Fears on Rare Earth Shortage Kindle Supply, Stockpile Ideas

Anne Riley, American Metal Market

WASHINGTON — Mounting internal demand for rare earth minerals within China, as well as apparent strategic efforts by the Asian nation to rein in exports, could constrain global supply of these technologically vital elements going forward, panelists at recent rare earths conference in Washington agreed.

What they didn’t agree on, however, is what should be done about it.

Whether paying high Chinese asking prices, forming a U.S. stockpile or investing in alternate sources, the strategies proposed by speakers at Infocast’s Critical and Strategic Metals summit for securing a U.S. rare earths supply spanned the spectrum.

The best way for American companies to ensure the availability of rare earths in the future is to recognize China’s changing supply and demand situation and adapt their buying strategies accordingly, according to Noah Munro Lehrman, senior vice president of Hudson Metals Corp. and ch airman of the North American Committee of the Minor Metals Trade Association. “We’re used to sitting back in the West and being the only game in town. Now we need to learn to enjoy the competitive spirit that we’re all going to be in for awhile,” he told Infocast’s Critical and Strategic Metals Summit.

China controls an estimated 97 percent of global rare earth production, but according to Lehrman supply issues shouldn’t be a problem for domestic consumers as long as buyers are willing to pay competitive prices. “We’ve seen China implement quotas and export duties on other materials, like molybdenum and indium, in the past and of course those materials are still available to the rest of the world, but it’s creating a market in molybdenum at a much higher price,” Lehrman said. “If you want to get the materials out, you’re going to have to pay a higher price. That’s something that the markets and the consumption patterns are going to play out.”

But not everyone is so convinced that rare earths will be widely available to American companies here on out. Rare earths-used in applications as varied as wind turbines, hybrid vehicle batteries, consumer electronics and green-energy production-could become a rarer commodity yet, according to some market sources.

China’s rare earth export policies gained wide attention in the mainstream business press during the summer after reports emerged that the country’s central government was considering banning entirely the export of some rare earths, making sharp cuts in export quotas of others and clamping down on the environmental impact of mines.

Subsequent comments by Chinese government officials allayed some of the concerns, although the country’s exports look set to decline. Export quotas have fallen by an average of 6 percent annually during the past five years and are likely to keep falling, according to Industrial Minerals Co. Ltd. of Australia executive director Dudley Kingsnorth. However, China enjoys a “good business” exporting rare earths to customers in the developed world and is unlikely to stop exports entirely, he said.

But as China’s domestic demand for rare earths increases rapidly on the back of its increasing economic sophistication, analysts and market participants warn that exports could fall regardless of government policy.

Chinese supply isn’t going to be readily available going forward, so the only sustainable solution for the impending rare earths shortage is the development of a U.S. stockpile, Jeff Green, president of J.A. Green & Co. LLC and former counsel to the House Armed Services Committee, said.

“When the Chinese government puts pen to paper and says we are considering restricting the flow of this, to me, that’s an act of warfare,” Green said, citing the draft efforts by the Chinese to ban the export of certain rare earths in the near future. “This is simply too high a risk to continue to ignore. . . . How do you push back against Goliath when you have the resources of David to make this stop?”

Green highlighted the need for a secure supply chain. “We can get it from friendly nations, but you have to ask where do those friendly nations go to get their supply? So I think we need to look at a domestic stockpile.”

Jack Lifton, consultant at Jack Lifton LLC and senior fellow at the Institute for the Analysis of Global Security, agreed that the current U.S. strategy of relative inaction isn’t a sustainable solution to satisfying the country’s future rare earth needs, but said that China might not be the only option to consider.

“In the U.S., we’ve been in a perpetual neonatal position,” Lifton told conference attendees. “This crisis is actually upon us now-this crisis of critical minerals. You ask when is this goi ng to happen? Believe me, it’s already happening.”

One of the key ways for the Western World to secure a steady supply of minor and rare earth metals in the mid- to long term is to increase investment in Canada, where abundant, nearby and politically friendly mineral deposits could provide a viable solution to the current Chinese dominance of the market, Lifton said.

“The two most important countries in the future of the United States are China and Canada. Canada is China with 1.27 billion less people, fortunately for us,” he said, noting that “Canada is actually a treasure house of natural resources that we use and we need.”

However, although Canadian rare earth resources could help alleviate U.S. dependence on Chinese supply, American investment into the resource-rich northern nation has been lagging, Lifton said.

“We need to recognize Canadian resources are as important as they are. The C hinese have already realized it-they’re making investments,” he said, pointing out that China’s state-owned Hunan Nonferrous Metals Holding Group Co. Ltd. acquired Canada’s Beaver Brook Antimony Mine Inc., one of the only operating antimony producers outside of China.

Japan, too, has been upping its investment in Canada, Lifton said, adding that if the United States doesn’t get on board soon it might lose its only viable solution to a looming rare earths trade war. “(Canada) needs capital, and only now, I believe, are American financial institutions beginning to recognize that there’s a North American resource supply market. I think at this point, Canada’s coming on a United States’ radar and is going to stay there.”

Kevin Foster, New York, contributed to this story.