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How Rare Earths Can Influence Trade Wars.

The rare earth metals are inarguably different from the other elements. They occupy their own special section in the periodic table. They have names that sound more like medical conditions than chemical elements-dysprosium, neodymium, and praseodymium, for example. Trace amounts of 10 of the 17 rare earths play critical roles in many of the devices essential to our lives today, among them computer hard drives, smartphones, and hybrid cars; infrastructure technology, including wind energy turbines and MRI machines; and national security paraphernalia such as naval radars and guided missiles. And they could become key factors in a trade war between the United States and China.

The reason: China has more than 40 percent of the world's reserves of the rare earths and currently produces more than 80 percent of the global supply. In contrast, the United States has about 13 percent of global reserves but produces none. Meanwhile, as a result of the continuing boom in technology, US imports of rare earths increased by 27 percent between 2016 and 2017, according to the United States Geological Survey. "My concern, among many concerns, is if China ultimately responds to tariffs by restricting our supply of rare earths, or any number of other minerals, the US could be in serious trouble," Alaska Senator Lisa Minkowski said during a meeting of the Senate's Energy and Natural Resources Committee in July. Ravi Ramamurti, professor of international business and strategy at Northeastern University, agrees. "This is a leverage point for China," he says. "President Trump says he holds all the cards, but China's monopoly on the rare earths is one of the aces."

Almost all the rare earths have applications in high-technology devices: Cerium is a chemical oxidizing agent used in glass and ceramics and as a cracking catalyst in oil refineries. Neodymium forms the basis of lasers and motors in electric cars. Promethium finds applications in nuclear batteries. Samarium is a component of lasers, neutron capture devices, and control rods in nuclear reactors. Terbium appears in naval sonar systems. Thulium is present in portable X-ray machines. And ytterbium has uses ranging from earthquake monitoring to nuclear medicine.

Despite their collective name, the rare earths aren't all that rare in terms of availability in the earth's crust. Cerium, for example, is about as abundant as copper. The rarity stems from the difficulty of separating the elements from the ores in which they exist and purifying them. Part of the problem is the elements occur in relatively small concentrations. "The goal is not so much to remove rare earths from the mix as to remove everything else," explains David Abraham, head of the Technology, Rare and Electronics Materials Center, a research and investment company.

Just as important, rare earths tend to occur together. The similarities in their chemical and physical properties add to the difficulties of purifying individual elements and their oxides. The typical extraction method involves extremely toxic acids and high temperatures and releases radioactive wastes into the air and water. The world's largest production facility, in Baotou, China, creates about 2,000 tons of toxic waste for every ton of rare earths it yields. "You can reduce the environmental impact of processing rare earths, but you have to spend a lot more money," says engineering professor Vincent Harris of Northeastern University.

Cost of extraction is one reason China has reached its prominent global position in supplies of rare earths. The United States dominated world production until the mid-1980s, largely as a result of a mine called Mountain Pass, on the edge of the Mojave Desert. But Mountain Pass closed in 2002 after a series of spills released 600,000 gallons of radioactive fluid into the desert over a period of 14 years. Meanwhile, China had embarked on a campaign to use its vast supply of rare earth resources to monopolize the market. The Mountain Pass mine was eventually resuscitated under new ownership. In 2015, when it was the only American mine producing the minerals, it produced 4,100 tons of rare earths (compared with Chinese production of 105,000 tons the same year). It was later closed again for financial reasons.

For the present, then, China effectively has a monopoly in strategic materials that it can potentially use to its advantage in any trade dispute. In fact, it has already tested its ability to do so. The country started imposing export quotas on rare earths in 2006. Four years later, it reduced the quotas by 40 percent, causing prices to rise spectacularly. Its argument for the action: the need for conservation and mine workers' safety. The Chinese government then took the policy a stage further. Following a fishing dispute near islands claimed by both China and Japan, China cut off all exports of rare earths to Japanese companies for two months.

Western companies responded to the threat by ramping up alternative production facilities, an approach made possible by the high prices the Chinese actions had created (RTM reported on this development in the May 2011 installment of Perspectives). Five years later, however, the World Trade Organization ruled the Chinese restrictions illegal, a decision confirmed on appeal. China then dropped the quotas and the prices of its rare earths, making the costs of fresh production facilities outside the Middle Kingdom hardly sustainable.

Molycorp Minerals, the new owner of California's Mountain Pass mine, filed for bankruptcy and closed the mine in 2015. Last year MP Mine Operations, a company with a Chinese firm as a minority shareholder, bought the mine at auction. That purchase meant that China's actions--including both the export quotas and the lifting of the quotas--and the global response to those decisions had made the country the sole player in the rare earths market.

Not surprisingly, efforts are under way in a few countries to identify and develop recoverable sources of rare earths that can compete with the Chinese products on a permanent basis. The most promising is a binational project run by Australian company Lynas Corporation. The company mines the rare earths from a rich deposit in Mount Weld, Western Australia, and sends them to a plant in Kuantan, Malaysia, for processing. The operation produced about 10,000 tons of rare earths in 2015. It also avoided the fate of other competitors with China by cutting costs to survive the fall in revenue caused by the reduction in prices for rare earths. Indeed, the company now reports that it is profitable.

Other countries are developing small-scale production facilities. Russian technologists are working on methods of recovering rare earths from uranium ores, with the goal of producing enough to meet Russia's needs. A large refinery in Laos with potential annual production of 3,000 tons of rare earths awaits an operating permit. Mines in Brazil, Burundi, and Tanzania could start production in the late 2020s. Canadian company Ucore Rare Metals, Inc., has explored regions of Alaska that contain varying amounts of rare earths. And early this year, a Japanese team discovered a source of perhaps 16 million tons of the elements in the seabed off the coast of Japan's Minamitori Island. The team suggested in Nature Scientific Reports that a hydrocycle system based on centrifugal forces could possibly separate a lot of non-rare earth substances from the sea mud, thereby enhancing the ability to mine the precious rare earths. However, that technology remains unproven.

Developing non-Chinese sources of rare earths is not the only approach to negating China's potential to use its market dominance in a trade war. Other possibilities include stockpiling rare earths, recycling them, and finding less strategically fraught substitutes for them. All present technical difficulties. But developing them may be essential given China's powerful grip on the materials. As Northeastern University's Ramamurti points out, "Reducing our dependence on China does not involve a single product or resource, so you can't simply buy it somewhere else."

Peter Gwynne, Contributing Editor

Boston, Massachusetts

DOI: 10.1080/08956308.2018.1516608

Caption: Chinese inspectors walk past piles of rare earths on a quay at the Port of Lianyungang in Lianyungang City, in east China's Jiangsu province, May 22, 2016. China has nearly complete control of the global rare earths industry, prompting concerns that it could use that control in a trade war. Rare earths are essential elements in the components that make up many high-tech products, from smartphones to solar cells. (Imaginechina via AP Images)
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Title Annotation:News and Analysis of the Global Innovation Scene
Comment:How Rare Earths Can Influence Trade Wars.(News and Analysis of the Global Innovation Scene)
Author:Gwynne, Peter
Publication:Research-Technology Management
Geographic Code:9CHIN
Date:Nov 1, 2018
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