Blogs & Comment

Rare-earth hysteria?

China has a monopoly in rare-earth elements so when it slashed exports to the West in July, prices for the metals soared (as did rare-earth stocks).
Does this mean high prices and shortages for goods using rare earths, which include iPods, BlackBerrys, laptops, LED screens, windmills, hybrid cars, smart bombs and guided missiles? There isnt too much to be worried about on this front, according to experts such as Technology Metals Research cofounder Jack Lifton.
First, deposits of the light version of rare earths are relatively plentiful around the world. Indeed, a supply glut is expected to emerge once the Molycorp Inc. ( MCP) mine at Mountain Pass in California returns to production in 2011 (especially considering MCP claims to have new processes that lower its costs of production to Chinese levels).
Second, although deposits of the heavy rare earths (especially neodymium and dysprosium) are relatively scarce, the impact of Chinas restrictions should still be minimal.
Many of the products usingrare earths contain only tiny quantities, so there will be little increase in production costs. Something like a laptop computer probably only has got about 50 to 80 cents worth of rare earth in it, says Dudley Kingsnorth, a rare-earth metals expert at Industrial Minerals Co. of Australia.
Even in cases where the content is relatively high, there shouldnt be big price increases. Most high-tech companies have outsourced production to China and can buy rare earthsat low prices there. And since rare earths used in exported Chinese goods are not subject to quotas, the companies costs are not affected.
As for national security concerns, Lifton says the U.S. military doesnt require rare earths in large quantities. And there are stockpiles that should provide a buffer pending a ramp up in Western production.
North America can become self sufficient in heavy rare earths by bringing the Alaskan property of Ucore Rare Metals ( UURAF) into production. This has been estimated to take several years but the time could be reduced depending on urgency and financial support from the U.S. government.
Legislation before the U.S. Congress, if passed, will authorize loan guarantees, and financial assistance for research and development. When production comes on stream from Molycorp, Ucore and others, as suggested in On the precipice, this could have the benefit of encouraging manufacturing operations to locate in the West for the refining of rare earths as well as themaking of consumer, green and military products.
Could China respond byflooding the market with cheap supplies to put Western miners and refiners out of business, like it did several years ago? Such a tactic is unlikely if, as Chinese authorities say, they are currently restricting supply for environmental reasons/domestic requirements. In any event, the U.S. government could protect rare-earth operations through tariffs and other measures.