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Rare Earths Battle Looms as U.S. Aims to Counter China Export Threat

The date of: 2019-06-10
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The U.S. and China are heading for a stand-off over critical minerals used in everything from washing machines to military hardware.

The U.S. Commerce Department on Tuesday promised “unprecedented action” to ensure that the U.S. won’t be cut off from supplies rare earths, a group of 17 obscure but vital elements whose production is dominated by China. The Department’s release of a report outlining steps to ensure supply came hours after the Asian nation’s top state economic planning body said it’s studying proposals to establish export controls on the materials.

China’s state media has highlighted the value of rare earths as a potential trade weapon, given that the country controls more than 70% of global supply and an even higher proportion of processed product. Any attempt to curb exports would add to a rift between the world’s two biggest economies that already encompasses sweeping tariffs, the blacklisting of China’s top telecommunications group and warnings from China to its citizens traveling to the U.S.

“These critical minerals are often overlooked but modern life without them would be impossible,” Commerce Secretary Wilbur Ross said in a statement alongside the release of the report that was requested by President Donald Trump in December 2017.

The assured supply of critical minerals and the resiliency of their supply chains are essential to the economic prosperity and national defense of the U.S., according to the report. “If China or Russia were to stop exports to the United States and its allies for a prolonged period -- similar to China’s rare earths embargo in 2010 -- an extended supply disruption could cause significant shocks throughout U.S. and foreign critical mineral supply chains,” it said.

China’s National Development and Reform Commission is closely studying proposals from industry experts to establish rare-earth export controls, it said in a statement on Tuesday. The state planner will implement the measures promptly, it said. Authorities were also asked to crack down on illegal mining, production and smuggling of rare earths. Bloomberg reported last week that Beijing had readied a plan to restrict exports to the U.S. if needed.

Shares in China Rare Earth Holdings Ltd. gained 6.8%, while China Northern Rare Earth Group High-Tech Co. rose 1.5% and JL Mag Rare-Earth Co. retreated 5.9%. In Australia, Lynas Corp., the biggest producer of rare earth products outside China, closed 4.2% higher.

The U.S. Commerce report recommends a number of steps, including improving the government’s understanding of domestic sources of rare earths and expediting approvals of mining permits.

“For U.S. industry outside defense there are no immediate avenues to break reliance on China’s rare earth elements near term,” Citigroup Inc. analysts, including Oliver Nugent, wrote in a report highlighting the Asian nation’s grip on refining and in products such as magnets. Mining and processing of the materials “faces environmental, technical and funding challenges which will rely on continued investor and government support if they are to be accelerated” outside China, they wrote.

Export restrictions could cover so-called heavy rare earths, a sub-group with a wide variety of uses that include magnets in miniature motors in almost all automobiles and consumer goods. Disruptions to supplies of rare-earth permanent magnets would be a “devastating” blow to the U.S. economy because of their widespread demand, U.S. industry veteran Jack Lifton has said.

China’s grip over global heavy rare earths production is almost total, according to Shanghai Metals Market, and it will take a significant amount of time to build up the necessary processing capacity in any other country.

Held Hostage

The U.S. was the leading global producer of rare earths from the 1960s to the 80s, when production began shifting off shore. The nation has 1.4 million metric tons in rare earth mine reserves, 93 times the nation’s output last year, according to data from the U.S. Geological Survey.

America’s only producer, MP Materials, has been shipping all its output from the Mountain Pass mine in California to China because there is currently no refining capacity available to handle its production anywhere else in the world, its biggest shareholder said last month.

“As with our energy security, the Trump administration is dedicated to ensuring that we are never held hostage to foreign powers for the natural resources critical to our national security and economic growth,” Interior Secretary David Bernhardt said in a separate statement. “The department will work expeditiously to implement the president’s strategy from streamlining the permitting process to locating domestic supplies of minerals.”

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