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BUSINESS | 6/21/2012 @ 10:58AM | 9,118 views
Behind China's Rare EarthControversy
Rare earth ore, shown with a United States pennyfor size comparison (Photo credit: Wikipedia)
On Wednesday in Beijing, the
Information Office of the State
Council, China’s cabinet, published
he country’s first white paper, on
China’s rare earth industry. Some
f the information in the report
aused a stir in the U.S. equity
arkets. Shares of Molycorp, Inc.
(NYSE: MCP), owner of the
Mountain Pass rare earth mine in
California, traded as much as 12.8ercent higher on Wednesday
orning on the New York Stock
Exchange, before closing at $22.43 per share, up 8.7 percent on the day.
Shares of smaller companies developing rare earth projects in the United
States and Canada also climbed, with Rare Element Resources Ltd. (REE)
ncreasing by 12.8 percent and Quest Rare Minerals Ltd. (QRM) by 17.7
ercent.
Uncertainty about the level of rare-earth exports from China and the future
lobal supply of these critical raw materials was heightened by the white
aper, which said that China has just 23 percent of the world’s rare-earth
inerals, not the 36 percent that the U.S. has estimated. China currently ccounts for approximately 95 percent of the global supply of rare earths. In
n effort to curtail environmental pollution and to preserve its rare earth
esources for domestic consumption, however, China has imposed quotas on
xports. In March, the United States, the European Union (EU), Japan and
Canada lodged a complaint with the World Trade Organization (WTO),
laiming that Beijing is unfairly choking off exports of the commodities to
enefit its domestic industries.
In the 21st century, natural resource battles will be fought not only over oil
nd water, but over 17 elements with names like dysprosium, yttrium and
eodymium. While they are called “rare,” rare earth minerals are found in
lmost all massive rock formations. However, their concentrations range from
10 to a few hundred parts per million by weight, making them difficult to mine
conomically. Rare earth metals are important because they are used in a wide
ange of consumer products such as cell phones, flat screen TVs and
omputers. They are also a strategic resource because they are a crucial
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omponent in wind turbines and other new energy technologies, automobiles,
nd a wide range of military and defense applications.
Rare earth deposits were first discovered in China in 1927 in Bayan Obo in
Inner Mongolia. After a detailed geological study, the Bayan Obo mine was
uilt in the 1950s. Deng Xiaoping recognized the importance of rare earths
o China’s future when he famously said in 1992 that “The Middle East has oil.
China has rare earths.” In 1986, six years before, Deng had approved the
National High Technology Research and Development Program, which
ccording to China’s Ministry of Science and Technology, was established toelp the country “to achieve breakthroughs in key technical fields that
oncern the national economic lifeline and national security; and to achieve
eapfrog development in key high-tech fields in which China enjoys relative
dvantages.”
Because rare earth elements are an important strategic resource in which
China has a considerable advantage due to the massive reserves in the
ountry, a great deal of money has gone toward researching rare earths. In
rder to close its technology gap with the West, China has also drawn on the
esearch of others. Nearly 50 percent of the graduate students who study at
he U.S. Department of Energy ’s Ames National Laboratory are from China.
Each time a visiting student returns, he or she is replaced by another Chinese
isiting student.
Between 1978 and 1989, China increased its production of rare earth minerals
y an average of 40 percent annually, making it one of the world’s largest
roducers. Through the 1990s, China’s exports of rare earth elements grew,
ausing prices worldwide to plunge. This undercut business for Molycorp and
ther producers, and eventually either drove them out of business or
ignificantly reduced production efforts. As a result, China ended up in its
urrent position of providing nearly the entire global supply of rare earths, an
nstable supply situation in such critical raw materials that led to the WTO
omplaint.
he timing of the WTO action by the U.S., the EU, Japan and Canada is
urious, though, because it appears that market forces are already correcting
he current imbalance. Molycorp is in the process of modernizing and
eopening its Mountain Pass mine, which is expected to come online later this
ear. A study by the U.S. Defense Department published in March, the same
onth that the WTO complaint was filed, found that the stranglehold that
China has on rare earth production could be coming to an end with the
pening of new production facilities in North America. The Defense
Department report concluded that by 2013 the U.S. military, which is almost
ompletely dependent on China for rare earth elements, will be able to meet a
ajority of its demand from North American sources.
In testimony before the U.S. House of Representatives in September 2011,
Mark Smith, President and Chief Executive Officer of Molycorp, advised
gainst the filing of a WTO complaint. According to Smith, WTO proceedings
ould take years to complete, and by that time, the U.S. would have its own
upply. Smith was referring to Molycorp’s $781 million modernization and
xpansion of the company’s rare earth mining and manufacturing facilities at
Mountain Pass that will create the most technologically advanced, energy
fficient, and environmentally superior rare earth processing facility in the
orld.
Smith said in his testimony that Phase 1 of the project would be completed by uly, 2012, and would take the company’s production from an estimated
5,000 to 6,000 metric tons of rare earth oxide (REO) equivalent to an annual
roduction of 19,050 metric tons or more of by the end of 2012. By the end of
2013, when Phase 2 of the expansion is scheduled for completion, Molycorp’s
J A C K P E R K O W S K I’ S P O P U L A R P O S T S
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