Tag Archives: trade war

What on Earth are ‘Rare Earths’?

Right! Hands up all those who have heard of rare earths?

I thought so – well, just for our single clever clogs at the back, name them?

You can’t?  That proves my point.

Well, we’d all now better pay attention, because rare earths are very important and are will become more so in the future; even though most of us have never even heard of them. In fact, they are going to become just one more commodity over which nations can, and probably will, come into conflict. Rare earths are a modern showstopper.

First, what are rare earths? There are 17 ‘rare earth’ minerals. They are actually fairly abundant in certain areas, but difficult to mine. Their importance stems from their uses in some vital products on which the modern world depends, including: mobile phones; fibre-optic cables; lasers; nuclear reactors; and X-ray machines.

Understandably, most people have never even heard of these obscure elements. However, a list of these rare minerals and their uses shows their importance in our modern technologically advanced and digital world. For example:

  • Scandium Found in aerospace alloys and cars’ headlamps
  • Yttrium Used in energy-efficient lightbulbs, spark plugs and cancer treatments
  • Lanthanum Found in camera lenses, battery electrodes, and catalysts used in oil refineries
  • Cerium Used in self-cleaning ovens and industrial polishers
  • Praseodymium Used in lasers
  • Neodymium Used in electric motors for electric cars, hi-tech capacitors
  • Promethium Found in luminous paint
  • Samarium Used in the control rods of nuclear reactors, lasers and atomic clocks
  • Europium Used in fluorescent lamps, MRI scanners
  • Gadolinium Found in computer chips, steel, X-ray machines
  • Terbium Used in sonar systems on navy vessels, fuel cells on hi-tech cars
  • Dysprosium Used in hard disk drives and lasers
  • Holmium Used in mass spectrometers by hospitals and forensic scientists
  • Erbium Used as catalysts for the chemicals industry and in electrical grid batteries.
  • Thulium Found in portable X-ray machines and lasers
  • Ytterbium Used in stainless steel, thyroid cancer treatment and earthquake monitoring
  • Lutetium Used in LED lightbulbs, oil refining and medical PET scans

It is clear that access to these rare elements – which most normal people have never heard of – is vital to any modern advanced economy. To take just two examples, we would all notice if MRI scanners gradually disappeared or if computer memory chips suddenly became unavailable.  So where is the problem?

There are two: first rare earths are so-called because they are not abundant; second, ominously, the People’s Republic of China (PRC) controls the world’s supply. In a world driven by global supply and demand, the economic power and control of much needed rare earths are obvious.

These rare metals, which are excellent conductors of electricity, also come with a serious health warning. They are dangerous. To extract the usable material from their ore is a very dirty business, needing acid baths and even nuclear radiation. Many are extracted from radioactive ores that contain uranium and thorium. The toxic waste from this process is harmful and there is a danger of it leaking out into the surrounding environment after processing which risks polluting water supplies.

So, just as with plastic, the West has ducked responsibility, outsourcing the environmental challenges of rare earths by dumping the problem out in the dusty deserts and cheap mass labour of far-distant China. By doing so it has allowed Beijing to corner the global market. There’s a price; China holds 37 per cent of the world’s rare-earth deposits and it controls the rest. Even when rare earths are mined in the US – or in other nations, such as Estonia – the extracted material is sent to China for processing. It’s cheaper, easier and, most important, it avoids the environmental lobby’s inevitable shrieks of outrage.

The result is that Western scientific and technical efforts have failed to develop new, cost-effective rare earth substitutes. Many universities no longer offer courses and advanced degrees in ‘materials science’, ‘metallurgy’, or ‘mining engineering’. China has cornered the market. Rare earths are now an ace in Beijing’s hand. ‘The geopolitical and economic importance of rare-earth minerals is vastly inflated by China’s overwhelming near-monopoly on the mining of these elements,’ says Ole Hansen, the head of commodities at Saxo Bank (Saxo Markets, 23 May 2019). China churns out 260,000 tons of rare earths – that’s 95 per cent of global output.

The Chinese are well aware of the importance of these commodities. In May 2019, Chinese leader Xi Jinping made a dramatic and highly symbolic gesture. He visited one of China’s most important rare-earth metals mining and processing plants, in Ganzhou, along with Liu He, his US  chief negotiator in the trade talks.

Even more significantly, he combined the visit with a stop at the monument in Yudu that marks the start of Mao’s ‘Long March’ during the Chinese civil war during the 1930s. The Long March, when the communist armies undertook a 6000-mile trek to the mountains of the north during the civil war, was a key event in communist China’s history. Xi was signalling a symbolic warning to America and the West that in any trade war, China is ready for a long, painful economic conflict.

The global effects of the visit to the Ganzhou plant were swift. Rare-earth equities leapt in value. America’s Blue Line Corporation of Texas rushed to sign a deal with Australia’s Lynas Corporation, one of the few rare-earths processors outside China. ‘I would expect US importers to develop local, domestic processing facilities over time and also to buy from non-China sources,’ said a spokesman.

Beijing is now openly ‘seriously considering’ restrictions on exports of 17 key elements; a move that will force up prices and dry up supplies of rare earths. The hit on US industry, and the military, would limit production of hard disk drives, lasers, fibre optics, LED lightbulbs, hospital scanners, low-carbon technology and camera lenses.

To make the point, Beijing raised tariffs on imports of US rare earth metal ores from 10 per cent to 25 per cent from 1 June 2019, making it less economical to send the material for processing in China. Such a move will prove costly to Washington and will be a key weapon in the trade war between the USA and China.

‘This will cause a lot of short-term pain for US companies. In the longer term it would accelerate the decoupling of the US and China,’ says Rory Green, an economist at TS Lombard. Even the IMF warns that the ‘delicate balance of the world economy could be split apart. Higher trade barriers would disrupt global supply chains and slow the spread of new technologies, ultimately lowering global productivity and welfare.’

Whilst some analysts regard cutting off supply to the USA as something of a nuclear option, others note China that the PRC already has form in ‘weaponising’ these vital metals. In 2010 there was a diplomatic spat with Japan that saw China cut the country out of its rare-earths exports. This action caused a price rise of around 20-30 per cent as a panicked Japanese market rushed to find (expensive) alternative sources.

The connections are now well-established between rare-earth elements, specialist metals – and their corresponding supply chains – and the US high-tech manufacturing sector, renewable energy, and military readiness. All these sectors in the US economy require rare earths in large quantities. Even for the world’s largest economy and most powerful military, the stakes cannot be higher. China could hold the USA (and the West, by extension) to ransom.

Does any of this matter to us?  Well, next time you look at your smart phone, that ubiquitous symbol of modern civilisation, remember that China copies and reproduces Apple’s products on an industrial scale. Apple is forced to manufacture its iPhone and other electronic products in China in order to maintain access to a steady supply of rare earths.

Think about a smart phone costing $1000 – or a Chinese knock off at £300.  Or worse – a world without your mobile phone? Unthinkable!

Rare earths matter.