F-22Raptor
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Beijing has weaponized its dominance in the rare earth market before. In 2010, when China and Japan clashed over ownership of islands in the East China Sea, Beijing halted shipments of rare earths to its rival, disrupting supply lines for major manufacturers like Toyota and Panasonic. But Beijing emerged weaker for it.
The blockade was enough to alert the rest of the world to China’s unchecked power over the precious minerals. A coalition of countries led by the U.S. appealed to the WTO which, in 2014, ruled that China can’t put limits on rare earth exports. That year, an article published by the Council on Foreign Relations, a U.S. think tank, said “even in the apparently most-dangerous case of rare earth elements, the problem rapidly faded.”
What China can do
Beijing sets a quota for rare earth production twice a year. In the first half 2019, the cap was placed at 60,000 tons—up from 45,000 the preceding half. “If China wanted to reduce exports of rare earths, the logical step would be to lower the mining quota,” says Helen Lau, a metals and mining analyst at Argonaut Securities. Quotas for the remainder of the year are due in June and will be the first indicator of whether authorities are making good on their threats.
Beijing could claim to be lowering the quota for environmental reasons, Lau says, and a lower quota would naturally reduce the amount of rare earth available, which would limit supplies and increase costs for the U.S. But even this approach carries risk: a reduced quota limits supplies for China’s more significant customers too.
The U.S. imports 80% of its rare earth needs from China, but overall demand for rare earths in the U.S. is low. American demand accounted for just 4% of China’s rare earth shipments, totaling around $160 million in 2018.
Partly, that’s because most U.S. manufacturers that require rare earth metals have already moved to China. America’s remaining industries tend to import finished rare earth products, such as magnets, which are a trickier target for China to hit.
If China limits the export of finished components, the impact would affect China’s domestic industry first. That might be a sacrifice Beijing is willing to make, but it would be a peculiarly forward approach. Beijing prefers indirect measures that afford the government deniability— the recent halt of Canadian canola imports due to a phantom pest infestation is proof. However, the fiery rhetoric of China’s state media suggests Beijing might be desperate enough to forego pretenses.
There’s ore in them thar hills
Meanwhile, the U.S. is seeking alternative supplies. At a site called Mountain Pass in California’s San Bernardino county, the only rare earth mine in the U.S. is back in operation. Once the world’s leading supplier of rare earths, today the mine simply ships unrefined ore to China for final processing. A conglomerate called MP Materials bought the mine in 2017 after the site’s previous owner, Molycorp, filed for bankruptcy, beaten on prices by China’s competitiveness.
The consortium, which includes a Chinese shareholder, says it will re-open the mothballed processing facilities at Mountain Pass next year so that the mine can extract rare earth metals at home. It’s a move expedited by the trade war. Beijing slapped 10% tariffs on ore imports last year and is set to increase them to 25% on June 1.
The mine’s CEO, Michael Rosenthal, has said MP Materials will focus on extracting higher-value ores to avoid following its predecessor, Molycorp, into bankruptcy. MP Materials will still need to contend with competition from China and strict environmental regulation from California. However, if China blocks rare earth exports, MP’s main competition disappears.
Down south, Texas chemical manufacturer Blue Line Corp and Australian miner Lynas are also in talks to open a rare earth processing plant and, earlier in May, a bipartisan group of lawmakers introduced legislation to safeguard U.S. mineral supplies. Meanwhile Japan discovered a treasure trove of rare earths that could supply the earth on a “semi-infinite basis.”
Loosening China’s grip on the industry will take time and money, but there’s a compelling incentive to do so, especially as China threatens to be an unreliable supplier. Blocking rare earth exports—again—might well be a ‘nuclear option’ for China, but Beijing could suffer the fallout.
http://fortune.com/2019/05/29/china-rare-earth-metals-trade-war/
Once again....there's little that China can do.
The blockade was enough to alert the rest of the world to China’s unchecked power over the precious minerals. A coalition of countries led by the U.S. appealed to the WTO which, in 2014, ruled that China can’t put limits on rare earth exports. That year, an article published by the Council on Foreign Relations, a U.S. think tank, said “even in the apparently most-dangerous case of rare earth elements, the problem rapidly faded.”
What China can do
Beijing sets a quota for rare earth production twice a year. In the first half 2019, the cap was placed at 60,000 tons—up from 45,000 the preceding half. “If China wanted to reduce exports of rare earths, the logical step would be to lower the mining quota,” says Helen Lau, a metals and mining analyst at Argonaut Securities. Quotas for the remainder of the year are due in June and will be the first indicator of whether authorities are making good on their threats.
Beijing could claim to be lowering the quota for environmental reasons, Lau says, and a lower quota would naturally reduce the amount of rare earth available, which would limit supplies and increase costs for the U.S. But even this approach carries risk: a reduced quota limits supplies for China’s more significant customers too.
The U.S. imports 80% of its rare earth needs from China, but overall demand for rare earths in the U.S. is low. American demand accounted for just 4% of China’s rare earth shipments, totaling around $160 million in 2018.
Partly, that’s because most U.S. manufacturers that require rare earth metals have already moved to China. America’s remaining industries tend to import finished rare earth products, such as magnets, which are a trickier target for China to hit.
If China limits the export of finished components, the impact would affect China’s domestic industry first. That might be a sacrifice Beijing is willing to make, but it would be a peculiarly forward approach. Beijing prefers indirect measures that afford the government deniability— the recent halt of Canadian canola imports due to a phantom pest infestation is proof. However, the fiery rhetoric of China’s state media suggests Beijing might be desperate enough to forego pretenses.
There’s ore in them thar hills
Meanwhile, the U.S. is seeking alternative supplies. At a site called Mountain Pass in California’s San Bernardino county, the only rare earth mine in the U.S. is back in operation. Once the world’s leading supplier of rare earths, today the mine simply ships unrefined ore to China for final processing. A conglomerate called MP Materials bought the mine in 2017 after the site’s previous owner, Molycorp, filed for bankruptcy, beaten on prices by China’s competitiveness.
The consortium, which includes a Chinese shareholder, says it will re-open the mothballed processing facilities at Mountain Pass next year so that the mine can extract rare earth metals at home. It’s a move expedited by the trade war. Beijing slapped 10% tariffs on ore imports last year and is set to increase them to 25% on June 1.
The mine’s CEO, Michael Rosenthal, has said MP Materials will focus on extracting higher-value ores to avoid following its predecessor, Molycorp, into bankruptcy. MP Materials will still need to contend with competition from China and strict environmental regulation from California. However, if China blocks rare earth exports, MP’s main competition disappears.
Down south, Texas chemical manufacturer Blue Line Corp and Australian miner Lynas are also in talks to open a rare earth processing plant and, earlier in May, a bipartisan group of lawmakers introduced legislation to safeguard U.S. mineral supplies. Meanwhile Japan discovered a treasure trove of rare earths that could supply the earth on a “semi-infinite basis.”
Loosening China’s grip on the industry will take time and money, but there’s a compelling incentive to do so, especially as China threatens to be an unreliable supplier. Blocking rare earth exports—again—might well be a ‘nuclear option’ for China, but Beijing could suffer the fallout.
http://fortune.com/2019/05/29/china-rare-earth-metals-trade-war/
Once again....there's little that China can do.
