Sunday, July 21, 2019

Poor Earth

When Chinese President Xi Jinping toured a provincial rare-earth processing plant in May 2019, analysts speculated that his visit signalled overt messaging by China in the middle of tortuous trade negotiations with the US. Suspicions have long trailed China’s near-monopoly over rare-earth supplies, not unlike the past scenario in the petroleum industry.

For decades, the Organisation of Petroleum Exporting Countries (OPEC) was viewed as a global arch-villain due to its cartel-like stranglehold on crude oil pricing. Ostensibly, if oil market shenanigans are embedded in consumers’ psyche, the same could not be said about rare-earth metals (REMs). So, exactly what are they?

Rare-earth elements (REEs) refer to a group of 17 elements on the Periodic Table of similar chemical and physical properties, listed here. They are further subdivided into light (e.g., Lanthanum) and heavy (e.g., Lutetium) elements. Although there is a subliminal supposition that these raw materials are rare, in fact some are relatively abundant in nature but often in such low concentrations as to make mining them economically risky.

Primarily, rare-earth metals (or processed REEs) have applications in the high-technology sector. They are used sparingly as industrial catalysts, and in products such as mobile phones, flat-screen display panels, electric vehicle batteries, wind turbines, military weapons systems, and in low-carbon green technologies. Specifically, REMs are valued for their unique chemical, catalytic, magnetic, electrical and optical properties, thus designating them as strategic minerals.

The mining cycle of REEs is typically long, costly and environmentally perilous because ore deposits often contain radioactive isotopes, and less than 5% of ventures yield a producing mine. Total global production of REEs in 2018 was about 170,000 tonnes, with China accounting for 70%, Australia 12%, the US 9%, Myanmar 3%, and Russia 1.5%.

If you’ve read this far, perhaps the narrative may seem as interesting as watching paint dry. Not only might REMs evoke repressed memories of high school chemistry, conceivably also of a 1980s alternative rock band. But try to hang on. Learning how the world’s three largest economies - the US, China and Japan - are adjusting to the supply and demand of REMs might render invaluable geopolitical insights.

US: From a national security perspective, the US recognises how strategic REMs are to the de-carbonised technologies of the future. However, US investors and producers have to contend with market forces, as well as mining permits which can take upwards of 10 years to process. Given these disadvantages, the characteristic boom-and-bust nature of the global market for REMs favours Chinese producers and partly explains their dominance.

China: To quote China’s former leader, Deng Xiaoping, “The Middle East has oil. China has rare earths.” In 1992, Deng was alluding to the fact that China’s 35% share of global reserves of rare earths was on a par with the Persian Gulf States’ 36% control of proven oil reserves. Unlike their Western competitors who face onerous regulations, Chinese producers operate under fewer restrictions. Also, state-controlled mines benefit from Chinese government subsidies thus skewing world markets. As global demand grew, China tightened its control by introducing export quotas.

Japan: To a greater extent than the US, Japan is heavily import-dependent and has had to stockpile REMs over the years to meet domestic demand. Following a diplomatic dispute in 2010, China temporarily constrained the export of REEs to Japan. In the aftermath, natural resource-poor Japan has sought to reduce its vulnerability. Recently, Japanese scientists discovered seams of REEs within its territorial seabed in the Pacific Ocean, which would require innovative deep-sea mining techniques to extract.

As tit-for-tat protectionism and trade tensions mount, the US and its allies anticipate that China might leverage REEs as a bargaining chip. And although China’s market share has dropped below a noose-tightening 95%, the barriers to replacing China as a supplier are very steep. To be clear, recycling REMs is not a serious option because they exist in manufactured products in such minute quantities; also, there are no obvious substitutes.

For all those who view the politics and economics of REMs through a low-resolution lens, they ought to pay particular attention to how the proposed ocean exploration of REEs will impact marine life and environmental standards. Recently, the United Nations’ International Seabed Authority has begun to issue deep-sea mining licences to private companies, in the slipstream of the huge destruction caused by large mining corporations on land.

Regretfullymineral exploration is intensifying in places that should remain pristineOn the 50th anniversary of man’s first walk on the Moon, are we determined to turn our blue planet into another lifeless ball of goo?


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