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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 Kurz on 12/31/2010 10:23:54 AM , Rating: 2
Hmm... you actually stated the UK government used their power to sell the people out? And now you also state the US Government is doing the same?

You've come a long way Aloonatic.

RE: Sound strategy
By Aloonatic on 12/31/2010 2:47:18 PM , Rating: 3
I never explicitly mentioned the UK government, nor US? The US has had more more to protect it's industries though, in the laughable "free market" that allegedly exists, but that's more an issue to do with the size of the relative nations. Please point out where I have said that the UK government has sold its people out? If I did, that's not what I meant.

I'm only referring to trends and how people have behaved, which may be what you are referring to. However, generally speaking, I think that people get the governments that they deserve/ask for in the long run, so its not really any governments fault.

The simple facts are, kids in schools today will enter into a far harsher and more competitive world than their parents/grandparents ever did, and will have precious little too inherit too.

The riots in London over the last couple of months over student tuition fees are just one of the opening salvoes in what may well turn out to be a pretty nasty "generational war" (as I'm sure the tabloids would term it) in the UK, and I doubt that these issues only exist here too.

Governments just go along with whatever gets them the most votes, and that invariably follows the money. We sometimes forget that even in countries like the UK ans US, democracy and capitalism are not all that old, in the context of how nations are governed, and it seems that there might be a chink (no pun intended, given what this article is about) in the systems armour, when a large generation [baby boomers]comes along, which most of the money and power in a democracy will inevitably follow due to the way we are governed.

It's not governments that have sold their children out, it's their parents and grandparents, who have figured that appeasing them with shiny trinkets and loud flashing, noisy things made that last or a few years will make up for there being precious little else for them to inherit in the long run.

I hope I'm wrong, but it seems that that is the pattern that is appearing on this side of the pond. Of course, a great big global war/pandemic should reset the counter and get economies moving again. Create demand for this and that. Maybe that is how the future will go, who knows? :o)

"And boy have we patented it!" -- Steve Jobs, Macworld 2007

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