, told Bloomberg News. "Many believe rare-earth quotas for the second half of 2010 are exhausted, leaving materials unavailable for sale."
Other industry chiefs said that China is trying to leverage its rare earth monopoly to persuade multinational companies to move their production facilities to the Mainland.
"Rare earth exports from China could fall even further, even by 30% next year," Ulrich Grillo, the chief executive of chemicals company Grillo-Werke, told The Times. "So what the Chinese are telling us, directly or indirectly, is that if we want access to their rare earth material metals we should invest in China."
However, Grillo said Western technology companies are reluctant to move production to China because they're afraid of losing their intellectual property rights.
"China needs our know-how and machines, but we need protection for our technology," he said. "We don't want these problems to turn into China bashing."
Like the situation with Japan, China's move to extinguish rare earth exports to the West coincided with a political dispute. U.S. trade officials on Oct. 15 said they would investigate whether or not China is violating World Trade Organization (WTO) rules by subsidizing its clean energy exports while limiting its imports. The probe also will determine whether or not reductions in China's rare metal export quotas and taxes qualify as illegal attempts to coerce Western technology companies into investing in China.
China invested $34.5 billion in clean energy technologies last year, according to Bloomberg New Energy Finance. The United States spent $18.6 billion.
White House spokesman Robert Gibbs responded to reports that China has clamped down on exports on Tuesday.
"We're monitoring to see whether or not what is happening on the ground is reflected in those reports," he said.
"I think we are likely to see [Chinese] President Hu [Jintao] on the trip at the G20," Gibbs added, referring to the Group of 20 meeting scheduled to take place next month in Seoul, South Korea. "If it is something that the security and economic teams think is important… certainly, we wouldn't hesitate to bring it up."
Congress is considering legislation that would provide loan guarantees for the re-establishment of rare earth mining and manufacturing in the United States, The Times reported.
Policymakers in Europe are equally dismayed by reports that China is restricting exports of rare earth metals to maximize profits boost its domestic tech companies.
"[It] hints that China is developing an industrial policy aiming at transferring as much as possible production to China," European Union trade commissioner Karel De Gucht told a high-level conference in Brussels on Tuesday. "It's obvious that we cannot continue being completely dependent on China."
An American executive at the conference said the United States and Europe should work closely together to develop their own resources.
"It is up to us to solve the problem," said Gary Litman, the U.S. Chamber of Commerce's vice president for Europe. "The U.S. has the resources and together with our EU partners we can produce anything we want."
Still, it would take years to bring rare earth metal production online in the United States.
U.S. Representative Mike Coffman, R-CO, told Bloomberg that U.S. rare-earth mining isn't likely to resume until at least late 2012 at a mine in Mountain Pass, California.
"It's pretty frightening that there may be a gap where U.S. industry pays an extraordinary price," he said. "The administration needs to join with other countries and have a unified front to tell China this is not appropriate."
Like the United States, European authorities hope to address China's rare metal export ban at next month's G20 meeting. The German government has asked France, which will preside over that meeting, to put raw materials at the top of its agenda.
China denies that any embargos are in place, and that it is merely attempting to protect its environment.
"China will continue to supply rare earth to the world," the Commerce Ministry said last week. However, "to protect exhaustible resources and ensure sustainable development, China will continue to implement restrictions on the mining, production and export of rare earth."
News and Related Story Links:
- Money Morning:
Japanese Economy Threatened by China Rare Earth Metals Ban - Money Morning:
China Using Government Muscle to Turbo Charge its Auto Industry - NY Times:
China Said to Widen Its Embargo of Minerals
- NY Times:
U.S. and Europe Urged to Join Forces on Rare Earth Metals
- Bloomberg:
Rare-Earth Prices Soar as China Quotas Hit Manufacturers Abroad
Now is the chance to bring some much needed jobs back to the United States from overseas. We (the United States) should have seen these tactics coming. That's what happens when there is only one place to get anything. Monoply is not good for anyone except the one that is in the drivers seat.
CHINA HAS SHOWN ITS WISDOM CELLS WORKING SO THE REST OF WORLD MUST LEARN
FROM CHINES EXAMPLE
COUNTRIES IN AFRICA ASIA US CANADA SOUTH AMERICA AUSTRALIA AND SMALLER STATES IN CENTRAL ASIA HAVE BEEN DIGGING DEEP DEEP YEAR AFTER YEAR AND PLUNDERING THE PRECIOUS EARTH RESOURCES, MINERALS, METAL ORES LIKE CRAZY HUNGRY GRUMMPY LOTS WITHOUT ANY THOUGH THAT EARTH AND ITS SYSTEM IS NOT A LAWLESS TRACK ! IT TAKES THOUSANDS OF YEARS OF MYSTERIOUS HIDDEN PROCESS DEEP IN THE CORE OF MOTHER EARTH TO PRODUCE A FEW TON OF MINERALS, PRECIOUS MWETAL ORES WHICH COULD BE USED BY OUR FUTURE PROGENY BUT DURING PAST FEW DECADES HUMAN GREED DRIVEN WRONG POLICIES OF CERTAIN COUNTRIES HAVE BEEN SHOWING TOTAL DISREGARD AND ZERO WISDOM. HUMAN GREED WANTS TO SUCK IT ALL DEOUR EVERYTHING GLUTTONLY WITH NO REGARD TO LEAVE ANYTHING FOR OUR FUTURE GENRATIONS .
IT IS TIME NOW TO PUT A RESTRICTIVE CAP AND FIX A LICENCED QUOTA ON HOW MUCH A NATION CAN EXPLOIT EVERY YEAR FROM THE CORE OF EARTH.
CHINA SETS AN EXAMPLE TO FRAME GLOBAL LAWS MANDATORY FOR ALL NATIONS !
ASHOK SHARMA
NERW DELHI INDIA
Idiot
Just put an embargo on WALMART importing from CHINA and you won't have place to store rare-earths.
Its pretty scary if u ask me china is useing it so we be force buy from them sound like they want to control the market anyway want say love getting your emails everyday watching the silver gold market real close. My wife and i no longer trust the dollar so we are investing in gold and silver
Ashkok:
Who is going to issue the licenses? Who will enfoce them? China? Your favoriet dictator?
anish:
Who is going to "put an embargo" on Walmart? Your favoriet dictator?
Both of you demonstrate why you come from third world countries with top-down bureaucracies to run your small unfulilled lives.
The omnipotent U.S.A., banners flying Soldiers marching, Jets flying . . . has been brought to a new Chinese reality! America has little to offer the rest of the world in exchange for its demands! Time for the U.S.A. to cut back, take its paper fiat money schemes and go home! The loss in Viet-Nam was a harbinger of these times! All the nuclear bluster, planes flying and drums pounding does not influence money markets where the U.S. fiat paper scheme has become apparent fraud to all other nations. Only the Saudis depend on this deception to aid them in their collection of gold metal! Oil is running out as fast as it is pumped, and the doomsday figures for its demise still stand strong. America needs Solar, Wave, Wind, Hydro, Tidal, Geothermal and Nuclear energy development and fast! America has its head stuck up big oil's ass! Hyper-inflation with oil leading the way is strongly darkening the horizon for Americans. Sign of the times: more Americans surviving off-grid for securities sake than ever before – whole clans of them, armed and hidden! Communications with the web have dwindled for anonymity sake – they don't want to be found by GPS when the tide comes in, disaster strikes and the Chinese Yuan takes the place of the falling dollar on world markets. The Muslim factor complicates the issue even further! Obama was our great hope and he is now revealed to be just a man, not a God! What now America!
Greetings Uncle B….. Freightfull but some what factual scenerio….Do not count America out just yet…Yes! The storm clouds have gathered and I might say…just as they have done before…..What you do not know is that the giant has been awaken and if the American people bow their heads and bend their knees before the God of creation they will survive and prosper once again,however,if they don't and they stay the course then your assessment will be correct….In the final analysis you also will be a loser for there will be nothing but chaos and mayhem….Is that what you want???