Rare Earths vs. Common Sense

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There has been an interesting new move on the chessboard of world trade & politics.

Advanced economies have been hoping stay ahead by maintaining their lead in innovation & technology; by keeping the know-how and copyrights tightly guarded on one hand, and outsourcing their grunt-work to emerging economies, on the other. It is now turning out that some of the basic raw materials required for hi-tech - the rare earths - can be used as a potent bargaining tool in international trade.

'Rare Earths' is a strange term. They refer to 17 elements of the periodic table that are not actually 'rare'. Some of these elements are a lot more abundant than, say, lead or silver. But, as in the case of all metals, it takes a good deal of effort to excavate, mine and produce them, and what has been happening since 1990 is that China has been positioning itself as the dominant player in the Rare Earth Metals (REM) market.

In 1990 China ramped up its REM production & output from mines & foundries in Inner Mongolia (eg. Inner Mongolia Baotou Steel Rare-Earth (Group) Hi-Tech Co). Then, over the next twenty years it successfully flooded the world markets with REMs, running most of the other REM producers out of business (in USA, Australia). China now has 97% of the market-share and calls itself the "OPEC of rare earth metals."

The analogy with OPEC and oil is rather apt. Easy availability of REMs has been one reason for the recent spurt in manufacture of more 'eco-friendly' and commercially viable hybrid cars (each Toyota Prius uses 25 pounds of REMs), solar panels, fuel-cells etc., Just when the future of the so-called "green" technology looked promising, China announced that it was cutting down the production of REMs due to "environmental concerns".

Last month China cut its export quotas for rare earth by 72 percent for the second half of this year. Shipments will now be capped at 7,976 metric tons, down from 28,417 tons for the same period a year ago. The sharp decline of the export quota will cause a shortage of around 20,000 tons of rare earth for international users this year.

China is also considering banning the export of yttrium (used in color TV tubes and to halt corrosion in steel), terbium (used in lasers and semi-conductors), and dysprosium (used in high temperature magnets that are required for electric motors in vehicles). Now, as the prices shoot up and the hi-tech companies struggle to survive in a competitive market, China is effectively using REMs as a bargaining tool. The Chinese Ministry of Industry and Information Technology said last week that while China has used a "technology for market" strategy before—offering foreign companies low labor costs and access to its fast-growing market—"now we have the expression 'technology for resources.'

Where does India stand here?

Out of the total world production of 127,000 tonnes (2007), China produced 120,000 tonnes and India, at 2nd postion, produced 1700 tonnes (1.3%). We don't seem to have a significant presence in the manufacture of semiconductors or "green" high-tech goods.

It is also very unlikely that the government-run company Indian Rare Earths Ltd., would have anticipated this move in Chinese Checkers and positioned itself as a alternate source for REMs. The company website itself is outdated, and studded with self-congratulatory messages - "IREL is making profit since 1997-98 with its sales turnover reaching a peak exceeding Rs. 3600 million in 2006-07, with export component of above Rs. 1000 million (~US$ 21m)."

Looking back it does seem that we lacked  the common sense to anticipate and prepare for this opportunity. Perhaps this is what is called "Kupa-manduka Nyaya" in Sanskrit – the rationale of a frog-in-a-well...what a pity! :(

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Some REMs and their Uses

• Yttrium - used in color TV tubes and to halt corrosion in steel
• Terbium - used in lasers and semi-conductors
• Dysprosium - used in high temperature magnets that are required for electric motors in vehicles.
• Molybdenum - additive to create specialty steel products.
• Indium – required for products as LCD (liquid crystal display) televisions. Price hike - 8.5 times (2002-2009)
• Tungsten- which is used to make light-bulb filaments and increase the hardness and strength of steel, rose 4.7-fold during the same period.
• Neodymium -
• Europium -
• Cerium -
• Lanthanum -

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LINKS / REFERENCES

Rare Metal Mining - http://www.raremetalmining.com/?p=269

China, Japan Debate Restrictions on Rare Earth Exports -- August 30, 2010 People's Daily Online

China Defends Control of Rare Earth Exports as Move to Protect Environment Bloomberg News - Aug 29, 2010 http://www.bloomberg.com/news/2010-08-29/china-defends-control-of-rare-earth-exports-as-move-to-protect-environment.html

China to Globe: “No More Rare Earth” --- Bruce Krasting on 08/29/2010 http://www.zerohedge.com/article/china-globe-%E2%80%9Cno-more-rare-earth%E2%80%9D

China Dangles Rare-Earth Resources to Investors -- WSJ 16 Aug 2010

 http://online.wsj.com/article/SB20001424052748703321004575427050544485366.html

China Corners the Rare Earth Metals Market Anti-competitive Policies may Create Global Monopoly -- Shar Adams -- Epoch Times Aug 31, 2009 http://www.theepochtimes.com/n2/content/view/21812/

Japan goes prospecting for rare metals -- Hisane Masaki 21 Jun 2007 http://www.atimes.com/atimes/japan/if21dh01.html

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NEWS UPDATES

* Amid Tension, China Blocks Vital Exports to Japan (NYT 22 Sep 2010) - URL - http://www.nytimes.com/2010/09/23/business/global/23rare.html

* Fallout of the Trawler-Crisis on Chinese REM Exports to Japan (25 Sep 2010, Asahi Shimbun)
Prosecutors to release Chinese trawler captain URL - http://www.asahi.com/english/TKY201009240209.html 

...From November, Showa Denko KK will jack up prices fourfold for cerium abrasives used to polish substrates in liquid crystal display panels.

A prolonged ban would have also affected automobile and appliance manufacturers. An executive of a major trading company said Toyota Motor Corp. uses about half of the rare earth imports to Japan for hybrid vehicle motors.

Mitsubishi Motors Corp. plans to double production of the i-MiEV electric vehicle next year, while Nissan Motor Co. will begin selling its Leaf electric vehicle in December. One big fear concerning China's export ban was the supply of cerium, a metal used in LC flat screen TVs, sales of which have been leading Japan's economic recovery.

Tsutomu Toichi, senior managing director and chief executive researcher at the Institute of Energy Economics, Japan, said the fallout from the trawler incident underscores the dangers in depending on a single nation for rare resources. "The government should use this as an opportunity to consider creating a stockpiling structure," Toichi said. Some companies are trying to move away from the dependence on China for rare earth metals. Panasonic Corp. and Sharp Corp. are turning to other materials and developing new technologies.The trading companies Sojitz Corp. and Sumitomo Corp. have heightened efforts to mine rare earth metals in Vietnam and Kazakhstan.

* Japan seeks new options on rare earths (BBC 10 Nov. 2010)
http://www.bbc.co.uk/news/world-asia-pacific-11677802