Rare Earths Stockpile May Prove Tricky: Analysts

Catherine Ngai, American Metal Market

A bill encouraging the stockpiling of rare earths set to be debated on Capitol Hill may prove difficult to implement due to technical and economic constraints, according to analysts.

Rep. Mike Coffman (R., Colo.) introduced an amendment to the fiscal 2012 National Defense Authorization Act that would encourage the Pentagon to seriously examine building a domestic inventory of rare earth minerals, which are used in high-tech military hardware, consumer electronics and green technology.

The House Armed Service Committee noted that the Defense Department lacks a “framework and consistent approach” in managing supply based concerns, such as rare earth materials from China. The bill is expected to be debated in the House by the end of the month.

Stockpiling rare earths, however, may not be so simple, analysts told AMM.

“Rare earths are pyrophoric, meaning they combine very easily with oxygen, and aggressively so if you get them wet,” said Daniel Cordier, a mineral commodity specialist with the U.S. Geological Survey. “Then they can burst into flames—something you have to be aware of if you have a stockpile.”

Cordier said there are two basic ways to store rare earths: One is in powder form, which is more likely to ignite; the other is in metal form, which tends to corrode faster without a controlled argon atmosphere environment.

But the debate in Congress likely will not be about chemical reactions; it will be a matter of national security and the domestic economy, said Jeff Green, a lobbyist at J.A. Green & Co., Washington.

“Some people have been saying that it’s incredibly expensive and that we can’t stockpile in an already tough market,” Green said. “But we’re talking about the (Department of Defense) stockpiling enough to ensure national security needs, and it’s only a tiny fraction of global demand. It will have zero effect on global market prices.”

Green, whose company has links to U.S. Rare Earths Inc., Salt Lake City, said the United States accounts for just 12 percent of global demand and the Pentagon less than 8 percent.

“If the Defense Department establishes an inventory, this is a great way to incentivize domestic producers and bring production back to the U.S., since the world is totally dependent on China. This provision will help U.S. producers to fill a small niche,” Green said.

Rare earth mineral prices have skyrocketed since the materials came to the political forefront last fall, when a dispute erupted between China and Japan over Chinese rare earth exports.

But rising prices do not constitute a threat to national security, said Peter Van Doren, a senior fellow at the Cato Institute in Washington. “What’s interesting is that with wars, to cut off world trade, blockades of large countries are basically impossible,” he said. “The notion that supply goes from one to zero because some country controls it is ridiculous. The national security people tend to think that and argue that the world is a big chess game.”