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
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
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
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.