A report by an American think thank says that U.S. dependence on China for rare earths is extremely problematic and poses both economic and national security risks.

The report by American Security Project Research Assistant, Emily Coppel, released Tuesday, noted that the United States has the second-biggest deposit of rare earth minerals in the world. North American mines alone could supply U.S. rare earth needs.

The U.S. will need to develop new technologies and invest in mining operations to solve the long-term supply problem, Coppel suggested. In the short-term, stockpiling rare earths metals is one of the best ways to prepare for a future shortage until these new mines and technologies become available.

Rare earth metals have a wide variety of applications. They are used in hybrid car motors, computer hard drives, cell phones, and wind turbines. They are also essential for military equipment. Jet engines, smart bombs and guided missiles, lasers, radar, night vision goggles, and satellites all depend on rare earth metals to function.

The report also asserts that the first nation or defense company which is able to develop an effective and reliable substitute for rare earths or new and more efficient technologies will gain a competitive advantage.

This is one area where the U.S. has a significant advantage, having the most robust defense industry in the world, the report noted. The U.S. needs to capitalize on this advantage and regain its position as a producer and supplier of rare earth metals.

The report also notes that the Pentagon claims that the U.S. only uses 5 percent of the world's supply of rare earth metals for defense purposes,5 the fact is that the U.S. is completely reliant on China for the production of some of its most powerful weapons.

The Pentagon has been incredibly negligent...there are plenty of early warning signs that China will use its leverage over these materials as a weapon, Peter Leiter, a former trade advisor at the Department of Defense was quoted as saying in the report.

Coppel suggested the U.S. has gone from being the world's top producer to being completely dependent to China for its rare earth mineral supply.

The U.S. helped guarantee China's position at the top of the rare earths market when it removed American mining and production capabilities. With the closure of the Mountain Pass mine and the sale of domestic production facilities, the U.S. became almost completely import-dependent for its supply of rare earth metals, the report noted.

China's monopoly of the rare earths market has allowed it to manipulate this market by restricting production, using export quotas to limit global supply, and increasing taxes on rare earth metals. The Organization for Economic Cooperation and Development has estimated that non-Chinese producers pay at least 31 percent more for raw rare earth metals than Chinese producers.10 As a result; a black market in rare earths has developed.

Reserves of rare earth minerals across world

The total reserves of rare earth in the world are estimated to be around 99 million tonnes. China and the United States control most of these reserves with individual endowments of 36 million tonnes (30 per cent of world's total) and 13 million tonnes (13 percent of world's total), respectively.

Other countries which hold substantial reserves are Australia, India, the Commonwealth of Independent States, and Brazil. Over the years the supply patterns of rare earths have undergone fundamental changes.

According to the US Geological Survey's Mineral Commodities Summary, whereas till 1995 USA and China produced equal quantities of rare earths, today China produces approximately 97 per cent of the world's rare earth. Of the 124,000 tonnes of ore mined in the year 2009, China produced 120,000 tonnes.

Recommendations

With shortages likely sometime in the next two to three years, the U.S. needs to act quickly to reduce its reliance on Chinese rare earth metals. Stockpile Rare Earths. While stockpiling rare earths is not a long-term solution (eventually stockpiles will run out), it is a good stop-gap measure until new technologies or mines are available. A few countries, such as Japan and South Korea, already have strategic stockpiles of rare earth metals.12 China will begin stockpiling rare earths this year.

Develop new mines: Experts estimate that it would take anywhere from 10-15 years to have a new mine up and running efficiently, assuming everything goes according to plan and there are no unforeseen setbacks.16 There are several places where mining would be a worthwhile venture, including Thor Lake in Canada, which possibly contains one of the world's largest deposits of rare earth metals.17 The U.S. is currently working on reopening the mine at Mountain Pass, California, and expects it to be fully operational by the end of 2012.18 Experts believe that North American mines alone could produce as much as 40,000 metric tons of rare earth metals per year, or double what the U.S. currently uses.

Increase International Cooperation: Increased international cooperation and dialogue should go a long way towards alleviating the shortage of rare earth metals. Countries can work together by jointly investing in new mines, signing a formal rare earth treaty, or even making informal agreements to reduce dependence on China.

Rare earth metals substitutes should also be developed by the U.S. although current research is being hampered by the lack of resources being invested in R&D. Meanwhile the Chinese government has spent millions on rare earth metal research and development.

Developing new technologies that increase the efficiency of rare earth metals and that allow for better recycling of rare earths is another way for the U.S. to decrease its dependence on China, the organization advised. American Security Project noted the U.S. Department of Energy is currently working on new recycling techniques for rare earths, which could significantly lower world demand for newly extracted materials.

The US government has also been actively working avoid shortage of rare earth minerals. In order to escape the Chinese monopoly and due deliberation of the role of earth metals and other materials in the clean energy economy, Department of Energy of US has released rare earth mineral strategy.

Earlier last month, China's Ministry of Commerce issued the first batch of 2011 rare earth export quotas and allotted 14,446 tonnes of quotas to 31 companies, compared to the 16,304 tonnes allocated 22 companies in the first batch a year ago.

China suspended shipments of the mineral to EU and US in October, media reports stated. The suspension came after there were indications that the U.S. would investigate if China was violating World Trade Organization rules by subsidizing clean energy exports and limiting clean energy imports.

China mines about 90 percent of the world's rare earth minerals - which is a collection of seventeen chemical elements and is used to various technological devices, cellular phones, high performance batteries, flat screen televisions, green energy technology, and are critical to the future of hybrid and electric cars, high-tech military applications and superconductors and fiber-optic communication systems.

China has been reducing export quotas of rare earth minerals for the past few years, citing environmental concerns. However, Wang Caifeng, who is in charge of setting up the China Rare Earth Industry Association, stated that China might slightly raise the production cap and export quota next year.

China, which mines more than 90 percent of the world's rare earth, has exported 6,000 tons, or 49.8 percent, of its total rare earth to Japan, representing 167 percent rise year on year, according to China's Ministry of Commerce.

Rare Earth Metals Coverage Japan Australia China