China’s control of rare earth metals

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The price hikes and cutbacks in China’s shipments of rare earth metals are causing concern worldwide. The World’s Mary Kay Magistad reports that some analysts say China is playing a dangerous game. Download MP3

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LISA MULLINS: I’m Lisa Mullins and this is The World. They’re called “rare earth” elements. There are 17 of them. They’re metals essential for making everything from mobile phones to hard drives to guided missiles. 97% of rare earths now come from China. And that’s worked out fine, until recently. China has hiked the prices and reduced the exports of its rare earths. The results include a global re-think of whether it’s a good idea to rely on one country for almost all the world’s supply of these metals. The World’s Mary Kay Magistad has the story from Beijing.

MARY KAY MAGISTAD:  It’s been a year of a more muscular China, a China willing to talk tough, push back and get out its own point of view. Some observers say China’s suspension of rare earth shipments to Japan, and the reported slowdown of shipments to the United States, reflect this. But Ministry of Commerce spokesman Yao Jian has denied that China has fired a salvo in a trade war.

SPEAKING CHINESE

MAGISTAD: He said, “China isn’t blocking the export of rare earth. We’re carrying out mutually beneficial cooperation with Japan and other countries, to achieve a win-win situation through development.” The Chinese government says it has simply been increasing the price of rare earth metals to reflect the real environmental cost of extracting them, and limiting exports so China’s rare earths don’t run out. Gong Jiong is an associate professor at the University of International Business and Economics in Beijing.

GONG JIONG: For a long, long time, rare earth prices have been too low for two reasons. One is because of the very lax environmental regulation in China, as well as the workplace safety regulation, so that a lot of companies in China who have been doing this, who’ve been mining these materials, without much respect to compliance to a lot of standards, so the cost is artificially low in my opinion.

MAGISTAD: The complaints about China’s actions come in part because the changes are so abrupt. China is cutting exports of rare earths by 72% in the second half of this year. Its prices for rare earths have skyrocketed. Cerium oxide, for instance, which is used in polishing semiconductors, now costs seven times what it did earlier this year, and prices for other rare earths have more than doubled. Some of this could legitimately reflect China’s attempts to clean up its mining industry. But the timing is raising hackles. For instance, China cut off rare earth exports to Japan after Japan detained a Chinese fishing boat captain in what it said were its waters. The supply of rare earth is expected to become an issue at next month’s G20 meeting. Jim Bacchus is the former World Trade Organization appellate body chairman, and Florida congressman. He says China, in imposing export restrictions on rare earths, may be in violation of its own WTO agreement.  And in any case, he says, China is playing a dangerous game.

JIM BACCHUS: China, more than any country in the world right now, is hungry for resources from elsewhere, and is reaching out in the world to try to get resources from elsewhere. If China restricts the access of others to resources that they need from China, what in turn will be done to China?

MAGISTAD: For now, companies that had gotten out of the rare earths business, because they couldn’t compete with China’s prices, are now getting back in. After all, rare earths aren’t really that rare, they’re just rarely found in big enough deposits to make them profitable to mine. China has about 36% of proven global reserves. The US has 13%. One deposit, in California, was mined as recently as 2002. Now, the Colorado company that once worked there, Molycorp, plans to come back, and mine the nine most commercially significant rare earths. An Australian company called Lynas will be doing the same down under, and together they’re expected to be able to meet two-thirds of the world’s demand for rare earths within three years. That demand excludes China. So the pinch, for now, is probably temporary. But it has been a wake-up call, a prod to diversify, and a reminder of what a rising economic and political power can do, on its way up. For The World, I’m Mary Kay Magistad in Beijing.

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