Rare earth mining puts tech in China’s hands
Despite warning signs in 2010, China could hold technology producers to ransom in a trade war. Stewart Mitchell unearths the facts
Despite warning signs back in 2010, China could use its mining domination to hold technology producers to ransom in a trade war. Stewart Mitchell unearths the facts.
People would like to believe that rare earths are everywhere and that there is no reason to worry about access
When Tim Cook stepped in at the eleventh hour to persuade Donald Trump not to impose Chinese tariffs on his company’s products, he had good reason not to further provoke the Chinese.
The global tech industry remains dependent on China when it comes to critical rare earth elements, a situation that could lead to production lines grinding to a halt.
The scale of the risk is highlighted by the variety of tech where manufacture would be impossible without one of the 17 rare earth minerals for which China holds more than 80% of the world’s supply.
“Neodymium, for example, makes the strongest permanent magnets [NdFeB] – used in all sorts of equipment from direct drive motors in electric vehicles, speakers in mobile phones and computer hard disk drives,” said Professor Frances Wall, a specialist in rare earths at the University of Exeter’s Camborne School of Mines.
“Practically all red colour in display screens comes from europium. The problem is that the whole part of the supply chain is concentrated in China. If China choose not to export rare earths and rare earth alloys and compounds, it would be difficult to manufacture any of these things outside China.”
China has a history of choking supply for its own political gain, too. In 2010, a trade dispute with Japan saw severe restrictions on exports – a tactic that resulted in a huge spike in prices and led to a scramble to activate mines and production plants elsewhere. Between 2009 and 2011, as the shortage kicked in, the price per metric ton of neodymium soared from around $15,000 in 2009 to $250,000 in 2011.
Inevitably, such swings have an impact on the prices of the gadgets the materials are used in. “An increase in NdFeB permanent magnet prices would have a greater impact on hard disk drive [HDD] prices than it would mobile phones,” said Ryan Castilloux, managing director of market watcher Adamas Intelligence.
“In mobile phones, NdFeB is used in the loudspeaker and vibration motor, while in HDDs NdFeB is used in the voice coil and spindle motors.
“If HDD prices went up, that would absolutely hit the bottom line of data centres, which still use HDDs in abundance.”
Bullish tactics
Opinions are divided on whether China would repeat its tactic, because the sudden increase in price meant other companies and countries with rare earth materials were motivated to start or restart production. “Two players did enter the market,” said Tim Worstall, an independent rare earth trader and commentator. “Molycorp reopened the US’s Mountain Pass and then went bust again. And Lynas opened in Australia.
“China exploiting the monopoly would, or at least could, lead to new market entrants,” he speculated.
Amid the price rises in 2010, both companies and nation states put resources into seeking alternative supplies, yet interest waned once prices adjusted back to near previous levels.
Now, as China looks to expand its own industries and investigates renewable energies, experts fear production may not always be sufficient to meet demand. Chinese authorities have already clamped down on companies that were over-producing their quotas.
“When the rare earth crisis of 2010 sent prices through the roof, there were headlines of new discoveries, but money for ventures to extract them mostly dried up when the market corrected itself,” said Sophia Kalantzakos, a distinguished professor in Environmental Studies and Public Policy at New York University.
“People would like to believe that rare earths are everywhere and that there is no reason to worry about uninterrupted access.
“This kind of wishful thinking does not address the main issues: that China controls the supply chain for a number of rare earth uses, and that as it turns to hightech production and renewables, China will need to consume what it extracts and less will be available for industries elsewhere.”
Geopolitical strains
In a world of increasing political tension, the emergence of new deposits – even if they’re currently too expensive to mine – has raised security issues, especially in areas being made accessible because of climate change.
With Arctic ice retreating, several countries – including Russia and China – are eyeing rich deposits, and observers believe this could escalate tensions in the area.
Deposits have been identified in Canada,Greenland and Russia, but China and other players are already exploring the possibilities of extracting oil and gas in the region.
“Human nature is inherently aggressive and this is true when critically important economic and national security resources are involved,” said Bert Chapman, a professor in Government, Information, History and Political Science at Purdue University. “Increasing international economic and national security dependence on rare earths makes conflict over areas containing them more likely.
“Existing international government organisations such as the Arctic Council have zero enforcement abilities to carry out their lofty aims.”
In a recent UK report into Arctic threats, the Defence Committee also raised concerns that Britain wasn’t well placed to defend any rights in the area and stressed that the retreating ice meant the area was a potential hotspot.
“Easier access to resources raises the potential for regional competition and conflict,” the official government document read. “The region is also thought to contain considerable reserves of rare earth metals and minerals.”
Although a physical conflict remains unlikely, the changing state of world economics means China could use its dominance as a tool for other political goals, especially in disputes with the US over trade. “Resource scarcity is something that policy makers need to factor into geopolitics, economics and security,” explained Kalantzakos.
“The use of economic statecraft is a salient political weapon in geopolitical competition. China has understood the strategic importance of rare earths for quite some time and strategised to make itself able to dominate the market in an unprecedented way.”
The US was eventually persuaded not to include rare earth materials in its final list of items that could be hit with tariffs in Donald Trump’s latest round. “The US included rare earths in the preliminary list of Chinese imports it had targeted and China responded accordingly,” said Kalantzakos. “If rare earths had been included on the final list, US industry would have had to buy them more expensively… there must have been some serious reconsideration taking place in Washington.”
Colonising competition
China is also staking a claim to international sources of rare earth materials. Either the state or Chinese companies have made huge investments in projects in Kvanefjeld in Greenland and that Mountain Pass plant in the US.
“China has become increasingly involved in certain rare earth projects outside the nation,” said Castilloux. “For the most part, these efforts are being led by private Chinese companies rather than the large state-owned enterprises that dominate the market in China.
“In other cases, we see China taking a more opportunistic approach by involving itself in foreign rare earth projects at a time when prices are suppressed and company valuations are down, enabling them buy in at a discount to long-term value.”
In other words, even when rivals are available, China has a controlling stake. If that wasn’t already sufficient cause for concern, most of the mined materials from around the world are shipped back to China to be turned into useful raw materials.
“A really good example is Mountain Pass in the USA, which went bankrupt and is now back working, partly in Chinese ownership,” said Wall. “The ore is being shipped to China for further processing rather than using the new plant at Mountain Pass. Most mines planning to open now would export their rare earths to China.”
Kalantzakos estimates that getting a mine and processing plant up and running would cost $1 billion and take a decade. In the meantime, the tech industry will be hoping relations with China don’t turn sour.