China Cuts Off World's Rare Earth Metal Supply
October 21, 2011 12:40 AM
comment(s) - last by
The hand giveth, the hand taketh away
China only has about 30 percent of the world's rare earth metal deposits, but thanks to clever planning it today
controls 97 percent of the world's production of these scarce resources
. Deposits of this family of 17 elements --
vital to power electronics
found in televisions, smart phones, electric vehicles, and a variety of other devices -- are found in California, Canada, Australia, and Russia, but it will take years to bring them online.
In short the world is
at China's mercy
for now when it comes to rare earth supply. And China's biggest rare earth metal producer -- the Inner Mongolia Baotou Steel Rare-Earth (Group) has announced that it is severing shipments to the U.S., Japan, and Europe for one month in an attempt to artificially inflate prices.
Inner Mongolia Baotou Steel Rare-Earth also plans to buy rare earth metals in an attempt to further move prices upward. The company already controls 60 percent of China's rare earth production, thanks to the Chinese government's decision to merge 35 other local companies into the Inner Mongolia business, or fade them out.
China controls 97 percent of the world's rare earth metal production.
[Source: Wikimedia Commons]
While the Sichuan province in the southwest and Shandong in the east produce significant amounts of rare earth as well, the Inner Mongolia Baotou Steel Rare-Earth Group's decision should be enough to move prices significantly.
Doing so will benefit China in a couple ways. First, prices will almost certainly go up, reverse a downward slide. Lynas Corp., an Australian rare earth producer reveals that since June the price of neodymium oxide has declined 34 percent to $157 per kilogram, while europium oxide is down 35 percent at $2,904 per kilogram.
Sun Fan, a rare earth analyst for Goldstate Securities in the southern city of Shenzhen comments in a
, "The impact on the market supply will be substantial. The dual measures of suspension and purchase will offer support for the rare earth prices and make the prices gradually pick up in the future."
Aside from raising prices higher, the pause in production will allow China to try to kick start its efforts to produce locally produce magnets. When it comes to the production of the magnets used in the electric motors of hybrid and electric vehicles, typically the biggest profit is not realized at a commodity level, but at a magnet producer level. Thus in the past foreign nations like the U.S. and Japan have pocketed the biggest profits. China
hopes to change that
China hopes to supplant its U.S. and Asian rivals as the main producer of electric motor magnets, by choking resource supply to its foreign competitors. [Source: ThinkGeek]
China's Ministry of Land and Resources in September bragged that rare earth metals were the nation's "21st century treasure trove of new materials." It argued that exports should be tightened, choking foreign supply and favoring Chinese manufacturers.
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10/21/2011 1:07:55 AM
..it will work in their favor. It will be years before anyone in the U.S. can get past government red tape and citizens that cry NIMBA.
Then them same citizens will bitch and cry about how the cost of everything used by them materials is skyrocketing. Smart move in the short term for China. In the long term, as other producers come online, they can in turn do the exact same thing to China.
10/21/2011 10:05:26 AM
Actually, probably not a smart move by China.
We are about to start an election cycle, one dominated by poor economic news and high unemployment. A lot of political points could be made in the US turning the Chinese into aggressors and opening up a major trade war. It could even turn military if we use our Navy to cut China off from African resources in retribution.
10/21/2011 11:23:24 AM
That assumes the US would win a trade war with China. Which do you think will break first: The American people, or the Chinese government?
Nevermind China always has the option of demanding the US government honor its ~$4 Trillion in US Tresuries. And its not like Europe is in position to give the US a loan to meet that obligation...China basically has the power to force a US default, which would destroy our economy [and don't try and argue otherwise].
In short: The US can't and won't win a trade war on China. I suspect we are seeing the first retaliation in regards to the tarrifs Congress is currently trying to pass on Chinese goods...
10/21/2011 12:41:29 PM
1) People are not going to vote on a pro-trade-war platform or military action against a superpower. It's same thing different day, more jobs, less taxes, control of government spending. People will vote for the better liar.
2) We cannot replace our Chinese imports within a period one or two election terms would encompass.
3) Even if we could, it would be the same situation we already face, buying domestic (and building infrastructure to supply) or paying less for the import.
4) The EU would never stand for the US taking military action for so blatant a financial reason. Just to stay in the middle east with sufficient military resources we have to go and invent /wars/.
5) We can't win a trade war until our standard of living drops to the same (risen) standard the Chinese have and even then we could not win because our capitalist society causes great redundant, wasteful, and anti-competitive practices. The Chinese communist state is simply the more efficient means for production.
"A politician stumbles over himself... Then they pick it out. They edit it. He runs the clip, and then he makes a funny face, and the whole audience has a Pavlovian response." -- Joe Scarborough on John Stewart over Jim Cramer
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