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China controls 97 percent of the world's rare earth metals. It is cutting its exports to increase profits and stockpile resources.  (Source: Sun Bin)

Sony says that the cuts may eventually force it to raise the price of its electronics. Other Korean and Japanese electronics giants have made similar statements.  (Source: Mynjayz)

EVs like the Chevy Volt, and hybrid vehicles might also see price increases and shortages as China cuts off rare earth exports.  (Source: Car Buyers Notebook)

The shortages will also hurt the wind and solar power industries, which depend heavily on the rare earth metals.  (Source: Wind Power)
Meanwhile nation pockets big profits and builds up its own growing economic juggernaut

They sound like something from a mad scientist's laboratory -- Scandium, Yttrium, Lanthanium, Cerium, Praseodymium, Neodymium, Promethium, Samarium, Europium, Gadolinium, Terbium, Dysprosium, Holmium, Erbium, Thulium, Ytterbium, Lutetium.  Yet these "rare earth" elements -- which, as there name suggest, occur infrequently in the Earth's crust -- have become critical materials used by the electronics and automotive industry.

However, the market for rare earth metals is hardly an open one.  China, by expert's estimates, controls 97 percent of the world's rare earth refining capabilities.  And it's moved this year to cut exports.

I. Over a Barrel -- The World Stands Helpless as China Raises Prices

This month China announced that it would be slashing rare earth exports by 35 percent in the first half of 2011 from a year prior, and that it was considering cuts for the second half of 2011.  The country claims it’s making the move to maintain "ample" reserves.  Most experts, however, believe that the move is a bid to increase its profits and give its own domestic industries an edge.

The move has been met with outrage in Europe and the U.S.  The European Union has threatened that it may push the World Trade Organization, a powerful international arbiter to pass sanctions against China, if it doesn't restore supply.  A European Commission spokesman is quoted in Reuters as commenting that the EU "notes the latest quota figures and expects China to respect its recent assurance of a guarantee of rare earth supplies to Europe."

Japanese tech firms are also angered by the move.  Sony, which uses rare earth elements in its TVs and other electronics, says the move could damage it in the long run.  Writes a company spokesperson, "We cannot welcome rare earth export controls or any restrictions that hinder the system of free trade.  At this point in time there is no direct impact on our company. But further restrictions could lead to a shortage of supply or rise in costs for related parts and materials."

Some Japanese companies are vowing to cut their dependence on the rare elements.  But that may not be as easy as it sounds.  The elements have become widely used thanks to their plethora of desirable properties -- properties that aren't always seen in other elements and compounds.

As prices of rare earth metals soar, electrified vehicle (hybrid, EV, etc.) makers in the U.S. and Japanese are bracing themselves for price increases.  Hybrids and electric vehicles use more than twice the rare earth metal on average as a non-electric vehicle.  However, even non-electric vehicles may see costs rise, given the significant amount of rare earth metals used in their onboard electronics.

II.  The Future -- Some International Production, but Not Enough

The problem likely won't resolve itself anytime soon.  While Lynas Corp. (Australia) and Molycorp (U.S.) both hope to bring rare earth mines online next year, China will still control the majority of this rare resource in the foreseeable future.

For rare earth metal companies in the U.S. and elsewhere outside China, the opportunity is tremendous.  States, Molycorp CEO Mark Smith, "Any reductions China makes in its 2011 exports versus 2010 levels will only exacerbate the global supply shortfall of rare earths we can expect in 2011."

However, with demand expected to rise from 55,000-60,000 tons in 2011 to 250,000 tons in 2015, China will be in a prime position to score massive profits.  Increases in the price of electronics, alternative energy devices, and cars in the U.S., Japan, and Europe, barring significant unforeseen resource discoveries or technological breakthroughs, will likely reflect these profits.



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We are being punished
By far327 on 12/30/2010 1:22:39 PM , Rating: 2
Anyone remember China getting all bent out of shape because GM wouldn't share it's information about the Chevy VOLT and EV technology. We are being punished for this and other new technologies (solar/wind) that are paving the way toward new economic growth here in the US. China sees our "green growth" as a negative towards their current industrial based economic growth. The U.S. and others are un-officially being sanctioned.




RE: We are being punished
By zmatt on 12/30/2010 3:34:23 PM , Rating: 2
You can blame that one on weak politicians who chose appeasement over getting what they want. The Chinese strategy is no different then what the Germans did leading up to WW2. take what they want and get yourself in a strong enough position to the point where you know that the incompetent leaders of the rest of the world can do nothing to stop you. We have no leverage against them. They control the resource,s the money, and the industrial base. The rulers of the free world are all a bunch of progressive ninnies who don't have any mojo.


RE: We are being punished
By Skywalker123 on 12/30/2010 4:40:52 PM , Rating: 2
What "appeasement" are you talking about?


RE: We are being punished
By psychmike on 12/31/2010 1:04:55 AM , Rating: 2
I think Marx was right in his general observations but wrong in his proposed remedies. Consumerism has gotten out of hand. Many large companies are trans-national entities which use sophisticated marketing to create demand for new products. They are also willing to drive down the cost of doing business by going wherever it is cheapest. Earlier, the Japanese were willing to do high quality work for considerably lower wages so tech jobs got shipped overseas. Then those jobs got shipped to China and Korea. As those countries see rises in their standards of living, the jobs will be sent to Malaysia and the Philippines. Consumerism has no master and it serves its own end - the maximization of profit and the externalization of cost. We were all engaging in a race to the bottom. In a truly free market society, the general standard of living would likely increase for the world. That would also mean, however, that many of the advantages that the First World enjoys would likely erode as competitors arise in the developing world.

The Chinese have done something interesting. They are managing economic growth through a central government. Their companies aren't public in the way most North American and European companies are. The companies are coordinated and controlled by the government to support Chinese growth. It will be interesting to see if they can continue with this strategy or if there will be increasing pressure for them to move to more open markets.

60 years ago, people were starving to death in China so the general Chinese population has been willing to accept a relatively low standard of living to date. Many workers travel long distances to work in city-factories and only see their own families once a week or once a month. There are pools of toxic chemicals from reclaiming facilities and the air quality in many large cities is abysmal. But the Chinese people are demanding a fairer share of the pie from their government.

Interesting times indeed.


RE: We are being punished
By SPOOFE on 12/31/2010 1:18:25 AM , Rating: 1
quote:
They are managing economic growth through a central government.

... And blatant violations of what are widely considered basic human rights. Sure, they build an impressive highway; how do they do it? By kicking people off their property and just, you know, taking it.

Is it efficient? Damn skippy it is. But try running for office on the platform of taking whatever property you durn well please and see how successful you are... oh, wait, that's how Obama won, wasn't it? By promising to spread the wealth around? Yeah, that wacky capitalism, driving our country into ruins...


RE: We are being punished
By Aloonatic on 12/31/2010 4:50:07 AM , Rating: 2
Human rights are a luxury that wealthy, developed nations can afford to implement, and ever then, it's probably not best for people to claim that their nation is whiter than white in this area. Just look at the virtual slavery that around 1% of the US population lives in, in prison.

China is going through the economic growing pains that every nation has. Sure, people are somewhat expendable but since when hasn't that been the case? Forgive me, but it's not like there isn't more than a little blood in the foundations of much of America's infrastructure, much of it's rail ways with blood from the far east too?

The Chinese dying or being abused in China for the growth of their nation are not the first to be used in this way, at least they are in their own country this time. It's wasn't/isn't just the US too of course. Very few nations have grown to be industrialised/technological global economic powerhouses on a foundation of strong unions, workers rights, and a strictly enforced human rights act.


RE: We are being punished
By SPOOFE on 1/1/2011 3:04:17 AM , Rating: 2
What a bunch of irrelevant yet correct observations. Nobody today praises America's legalized slavery of yesteryear, nor do they praise how America used to see laborers exploited. China's system does not deserve praise if the only reason they pull off impressive infrastructure builds is by trampling over human rights.


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