Energy & Resources

Why rare earth is cheap

Chinese legislator’s bold plan could drive up world prices

Why rare earth is cheap

Top gun: the F-22's aerodynamic bodywork relies on rare earths

Deng Xiaoping once said: “The Middle East has oil, while China has rare earth.” China’s former leader was right. China tops the global rankings in rare earth reserves, accounting for 53.5% of the world’s total. However, local experts reckon that at its current pace of mining, China could totally exhaust these reserves in 30 years.

Zhou Hongyu, a member of the National People’s Congress, has even submitted a proposal to China’s parliament for the “strict control on the production and export of rare earth”. In an interview with the China Business Herald he describes the current industry structure in unflattering terms saying it is creating “an absolute waste of resources”.

What, you might ask, is, or are, rare earths? Well, there are 17 of them and they include scandium, yttrium and promethium. It is estimated that one in every six new inventions rely on rare earth being used. Rare earths have excellent physical properties, such as photoelectromagnetism, which can blend with other products to enhance their performance and quality. Steel, aluminium and titanium alloys all see notable performance improvements when specifically blended with rare earth metals.

Their use in military applications is especially vital. For example, the Patriot missile’s guidance system uses samarium and neodymium. The composite metal body of an F-22 requires rare earth materials too.

China could be a one-nation OPEC where rare earths are concerned but due to a blundering industrial policy, it has no pricing power at all. This is thanks to excessive competition and over-mining.

The world market for rare earths is about 80,000 tonnes per year. China currently has the capacity to mine 180,000 tonnes annually. This supply-demand imbalance – of China’s making – has depressed prices.

The beneficiaries are Japan and South Korea, which are buying 70% of China’s rare earth exports at bargain prices. In fact, Japan buys 100% of its rare earth from China. It, the US and Europe are using the opportunity to build a strategic reserve of rare earths at a lower cost.

According to the latest data, China accounts for 96% of the world’s rare earth production but thanks to the chronic oversupply problem it has little control over prices. Its fragmented industry structure has, moreover, led to reckless over-mining. According to Chen Kai, the deputy secretary of the Shanghai Municipal Youth League: “The indiscriminate excavation and over-exploitation over the years has resulted in the global proportion of China’s recoverable reserves of rare earth declining from more than 80% to 53.5% today.”

Zhou, the NPC member, reckons that at the current pace of mining “China will have more or less no rare earth left in two to three decades, and we will have to spend huge amounts to import it from abroad.”

His plan is to establish national management agencies to regulate the mines’ production. He also thinks the (huge) number of operators should be whittled down by state-driven consolidation. And export volumes should be brought down to 30,000 tonnes (annually), which Zhou says will “bring high profits and allow the sustainable development of China’s rare earth resources; and ensure China retains a long term grasp over rare earth pricing power.”

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