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China's domination of rare earth elements remains a threat

2023 Jan 23, 15:35, Hong Kong
A piece of bastnasite ore, which contain rare earth elements. (Photo Credit - ANI)

China absolutely dominates the rare earth elements market. In fact, China produced 61 per cent of global rare earths, which equated to 168,000 tonnes, in 2021. Such ascendancy is extremely concerning to countries like the USA, which is intent on reducing its dependency on its number one strategic rival.

The above figure is only the beginning, however, because China also accounts for 85 per cent of the world's rare earth magnet production emanates from China.

China has an estimated 44 million tonnes of rare earth reserves. Next in size are Vietnam, Brazil and India with half that amount, while the USA has only about 1.8 million tonnes. Its annual output is only a quarter of China's too, at 15.5 per cent of total 2021 production.

China's rise in this field occurred during the globalization of the 1980s and 1990s. Its mines blossomed thanks to government subsidies, lax attention to environmental protection and low wages for workers. Thus, its products flooded the market and forced many competitors overseas out of business.

Doctor Luisa Moreno, President and Director of Defense Metals Corp, a Canada-based mineral exploration company, told ANI: "I think it was probably around the '80s when China really started to dominate. Essentially, they basically imported, let's call it, the processing technology from the United States and other countries. And they started very seriously developing their own resources ... They have a lot of processing capacity, and they have many, many deposits, and over the years they perfected how to process it and extract the rare earth in a really competitive fashion."

Indeed, while the West was lagging in its commitment, China was pursuing a strategic vision for rare earths. So what are rare earth elements?

The grouping comprises 17 minerals, specifically yttrium, scandium and 15 lanthanide elements. Thanks to their magnetic and conductive properties, they are vital to producing magnets.

For example, neodymium creates the strongest known permanent magnet. They are used in a multiplicity of applications, including flat-screen televisions/monitors, smartphones, microphones, computer hard drives, electric cars, MRI scanners, loudspeakers, solar panels and wind turbines.

In fact, a single wind turbine requires some 600kg of rare earth elements, while every electric vehicle battery needs 1kg of them.

After raw minerals are mined, they are crushed in a mill to create a fine powder under the first processing stage, at which point all the different elements are still mixed together. Next, it is concentrated using a froth flotation process, which can be a messy business.

After that, the concentrate undergoes roasting, leaching and chemical separation to purify individual minerals. The finished product is a fine powder.

The process continues beyond this, however. The third stage converts oxides into metals, alloys and magnets. Nowhere in the USA can do this, as China owns 92 per cent of this conversion capacity and Japan 6 per cent.

As well as the commercial sector, these rare earth elements are critical to the military. They are thus found in fighter jets, submarines, night vision goggles, firearms, radars, electronic displays, guidance systems, lasers, radars, sonars and missiles, for example.

Incidentally, in September 2022 the Pentagon suspended delivery of F-35 stealth fighters for a month when it was discovered that a cobalt and samarium alloy used in its turbomachine came from China. Because the fighter was not at risk because of it, deliveries resumed after a waiver was granted.

Nonetheless, this was a pertinent reminder that all contractors to the US Department of Defense (DoD) must disclose any work or materials originating from China.

All F-35s delivered so far - to countries like Australia, Japan, South Korea, the UK and USA - use this Chinese-made alloy. From the second quarter of 2023, however, new F-35 fighters will use American alloys instead.

Because of such dependence, the USA and others are rightly concerned that their countries are strategically vulnerable, at the mercy of Chairman Xi Jinping.

Halimah Najieb-Locke, the Pentagon's Deputy Assistant Secretary for Industrial Base Resilience, commented last year: "...The reality is, if a country wants to cut off supply for any reason, along with just prioritizing themselves, it means that others are at risk. From a national security perspective, we want to prioritize those areas so we can avoid any chokepoints."

She added, "There are choke points that we can't control. If we don't prioritize on-shoring this, then we are going to have weak points that don't enable us to really defend ourselves."

Moreno agreed about the danger of relying so heavily on China. "It's always risky There's a high dependency on the country. If you look at your political risk, for instance, it's increasing, and especially with the issues regarding Taiwan and so forth."

She warned, "There's a high risk there because you are basically dependent on China for elements that you use in the manufacturing of your equipment, or even weapons and missiles."

ANI asked Moreno whether China has previously blocked access to rare earths for political reasons. She explained that China notoriously did so in 2010 after Japan detained a Chinese fishing trawler in the Senkaku Islands, a Japanese island group that China controversially claims as its own.

At that time, Beijing allegedly withheld exports of rare earths until the captain was released. Japan was China's largest consumer of rare earths.

China's actions caused massive reverberations, not just to the price of minerals, but in the halls of power of countries dependent on Chinese rare earth production and processing.

This has caused greater diversification over the past decade; Chinese production in 2016 made up 83 per cent of global totals, but this has since fallen to 61 per cent.

Moreno said there are also issues where China can sanction American military companies for supporting Taiwan, or doing something that China has not approved.

Again, in 2019 China threatened to restrict exports of some products that use rare earths in retaliation for the Trump administration's pressure on telecom conglomerate Huawei.

These episodes show that the Chinese government is quite prepared to block access to rare earths. Xi is not bashful about weaponizing international trade to force other countries into line.

Is the world taking this threat seriously enough, ANI asked Moreno. "I think that is increasing every year that has gone by since 2010 ... There is interest, but I think there's a lack of full understanding of the supply chain and what is required. So the US had the Inflation Reduction Act, for instance, and they allocated hundreds of millions of dollars for the development of critical materials. And a significant amount of that seems to be going more downstream to produce separation facilities, for instance, for rare earths and things like that."

In 2018, the US Department of the Interior listed 35 critical materials that are vital for national and economic security. This list includes every one of the 17 rare earth elements.

Furthermore, President Joe Biden signed a determination authorizing the use of the Defense Product Act to boost domestic production and processing of battery materials.

Moreno said that governments need to focus on finding more of these elements in their countries, increasing mined production, and then building processing capacity and conversion into magnets and so on. "I think there has been an increase in activity, and more money is available for companies to venture into it because it's highly risky."

Defense Metals Corp oversees a major deposit in North America. It is in Wicheda, British Columbia in Canada. Moreno, a Canadian physics engineer, said this project is in the pre-feasibility stage.

The only rare earths mine in the USA is Mountain Pass in California. Operations there resumed in 2012, after it had closed in 2002 because of a toxic waste spill. Yet the concentrate mined there is still sent to China for processing into alloys and magnets because there is not the capacity for it in the USA.

MP Materials owns Mountain Pass mine, but it intends to restore a full supply chain in the USA. It has announced plans to establish separation and purification facilities, plus a manufacturing facility is being built in Fort Worth, Texas to convert refined materials into alloys and magnets.

This plant should be ready in 2025, and these plans will make MP Materials the first vertically integrated rare earth magnetics producer in the world.

Mountain Pass should be able to fulfill all of the Pentagon's requirements for rare earths. The US DoD has invested USD 200 million in rare earth mining over the past two years, with a special emphasis on neodymium and lanthanum.

Yet it is no easy matter to decouple from such overwhelming dependence on China. It can take years for a new mine to open, and it is financially risky for private companies if there is no government support.

As Moreno explained: "So the solution then is for the West generally to be more independent from China. It's not so straightforward. It's not like, oh, we're going to mine more, [because] your whole supply chain is still dependent on China."

She said that while there is interest in the West for greater independence of supply, processing and production, "It's not enough. I think there's need for more, but it's a very, very good start. But there is a misunderstanding, or maybe just lack of interest or historically not something that countries in the West do, which is for instance to support junior mining companies more hands on and say, 'Okay, here is USD 20 million. Yes, get on it.' That is not happening."

She expressed the hope that Biden will put more investment downstream, but "it has to be an effort of many, many countries ... It's not one country, one solution. It's going to be several countries to build that supply chain for rare earths and other critical materials."

Angola, Australia and the USA are all ramping up production. Regardless, the world's biggest rare earths mine is Bayan Obo in Inner Mongolia, China, and it possesses an estimated 40 million tonnes of reserves. In operation since 1957, it accounts for 70 per cent of "light" rare earth element production.

Most Chinese mining companies started off as government-owned, and there is a process reversing any privatization. In December 2021, China created the state-owned enterprise China Rare Earth Group to increase efficiency, secure national strategic goals and control pricing levels.

It merged three of the six biggest rare earth corporations in China, meaning this mega-firm controls 62 per cent of national "heavy" rare earth production, and 30- 40 per cent of overall global supply.

Afghanistan has mineral and rare earth deposits, and this is likely one reason for China's intense interest there too. One thing is certain, and that is that demand for rare earths will only grow inexorably.

From 2006-15, the demand for rare earth elements doubled to 125,000 tonnes. By 2030, this figure should rise further to 315,000 tonnes. Yet production is not forecast to keep up with growing demand, especially as the electric vehicle market jumps.

Electric vehicles made up approximately 10 per cent of passenger vehicle sales in 2022, for example. According to one forecast, they could comprise 35-40 per cent of total sales by 2027.

Furthermore, electric vehicles alone will require 200,000 tonnes of rare earths over the next decade. Despite efforts in places like the USA, China will continue to dominate the rare earths market in the foreseeable future. 


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