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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 Aloonatic on 1/3/2011 6:57:16 PM , Rating: 2
You seem to think that I am writing with some agenda. I am not, unlike most of you guys.

I've never said that rich people are this or that. I'm just commenting on what is going on. Sure people are selfish (if that's what you mean by b'stards), but what's new? They always have been, always will be, that's partly why we need governments and social conventions. They seem to have failed somewhat, or maybe it's inevitable?

Basically, all I said was that as the gap between rich and poor grows, the more crime you see. You are probably American but have money, so live in a little bubble, believing that America is like it is shown on Friends or something? However, you really should see what your country is like sometime, as you seem oblivious judging by your comments. (Not saying that any country is perfect either) You have a bigger gap between rich and poor in your nation than many in the west, and which country has the largest prison population percentage? The UK is catching up, and that happens to also be coinciding with a growth in the gap between...

Also, are you denying that in countries where there is an even bigger gap, that crime is higher? Countries like Brazil and South Africa, which I just chose at random.

You might want to dismiss what I point out or question as irrelevant, it just shows that you are missing the point. The age of the 1st gen millionaires? To spell it out, the number that come along in the next generation will almost certainly be a lower percentage of the population than before, and a lot of the current 1st get are probably older people. Of course, as someone cleverly pointed out, that has a lot to do with interest, but less and less young people are in the position to be able to take advantage of that system now too.

Sure, longer life expectancy is playing a part, but selling off manufacturing, taking the payment now, while replacing it with phoney/false economies where we generate little but customer satisfaction ratings, selling and servicing what is made over seas and bought on credit within a convoluted financial system based on hot air, is not going to cut the mustard in the long run.

Your notion of there being no problem with there being rich hand poor rubbing along together, I agree with, but only in a society where there is genuine opportunity for people to move from one to the other. That is part of what I am saying though, the older generations have sold-off/pawned many of those opportunities and mortgaged their own offspring's futures.

Oh, too many issues, and it's too late for me to bother :o)

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