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China and Rare Earth Diplomacy…

I ran across this item in a Jane’s Newsletter this morning:

US, Japan agree to diversify rare earth minerals. US Secretary of State Hillary Clinton and Japanese Foreign Minister Seiji Maehara agreed on 28 October that diversifying sources of rare earth minerals was a priority in the wake of China’s freeze on exports to Japan. These minerals are indispensible to modern defence systems and see commercial use in mobile phones, wind turbines, televisions and hybrid electric drives

Rare earth elements, with names like Yttrium, Scandium, Lanthanum and Praeseodymium, are critical to a modern industrial society. They appear in lasers, high tech alloys, superconductors, and much else. China is applying Mercantilist practices to corner a larger share of the global market in high end electronics. They are the largest producer of the strategic REE’s and see this as an advantage in a geopolitical sense as well.

It will not work however. They may well be the current largest producer, but these elements exist all over the world. In the short term they will gain an advantage. Over the medium to longer term they will accomplish the same thing ITAR regulations accomplished for the United States. They will create a thriving industry elsewhere and it will eventually ‘eat their lunch’.

To paraphrase an old saw: “You can’t fool Mother Market.”

9 comments to China and Rare Earth Diplomacy…

  • Sigivald

    I recall reading about this a year or two ago.

    Even without mercantilist policies, the Chinese just undercut other producers, partially or mostly because of environmental policy in the first world.

    In the US or Canada it’s really expensive to do mining, typically. In China it’s a lot cheaper, simply because externalities aren’t priced in remotely the same way.

    (While I think the US has gone farther than it should in pricing them via regulation, my feeling is that China ought to go farther; the “proper” externality pricing for mining seems likely to be between then, probably closer to the US’s level than to China’s.)

  • As I’m almost certainly the only person any of you have ever heard of who makes their living with the rare earths (I handle the bulk of the scandium market, even importing it into China at times) might I just point out that Dale is absolutely correct here.

    There are scores of junior miners (as ever in that world, most scams or absurd hopes) and at least three major mines on the verge of re- /opening. Mountain Pass, Mount Lynas and, I think it’s Arafura. The three of them together will produce, by 2013/4, around 50% of current world consumption.

    Yes, there are other parts of the supply chain that need to be rebuilt as well (anyone know of anyone with an AIM shell hanging about?) like updating the separation process but all of this is achievable and not, actually, all that difficult.

    What I think is really interesting though is that the technology China is using is so old that a new generation of production technology could well undercut China on production costs.

  • I was just going to call for The Worstall, and lo! he appears already…

  • John B

    Interesting that the Chinese technology is becoming obsolete and they could possibly be undercut.
    The market (reality) finding its own level.
    The simple elegance of market forces.

  • Condor

    Chinese mining companies are already pillaging the globe for all the raw materials they need. Since when did this become news?
    Addendum: If a potential trade skirmish materializes, then it may not be as bad as thought. Scientists are working on alloys made of more common metals that can mimic the desired properties found in the rare-earth metals. Just as sanctions against Swiss banking opened the market to a slew of offshore money firms.

  • Condor

    ^”Markets in Everything” to borrow a phrase.

  • Paul Marks

    I am sure that Dale and Tim are correct on the technical matters.

    The Chinese can not, via the market, gain a lasting monopoly of Rare Earths.

    However, they may be able to do so by various national governments preventing development in their own countries and by INTERNATIONAL control (which will really be Chinese and other control) of prodcution via various regulations, “authorities” and so on.

    “But the United States would veto all this”.

    The President of the United States of America is Barack Obama – a sworn and dedicated ENEMY of the United States who will do all he can to harm the United States (and the West in general).

    I (and many others) keep making this point – but I am still not certain that some practical business people have really grasped it.

    “It would not be in Barack’s interest to do X, Y, Z, on the national and international stage – because this would harm America and his own chances of reelection”.

    He does not really CARE about his own reelection (his brutal Chicago Way pragamatism is, in part, an act – he will use Chicago tactics to win elections but NOT at the expense of not pushing his fundemental core beliefs, and he does have them) – in his own way Barack Obama is just as much a person of principle as anyone here. It is just that his principles are the opposite (the mirror image) of ours.

    I repeat, Barack Obama will do anything he thinks he can (especially internationally) to harm the West in general and the United States in particular.

    Look for vague sounding treaties to be put before the Senate (hopeing Republican Senators are asleep – which they normally are) and also look for ways the Administration can (by Executive Orders, court judgement, and other such) bypass the Senate.

  • Taylor

    The two things you need to know about ‘rare earths':
    1. They’re not earths
    2. They’re not rare.

  • “Scientists are working on alloys made of more common metals that can mimic the desired properties found in the rare-earth metals.”

    Not all that sure why anyone would. We’ve been able to do this for many decades. Those permanent magnets that everyone gets so het up about for windmills, hard drives and iPods for example. We can make them out of AlNiCo, no problem. In fact we did before we started using the rare earths.

    But the reason we didn’t have Walkmen and iPods before we started using rare earth magnets was because those cute little earbuds would have to be the size of coke cans.

    Oh, and the other thing is that rare earths are more common than cobalt of course.