Nettled over rare earth metals | Corporate Knights

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Nettled over rare earth metals

By: Katie Howard, Corporate Knights Editorial Intern

Countries around the world have grown increasingly frustrated with China regarding the continued export quotas they have placed on rare earth minerals. Last week, the United States, Japan and the European Union filed a suit with the WTO challenging the legality of these quotas. Rare earths are used in a variety of high tech devices, like LED televisions and high efficiency light bulbs. They are also used in everyday products like baseball bats, bicycle frames, cameras and even to treat certain types of cancer. Countries around the world are continually increasing their uses for rare earths, especially in the green-tech sector, and aren’t seeing eye to eye with China about the amount of rare earths needed for the market.

The players...

China: “Export restrictions are necessary in order to maintain domestic demand and protect the environment” and “the last year quota was not used up”

WTO: "That argument is illegitimate and China has been unable to
demonstrate the benefits of its policies on the environment"

EU trade commissioner: “These measures hurt our producers in the EU and across the world, including manufacturers of pioneering hi-tech and ‘green’ business applications”

China has a firm grip on the rare earth metal market, producing about 97% of the world’s supply. This is despite having deposits that make up only 37% of known global reserves. For many years, the Chinese consolidated its hold over the production of these metals, due to low wages and few environmental regulations. In Bayan Obo, a mining district west of inner Mongolia, waste has been finding its way into the Yellow river and then into the Yellow Sea – the primary source of water for 150 million people.

In Baotou, an industrial city in Mongolia, more than 5,000 residents are suffering from black lung. Although China does have some standards for pollution control, the rapid growth of the rare earth industry did not resulted in any discharge standards ever being set for this specific sector. Having cornered the market, the Chinese have now implemented strict export quotas to keep the price high. In 2010, a 40% reduction in export quotas was instituted, and the quotas have been left largely intact.

China’s output capacity: 200,000 tonnes
2010 Quota: 30,258 metric tonnes
2011 Quota: 30,184 metric tonnes
2012 Quota: 31,130 metric tonnes

The Chinese are now claiming that cutbacks are essential to control the environmental and health issues caused by the industry, while the rest of the global market is demanding rare earths, in part to increase the deployment of green technologies.

Rare earth metals have become instrumental in the development of green technologies; wind turbines, high-efficiency light bulbs, electric car batteries, and many others. Hybrid vehicles contain anywhere from 20 – 25 pounds of rare earths, and wind turbines require up to a ton of just one specific rare earth. The trade restrictions China has placed on the exports of these materials has caused prices to soar; the price of Tungsten went up by more than 30% last year alone.

Rare earth metals are also used in many types of armaments, bringing up national security concerns for the United States and other countries, which use these materials for everything from smart bombs to lasers.

Despite what the name implies, rare earths are far from being in short supply – the United States alone has 15% of the known global reserves. Due to the supply constraints, mining companies are now looking for new opportunities outside of China that weren't financially viable until several years ago. Just last week, Wolf Minerals announced that they were reopening the fourth-largest Tungsten mine in the world in south-west England, which was only operational during WWII, when overseas supplies were cut off.

Efforts are also underway to increase the refining capacity for these metals outside of China. Two mega-projects are under construction, according to the New York Times, in Malaysia and the California desert. Yet the obstacles to these coming online will be substantial, with mounting environmental concerns in both countries. The private sector is also taking steps to reduce its dependance on Chinese rare earth metals, with the announcement today that Hitachi will be specifically engineering motors to be constructed without the metals. Other companies, including Toyota, are rumoured to be taking similar steps.

Will the Chinese continue to control the world market, or will the rest of the world make inroads into this increasingly lucrative industry? Whatever happens, it promises to be in the headlines for years to come.