The Future of Rare Minerals

Stephen DeAngelis

May 18, 2010

Last September, in a post entitled The Future of Electric Cars, I discussed how manufacturers of hybrid and electric vehicles were growing increasingly concerned about predicted shortages of rare metals [“As hybrid cars gobble rare metals, shortage looms,” by Steve Gorman, Washington Post, 31 August 2009]. Their angst was fed by China’s announcement that it was going to restrict the export of rare minerals [“China Tightens Grip on Rare Minerals,” by Keith Bradsher, New York Times, 31 August 2009]. China insisted that the move had no sinister motives and that it was only looking out for its best interests because it too believed a shortage of rare minerals was inevitable [“China predicts rare earths shortage,” by Patti Waldmeir and Peter Smith, Financial Times, 3 September 2009]. Waldmeir and Smith reported:

“China … predicted a domestic shortage of some minerals needed to produce green and high-technology products, exacerbating concerns that Beijing may tighten its stranglehold on global supply of so-called rare earth elements. China, which supplies about 95 per cent of the global rare earths market, is considering plans to clamp down further on export quotas for the valuable minerals used to produce everything from hybrid cars to iPod music players.”

As Waldmeir and Smith note, rare minerals are used in all sorts of products in addition to automobiles, including the ubiquitous mobile phone. In January, the Financial Times published a graphic showing some Rare mineral uses rare minerals and their uses (click to enlarge). In an accompanying article, the newspaper noted that “increasing concern surrounds narrow sources of supply that often involve China” [“In their element,” by Javier Blas, Financial Times, 29 January 2010]. Blas reports:

“Get Mark Smith talking about his company’s biggest asset and the feeling is one of being transported back to a high-school chemistry class. Cerium, lanthanum, praseodymium, neodymium … The mine described by the head of the Denver-based Molycorp Minerals contains deposits featuring some of the more esoteric reaches of the periodic table. ‘It is really a challenge to explain to investors what we do,’ Mr Smith concedes. Yet these so-called minor metals and rare earths are as critical as copper and aluminium to the global economy. From the cobalt in mobile phone batteries to the neodymium in Toyota’s hybrid Prius cars, ‘minor metals and rare earths are involved in every aspect of modern life’, says Guy Darby of the London-based Minor Metals Trade Association.”

Blas goes on to discuss the raw materials used in the production of automobiles.

“At the start of the 20th century they were typically made up of about five raw materials: wood, rubber, steel, glass and brass. But today, according to a report by the National Academies, which has been written by experts who advise the US on science and technology, ‘a typical automobile may contain up to 39 different minerals in various components’ – including several obscure metals.”

This rise in demand, Blas reports, has resulted in the prices of many rare minerals “trebling or more in value in the past five years.” With shortages of such minerals looming on the horizon, both economic and national security analysts are worrying more and more. That concern has brought with it “a level of attention once reserved for energy and food security.” And China knows that on this topic it is the middle kingdom — but that could change. Blas explains:

“‘Rare earths are to China as oil is to the Middle East,’ Deng Xiaoping proclaimed when he was leader as far back as 1992. With volumes still small, even rumours of tiny variations in supply or demand can send prices up or down by a factor of 10. But because the overall trend is upward, China faces the prospect of losing its total grip as the increase in prices makes other countries’ production more viable economically than before. Molycorp’s Mountain Pass mine, which sits on the California-Nevada border, was shut in 2002 when prices plummeted as Chinese production flooded the market. Now, Mr Smith says it could be reopened. The growth of ‘green technologies’ such as wind turbines is also expected to boost the sector. The environmental applications of rare earth elements ‘have increased markedly’ over the past 30 years, according to the US Geological Survey, a government agency, which expects the trend to continue. Avalon Rare Metals, a Toronto-listed mining company, reckons that about 25 per cent of new technologies rely on minor metals and rare earths. ‘Minor’ metals and ‘rare’ earth elements owe those designations more to a lack of familiarity than true scarcity. Some, including manganese, are as common as base metals such as nickel or precious metals such as gold. However, as the US Geological Survey notes, in contrast to ordinary base and precious metals, minor metals and rare earths are so dispersed that production is feasible only in the few places where they are present in high enough concentrations. Most supply thus comes from a handful of mines. Bayan Obo, in the Chinese region of Inner Mongolia, is the world’s largest, followed by Mountain Pass, then Mount Weld in Australia. Like Mr Smith’s facility, Mount Weld is currently inactive, though production there is also likely to restart. So in a world in which Beijing’s voracious appetite for commodities dominates demand trends, China is also the main, if not only, supplier of a number of those little-known metals. In particular, it accounts for 97 per cent of the global supply of rare earth elements – a list of 17 elements of the periodic table for which demand is growing fast.”

Chinese leaders are certainly aware that their threats to restrict exports have had global repercussions. As a result, “Beijing eased its quotas recently, allowing exports of 16,300 tonnes of strategically important rare earth metals for the first half of this year, up by more than 8 per cent from the same period in 2009.” That action, however, is probably not enough to satisfy critics. Blas continues:

“Such reassurances are not enough to ally the concerns of US politicians such as Mike Coffman, a congressman who has pushed for new legislation to minimise American dependence on foreign supplies of obscure metals. ‘This is strategically dangerous,’ he has argued. Yet all is not quite as it may seem. More and more more western companies have been shifting production to China in order to bypass the quotas, as the limits apply only to the ores and not to finished products such as magnets or batteries. Indeed, some see the export quotas as an attempt by Beijing to accelerate that trend, with companies relocating near its mines in Inner Mongolia. China, they say, is not clamping down on supplies as part of a resource war but is attempting to move value-added industry into the country in order to profit from the presence.”

In addition, Blas notes, “for some – such as titanium, rhenium or lithium – Beijing is not even the dominant supplier, with Chile, the US, Congo, Australia and Russia being large producers too.” Nevertheless, “policymakers remain worried.”

“Japan is already stockpiling obscure metals. The European Commission is considering a list of ‘critical’ minor metals and an announcement, including measures such as stockpiles, is expected later this year. With mining industry lobbyists pushing for strategic stocks, the US defence department has discussed creating a similar list.”

Stockpiles, however, bring with them their own challenges, like artificially driving up prices as stockpiles are acquired. Blas concludes:

“Many traders remain sceptical, arguing that political concerns about so-called ‘critical’ metals are misplaced. They do not foresee worse shortages than for more common commodities such as iron ore. As [Anthony Lipmann of Lipmann Walton, a UK-based trader,] points out, this is not the first time that policymakers worrying about metal supplies have fumbled their response. He remembers how the US considered tin a critical metal at some point. It even built a stockpile because of fears that communism would spread from the Korean peninsula to important producing nations including Indonesia, Thailand and Malaysia. At its peak in 1972 the stockpile contained 250,000 tonnes of the metal, equal to more than the world’s entire annual supply at that time. ‘The US government then spent the next 30 years trying to get rid of it without disrupting the market,’ Mr Lipmann recalls. Now, the worry is again that governments will commit the same mistake as they seek to limit a national dependency on China for supplies of substances that, while less prosaic than tin, are needed in rather more modest volumes.”

Fears over shortages nevertheless seem to be winning the day and stockpiles are starting to grow [“Pentagon in Race for Raw Materials,” by Liam Pleven, Wall Street Journal, 3 May 2010]. Plevin reports:

“The U.S. military is gearing up to become a more active player in the global scramble for raw materials, as competition from China and other countries raises concerns about the cost and availability of resources deemed vital to national security. The Defense Department holds in government warehouses a limited number of critical materials—such as cobalt, tin and zinc—worth about $1.6 billion as of late 2008. In the coming weeks, the Pentagon is likely to present a plan for Stockpile NA-BF788A_WARST_NS_20100502200014 Congress to overhaul its stockpiling program. The new plan, dubbed the Strategic Materials Security Program by the Pentagon, would give the military greater power to decide what it stockpiles and how it goes about buying the materials. It would also speed up decision making at a time when military technology evolves rapidly, commodity markets swing widely and countries around the world fight to secure access to natural resources.”

Like their commercial counterparts, many U.S. defense systems rely on rare minerals in their manufacture. In a time of crisis, the Pentagon wants to ensure that materials needed to produce weapons and communications systems are available to its contractors. Pleven continues:

“Right now, the military can’t add to the stockpile list without congressional approval, a process that can take as long as two years. The military wants to remove that restriction. It also wants the authority to strike long-term deals with companies or allied nations to provide emergency supplies of materials that the military says are irreplaceable for making weapons, jet engines, high-powered magnets and other gear.”

Pleven notes that the U.S. is not alone in its concerns and that “last year, Australia blocked a Chinese firm’s bid for control of a company that was developing a mine for rare-earth elements, which are used in products such as alloys, electronics and computer monitors.” Those arguing in favor of reforming the current stockpiling system believe it “leaves the U.S. vulnerable to a shortage of critical supplies. That could weaken the military’s negotiating position or leave it at the mercy of wild price swings in the market, or unable to get the material it needs for key weapons.” Opponents of stockpile reform worry that Pentagon actions could have a negative impact on the market.

“The changes being proposed by the military have the potential to move prices, especially on materials for which the market is small. If the military decides to add a commodity to the stockpile, it could cause ‘some upward pressure on price,’ said Roderick Eggert, a mineral economist at the Colorado School of Mines, who has tracked the proposal.”

That would be good for mine owners but bad for consumers — including the Pentagon, which “is also a major buyer of raw materials for immediate consumption, as opposed to stockpiling. It purchases about three-quarters of a million tons of raw materials a year for immediate consumption, and it uses almost 1% of U.S. steel production and nearly 5% of its aluminum.” Although some analysts believe that the stockpiling system is an artifact of times past, the Pentagon points out that “a special type of steel was needed early in the Iraq war to reinforce Humvees to protect soldiers from powerful explosives used by insurgents. The Defense Department didn’t have the steel in its stockpile, and couldn’t find a domestic firm to produce all it needed. The rules were changed to allow the military to use material from Mexico, according to testimony to Congress last year.”

With more and more technologies in a growing number of fields all becoming reliant on rare minerals, I can assure you that we haven’t heard the last on this subject. The debate will inevitably include the importance of supply chains as well as environmental issues such as the damage caused by poor mining practices and the importance of recycling products containing rare minerals. The search for new sources of rare minerals could also raise the economic profiles of Africa and South America.