Rare earth elements – the apple of China’s eye

Although energy resources are still the most important mineral assets, in recent years, very inconspicuous raw materials, i.e. rare earth metals, have grown to the rank of key resources, as they are necessary for the manufacture of smartphones, wind turbines and even missile guidance systems. China dominates the rare earth elements market; therefore, along with the growing tension on the US-China front, it is the Middle Kingdom that may have one of the major assets of the currently commencing trade war.

Rare earth elements

The name suggests that this is a group of raw materials rarely found in the earth’s crust. That’s not the case, though! Many elements classified as rare earth elements are much more common in nature than, for instance, lithium. However, they are currently only acquired from a few minerals, which is due to the low concentration in ores. The processing itself, which leads to acquiring pure metals, is harmful to the environment and requires high financial expenditure. Therefore, they are obtained from only a few deposits worldwide, and most of them are obtained as a by-product during the exploitation of other mineral resources.

These include the 15 lanthanides as well as scandium and yttrium. They are a unique group of elements due to their physicochemical properties, mainly magnetic and optical, which significantly affects performance and also allows product miniaturization. They have found widespread use in industry, especially in strategic sectors of the economy such as the arms industry, space industry, energy, automotive industry and electronics. Without REEs, we could not watch colour television today. Europium, yttrium and terbium compounds have luminescent parameters, which gives the television screens the colours red, blue and green.

Due to their low concentration in ore, these metals are exploited in only a couple of countries, which also have the largest reserves. The Middle Kingdom is in the lead, and Chinese reserves are estimated at 44 million tons. Furthermore, China has the largest deposit – Bayan Obo in the Inner Mongolia Province. Brazil and Vietnam come in second in terms of the largest reserves (22 million tons each). There are also large deposits located in Russia (12 million tons) and India (6.9 million tons).

In turn, Australia’s reserves, which has been dynamically increasing it’s REE output in recent years, are estimated at 3.4 million tons. Last year Burundi and Myanmar (Burma) also started exploiting their deposits, but there is no official data on reserves in these countries. Hence, many projects related to the recycling of these raw materials are carried out, which is primarily to improve the continuity of their supply. Moreover, the Japanese have located vast deposits at the ocean bottom, which may give hope for the future.

Middle Kingdom’s Monopoly

In March 1986, the People’s Republic of China adopted the State High-Tech Development Plan (Program 863), which was to stimulate socio-economic development, ensure national security, and increase the level of innovation and competitiveness of the Middle Kingdom. To this end, the focus was on modernizing the economy’s strategic sectors, digitization and developing new manufacture methods. Initially, Program 863 was to remain in force for 10 years, but in 2011 it was decided to resume it.

China began mining REEs in the 1980s, while also developing methods for acquiring the highest-purity metals that are highly desirable in the industry. As early as the mid-1990s, they became the largest manufacturer, ahead of the United States.

In the following years, the Middle Kingdom expanded its monopoly, using the production suspension in Australia (which stopped the production for economic reasons and only resumed it in 2011) and the United States.

It is worth mentioning that acquiring these raw materials involves many complicated processing treatments. Metal ores are transformed into concentrates, from which metal oxides are then obtained and only then are pure metals acquired from metal oxides. This not only requires specialist knowledge but also large financial expenditure. Furthermore, the production process has a very harmful impact on the environment. It was the environmental disaster (leakage of harmful substances) that lead to closing the Mountain Pass mine in California, the only US mining facility specializing in acquiring rare earth elements. This was, in fact, the end of an era, since the United States had been a world leader since the mid-1960s. They had maintained their leadership position for nearly 30 years, but in the 1990s, the powers on this market had been reshuffled.

The world heard about rare earth elements in 2010

Due to historical conditions, relations between the People’s Republic of China and Japan are not among the easiest. In recent years, we have repeatedly witnessed minor diplomatic conflicts between these countries. The case was similar in 2010, during the next stage of the territorial dispute over the Senkaku/Diàoyútái Islands. This archipelago has been under Japan’s jurisdiction since the late nineteenth century, with a break for 1945-1971, when it was managed by the Americans. However, the People’s Republic of China also has a claim on the island, because there are huge oil deposits located there and the waters around the archipelago are abundant in fish and seafood. In 2010, Chinese fishing boats violated Japan’s territorial waters, which, in response to this incident, arrested the boats’ captain.

Chinese retaliation was very severe for the economy of the Cherry Blossom Land. The Middle Kingdom decided to limit and then discontinue the export of REEs and other strategic mineral resources to Japan, and later also to the European Union and the United States (in 2010, China held 97% of REE production).

Apart from that, China used trade protectionism instruments (including high export duties), causing a dynamic increase in REE prices in 2010-2011. The prices of europium, which is widely used in the electronics and nuclear industries, rose to $3,300 per kilogram in 2011 (from only $100 in 2010). The Middle Kingdom’s actions had a significant impact on the competitiveness of the American, Japanese and EU economies. The dispute with the People’s Republic of China involved the major politicians, including Barack Obama.

The dispute was resolved in 2014 when the World Trade Organization (WTO) ordered the Middle Kingdom to remove trade barriers. China followed the WTO recommendations relatively quickly since they wanted to maintain their dominant position on the market. Furthermore, the People’s Republic of China policy regarding these raw materials had also changed, which resulted from the adoption of the 13th Rare Earth Element Industry Development Plan for 2016-2020. The Middle Kingdom increased its output limit from 105 thousand tons up to 140 thousand tons. The new policy also assumed strengthening international cooperation, promoting sustainable industrial development, and promoting smart manufacturing and green development.

History repeated

In the face of the trade war between the United States and the People’s Republic of China, concerns about ensuring the continuity of REE supplies seem reasonable. Although in 2011 the American company Molycorp Inc. resumed operations at the Mountain Pass mine, the company went bankrupt 5 years later.

In 2017, the California-based mine came under Chinese ownership, and the mining operation was resumed last year. However, the American industry depends completely on imports from the Middle Kingdom. In the 2014-2017, China supplied 80% of the US demand.

Suspending the supply of these raw materials would be a real threat to the US economy and national security. Without REEs, it is impossible to manufacture smartphones, computers, military equipment, and finally, electric and hybrid cars.

Another disadvantage to the United States is that foreign operators cannot carry out mining operations in the Middle Kingdom. Additionally, in recent years there has been a strong market consolidation in China (only 6 conglomerates can produce REEs). These activities were aimed at closing unprofitable mines, as well as reducing illegal mining and smuggling.

An important aspect of this is the changing consumption structure of REEs and the growing internal demand of the Middle Kingdom for these raw materials. Even in the 1990s, The consumption structure of these elements was dominated by phosphors, polishing and ceramics. However, in recent years we have seen a clear increase in the Chinese economy’s innovation and competitiveness. Thanks to this, the consumption structure has also changed, now dominated by catalysts, magnets or alloys with other metals.

Should China suspend deliveries, American companies could acquire these elements from Japan, the European Union or Australia. However, then there is a very real threat of restricting exports to Japan and the European Union and a replay of the 2010 situation. Furthermore, suspending deliveries would harm the competitiveness of the US economy and could involve relocating manufacture from the USA to the Middle Kingdom.

By deciding to suspend the export of REEs to the United States, China would weaken its market position, but Australia, the United States, Russia and India are not able to cover the growing demand for these raw materials. The Middle Kingdom’s share in manufacture is too high; moreover, these countries do not have such technological and research facilities in acquiring and processing as China.

Referring to Deng Xiaoping’s words from 1992, who said: „The Middle East has oil, we have rare earth elements”, it can be said that the Middle Kingdom has a hold on the United States, and it is only up to the Beijing authorities whether or not they will use this edge.

Polish version is available here.