Wednesday, January 20, 2010

China Restricts Exports of Rare Earth Elements

A fascinating article appeared recently on my favorite web news site,, that was reprinted from the Independent newspaper in the UK. The article detailed China’s near monopoly on the production of rare earth elements.

Ever hear of neodymium, cerium, lanthanum, terbium, dysprosium? They are among 17 elements referred to as rare earths, which are not only hard to find, as their name implies, but they have unique qualities that are essential to many high-tech and alternate energy products, including cell phones, low energy light bulbs, windmills and advanced electric motors. Their use is expanding rapidly. The Toyota Prius, for instance, uses 16kgs of rare earths.

The gist of the article is that 97% of the world’s supply of rare earth ores are produced in China, almost all, in fact, at a single mine in Inner Mongolia province, and that China is beginning to restrict the export of that production to insure that its own industries have the metals they need. Manufacturers are scouring the planet to find alternate sources of raw materials for products that are the growth nexus of the future.

One of the dumbest things Thomas Friedman, New York Times columnist ever said was in conjunction with a Chinese company’s bid to purchase an American oil company. He commented that it wasn’t important who owned the company because it was part of a world market so the oil would go to whoever was willing to pay for it.

He was unfortunately blinded by his immersion in American corporate philosophy. Multinational corporations may have their headquarters in the US but they operate everywhere, in vicious totalitarian regimes as well as democracies, and have no allegiance or loyalty to anywhere. A multinational would never voluntarily set aside a product for its home market that was in high demand out of a sense of patriotism or concern for workers or local economies. The only thing that matters in the ethos of a corporation is the bottom line.

China has a much different take on the matter and is smart enough to know that its industries will have a great advantage with access to those metals. Export restrictions only come about because of shortages and that inevitably leads to price differentials; in other words, those metals will always be cheaper in China than outside. China will also have more of the value added jobs of processing the ore inside the country.

With world demand for rare earths set to spike with the move to alternate technologies a serious crunch is in the offing, with China holding nearly all the cards.

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