2011 spells desperate search for rare earth minerals

The recent spate of energy diplomacy between China and United States has resulted in the Asian giant slashing export quotas of rare earth mineral by half in 2011.

Chinese authorities have announced their country will lower its ceiling on rare earth exports for the first half of this year by 35 percent from the same period last year. It appears likely that China will eventually impose tighter limits for the full year.

The use of economic assets and especially natural resources as a means of aggressive diplomacy came as a shock to these economies. The incident has raised fundamental questions about rising Chinese influence in the global milieu and its disregard for the rules of engagement in an interdependent world.

Market anticipation of China rare earth quotas is not accurate. If we account according to the statistics in 2010, the exports quotas might be slashed by half. Unfortunately, the Ministry of Finance currently do not define the gross quotas for 2011, and the second round of quotas may not be publicly announced anyway, the China Securities Journal quoted a source as saying in the report.

What are rare earth materials?

A group of 17 elements which occupy the 6th and 7th period and belong to the 3rd group of the periodic table, rare earths are critical for many high-technology products. Lanthanum, Neodymium, Cerium and Dysprosium are some of the key elements. Used in green technologies such as hybrid cars, modern wind turbines and solar cells, and in military applications such as precision guided bombs and missiles, the rare earths are the backbone of the increasing technological sophistication which the world has witnessed recently.

Source: US Department of Energy

What is their worth?

Rare earth prices are soaring, up on average by 300 per cent between January and August 2010, with the rise for each individual metal ranging from 22 per cent to as much as 720 per cent. For instance, Samarium, a rare earth used in the navigation system of M1A2 Abrams tanks has jumped from $4.5 a kg to $34. Artificial intervention by Chinese authorities is the main reason. China has decreased the export quotas by more than 72 per cent and recently announced another 30 per cent reduction for next year.

With the monopoly powers of china manufacturing units of firms involved in rare earth business have relocated to China from US. General Electric (USA), Rhodia Group (France), New Materials technology (Canada), Diaodo Electronics (Japan), are among many who have relocated to China. Beijing has cajoled these firms through the instruments of Quotas and Tax Breaks. Since Quotas only apply to raw material and not semi-finished or finished rare earth products, foreign companies have created joint ventures with local Chinese enterprises, noted Institute for Defence Studies and analyses in its recent report.

Tax Breaks are another indication. China levies a duty of 25 percent on export of rare earth whereas it gives a rebate of 17 per cent on value added tax for firms based in China. This relocation has allowed an increase in high-class manufacturing jobs in China. This has also led to very high consumption of rare earths within China.

The future of rare earth is great. What is happening is the prices are going through the roof because the Chinese do control the supply, but it is pure simple capitalistic economics now, Rogers told an Indian business television channel ET Now.

Known for his investment fascination for China, Rogers said that rare earth makes great investing sense because the bulk of the metal is produced by China.

Well, China does produce 97 percent of rare earth. Uranium is not a rare earth, but they do produce a lot of uranium as well, he said.

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, while 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.

Steps taken by US to 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.

Each day, researchers and entrepreneurs across the United States are working to develop and deploy clean energy technologies that will enhance our security, reduce carbon pollution and promote economic prosperity. This strategy is an important step in planning for growing global demand for clean energy products that will help strengthen the U.S. economy and create jobs, said Secretary of Energy Steven Chu.

The study also explores eight policies and program areas that could help reduce vulnerabilities and address critical material needs, including research and development, information-gathering, permitting for domestic production, financial assistance for domestic production and processing, stockpiling, recycling, education and diplomacy.

The report also promised to follow-up with a more complete U.S. rare-earth development strategy by the end of 2011.

Earlier, 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.