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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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RE: Sound strategy
By SPOOFE on 12/30/2010 4:13:33 PM , Rating: 3
They are UNWILLING to allow the mining businesses to flaunt regulations and destroy land while they are doing this mining.

In order to remain competitive, that is the mining that is necessary. Since they won't allow "that kind of mining", it is tantamount to not allowing the mining of these minerals.

China's decision may change that - less destructive mining may become competitive - but I doubt it. All it would take is the successful commencement of operations of some other rare-earth processing in some other country - using the same destructive techniques that cause the ersatz prohibition here in the States - that would force the environmentally unfriendly methods into use again.

RE: Sound strategy
By Lerianis on 12/30/10, Rating: 0
RE: Sound strategy
By someguy123 on 12/30/2010 9:46:09 PM , Rating: 2
If it was as simple as finding a replacement we wouldn't be having this problem in the first place.

RE: Sound strategy
By FITCamaro on 12/30/2010 11:44:23 PM , Rating: 2
They are finding other sources. In China. The whole message of this article is that China is now no longer going to sell as much of them to the rest of us.

Because of morons like you, we put all our eggs in one basket and now its breaking.

RE: Sound strategy
By SPOOFE on 12/31/2010 1:05:14 AM , Rating: 2
To me, if that was truly the case, I would have to say "BENEFITS NOT WORTH THE COSTS! MOVE ON!"

The benefit of remaining a powerful country so that we can exercise control over our environment and leave vast swaths of it pristine does, indeed, override the cost of dwindling as a society and losing the ability to preserve our beautiful natural splendors. Why do you want to kill nature? What did nature ever do to you, to engender such hatred from you?

RE: Sound strategy
By Lerianis on 12/31/2010 1:08:33 PM , Rating: 2
Uh, SPOOFE.... you got the EXACT OPPOSITE from what I posted than what I was going for, apparently.

The fact is that NOT being a 'powerful nation' enables countries to keep sections of their country 'pristine'. Frankly, I am not against cutting down trees for paper, mining, etc.

I just am NOT going to support doing that without regulations to keep these psychopathic (yes, that is the right term judging from their behavior) businesses from poisoning and KILLING Americans knowingly.

RE: Sound strategy
By SPOOFE on 12/31/2010 6:56:37 PM , Rating: 2
Uh, SPOOFE.... you got the EXACT OPPOSITE from what I posted than what I was going for, apparently.

Incorrect. I think it is you that doesn't understand what you are posting.

The fact is that NOT being a 'powerful nation' enables countries to keep sections of their country 'pristine'.

Yeah? Tell that to California, which is in such dire budget straits that they're looking to shut down a huge slew of state parks. It takes a lot of resources to make sure wild land remains unblemished, and if a country doesn't have those spare resources, it can no longer reliably protect that territory.

I just am NOT going to support doing that without regulations to keep these psychopathic (yes, that is the right term judging from their behavior) businesses from poisoning and KILLING Americans knowingly.

So you're a frothing madman, not realizing that your zealous dogma is having the opposite effect than that desired. Good job, murdering nature, you nature-hating anti-naturist. Go club a baby seal, you delusional nutjob.

"Death Is Very Likely The Single Best Invention Of Life" -- Steve Jobs

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