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The world economy with less rare earth minerals

Marketplace Staff Sep 24, 2010

The world economy with less rare earth minerals

Marketplace Staff Sep 24, 2010


Bob Moon: On the heels of a series of diplomatic spats between China and Japan, Beijing has cut off exports of 17 rare minerals to its neighbor. Now, we could probably learn to live without all those cheap goods at the discount stores. But it would be quite another matter — a matter of national security, actually — if the whole western world suffered a cut-off of these vital metals, including, for example, precision-guided missile systems.

Scott Tong joins me now to discuss the significance of this, from the Marketplace Sustainability Desk. Hi, Scott.

Scott Tong: Hi Bob.

Moon: You know, I hadn’t heard the term “rare earth” since that band I used to listen to in the 70s. Why are we talking about rare earth now? What’s this all about?

Tong: Well, these are vital metals that happen to be unpronounceables. I’ll give you an example: Dysprosium has qualities that make it a key component in hybrid cars and computer hard drives. Other rare earth metals — we’re talking more than a dozen — they go into wind turbines. So the clean-tech sector needs this for the future. So does the military, as you just mentioned, these metals go into missle systems and tanks. So increasingly, these are seen as indispensable commodities.

Moon: But how did China controlling 95 percent of the market?

Tong: Part of the story is just globalization. We all know things get made in China for the low China price. And like other sectors, the industrial ecosystem migrated to China. China’s the hub of, now, digging these metals out of the ground, separating it, refining it. And market forces is part of the explanation. As far as policy, China has increasingly limited exports, so it holds onto more of it at home. And lots of people in the industry have told me that the unwritten rule is the Chinese tell western companies, “If you want the raw material, you have to move your factory to China.” And that sends over jobs and it sends over technology.

Now, I do have to tell you, China’s not the only place where these minerals are. But in the last couple decades, facilities in the U.S. and elsewhere shutdown because the prices were so low, given low demand before. So they felt they couldn’t make money back then.

Moon: But we’re seeing this used as a bargaining chip now, so is industry here in the U.S. gonna build up again?

Tong: The markets are responding. The price of some of these minerals has really shot up the last year or so. And the investors are following.

I spoke to metals analyst Tracy Weslosky. And she says the rush into companies that want to re-open some of these mines is what she calls “mine boggling.”

Tracy Weslosky: The five publicly traded companies that were in that space last year all went anywhere from 50 percent-plus. Things kind of mellowed out a bit over last fall, but then they increased again and most of these stocks are doubling and tripling and quadrupling in price.

Tong: Now, we’re talking, Bob, about mines that could re-open in the U.S., in Canada, in Australia. And given the national security implications, governments may come and help out these sectors as well, outside of China. Here in Washington, one government report says the U.S. industry may be 15 years behind China and there’s a military review underway as well. So watch for government action to encourage these sectors.

Moon: So what do these latest developments tell us about China, and in particular, their willingness to use these resources as sort of a blunt instrument for diplomacy?

Tong: This is a new chapter in China in resources, Bob. Usually China has to go to the rest of the world to buy this stuff — to buy the iron ore, to buy the oil. And now, China has the stuff and some leverage, which was anticipated. The Chinese leader Deng Xiaoping, back in the 80s and 90s, he said that the Middle East has oil, but China has rare earth metals. And one industry observer said it appears that China is taking this leverage out for a spin to see how the world responds.

Moon: And that may be what we’re seeing in Japan. Scott Tong from the Marketplace Sustainability desk. You’re going to be following this story. Thanks for joining us.

Tong: Thank you.

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