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... or else we'll do something really bad to you (except that we can't)

When it comes to rare earth metals -- a vital part of modern electronics -- depending on whom you ask, China is either brilliant or abusive.
 
I. All Your Rare Earth Metals are Belong to Us
 
Rare earth metals are difficult to mine.  It can take up to a decade -- and billions of dollars -- to get a mine running at peak capacity.  And it isn't cheap. In the 1970s and 1980s, the U.S., Australia, and most other regions decided to stop mining the scarce resource.  At the time the decision seemed to make sense.  Rare earths were primarily used for specialty commercial purposes and scientific research.
 
China, however, bucked the exodus and decided to keep its rare earth metal mines under its control (both in China and in other parts of Asia), active and producing.  At the time the Chinese looked like fools.  Now that "foolish" stubbornness has handed them a gold mine.
 
Fast-forward to the present and rare earths are vital to numerous businesses.  They're found in solar panels, wind turbines, car windshields, computer displays, sensors, and many other devices.  And with China controlling 90 percent of the world's production, buyers have nowhere else to turn.
 
Rare Earth Ore
[Image Source: Shutterstock]

China in a stroke of brilliance -- or diabolical evil, if you're an American tech firm -- realized a few years back that it could simply cut exports.  Given its virtual monopoly, buyers were largely helpless to prevent prices from rising as their were few desirable alternatives from a materials engineers perspective.  China, could sit back and sell less of this precious resource, while pulling in basically the same amount of profit.

One obvious solution is to make the expensive investments to restart rare earth production of their own.  But, as mentioned, that will take some time to achieve.
 
In the meantime the U.S. has led an international coalition in filing a complaint at the World Trade Organization, an international arbitrator, accusing China of abuse.
 
Today the WTO finally issued a ruling, concluding that China was acting in an abusive way for its own benefit.  Comments the WTO:

The overall effect of the foreign and domestic restrictions is to encourage domestic extraction and secure preferential use of those materials by Chinese manufacturers.  Under the circumstances, the Panel concluded that the "even-handedness" required by the Appellate Body under Article XX(g) had not been met, and hence the quotas could not be justified under that provision.

China imposes certain restrictions on the right of enterprises to export rare earths and molybdenum. Although China has committed to eliminating trading restrictions in its Accession Protocol, it argued that the restrictions in question are justified pursuant to Article XX(g), since they too relate to the conservation of exhaustible natural resources. Although the Panel found that China could rely on the Article XX exceptions to justify the restrictions in question, it found that China had not satisfactorily explained why its trading rights restrictions were justified under this provision. Accordingly, the Panel concluded that China's trading rights restrictions breach its WTO obligations.

In other words, China is restricting a valuable resource and keeping the remainder for itself.
 
II. Domestic Production in U.S., Japan Expected to Rise Substantially by 2020
 
A long-term solution is in the works.  In the U.S., Molycorp, Inc. (MCP) completed a successful stock offering and in Aug. 2012 announced that it had reopened a rare earth metals mine in Mountain Pass, Calif.  Once the world's largest supplier of rare earth metals, the mine must now trudge along over the next half decade or so, trying to ramp up production.

Mountain Pass mine
Molycorp's Mountain Pass mine is now back in action, but will take a while to ramp up production.
[Image Source: Molycorp]

The U.S. also committed $120M USD to a "rare earth resource center" to investigate alternative strategies, such as rare earth metal recycling and economic strategies to put pressure on China.
 
There are two legislative efforts in the works in the U.S., but both appear pretty much dead.
 
The latest effort by the U.S. comes courtesy of U.S. Senator Roy Dean Blunt (R, Miss.) and U.S. Senator Joseph "Joe" Manchin III (D, W. Virg.).  Dubbed the "National Rare Earth Cooperative Act of 2014", the bill would direct federal funding to support public-private partnerships to accelerating exploration and potential extraction of one of the nation's promising potential deposits of ore rich in rare earth metals -- the Pea Ridge iron-ore mine in Washington County, MO.  That bill would order the U.S. Geological Survey (USGS) to coordinate the effort.  But according to GovTrack, the bill only has a 2 percent chance of being enacted.
 
A second bill, the Critical Minerals Policy Act of 2013 (S.1600), is even more nebulous in its objectives. It looks to establish a "critical mineral list" that promotes certain resources (e.g. rare earth metals) as "critical to national security objectives", perhaps promoting federal spending on them or other new legislation.  That bill -- sponsored by Senate Energy and Natural Resources Committee Chairman U.S. Senator Ronald Lee "Ron" Wyden (D, Oreg.), Sen. Blunt (R, Miss.), and U.S. Senator Lisa Ann Murkowski (R-Alaska) -- has only a 3 percent estimate chance of passing.
 
Japan -- perhaps even harder hit than the U.S. by the export ban -- also announced some good news last year, with the discovery of rare earth metals in the rocky sea off the coast of its island Minami-Torishima.  Japan has exclusive economic rights to using the seas surrounding the island, which is located in the Pacific Ocean, southeast of Tokyo.  Ocean mining is a complex and at times treacherous occupation, but given the value of the resource it's too important to pass up.

Japan rare earths
[Image Source: PhotoLibrary (left); University of Tokyo (right)]

Japan uses an estimated half of the world's rare earth metals.  Tokyo University Professor Yasuhiro Kato states:

We have found deposits that are just two to four metres from the seabed surface at higher concentrations than anybody ever thought existed, and it won't cost much at all to extract.

Japanese officials have stated that it should take two years (through 2015) to explore the deposits and then will look to rapidly scale up extraction over the next half decade.  Despite the undersea location, the unusually high concentrations of the scarce compounds may allow Japan to extract rare earth metals more cheaply that Chinese controlled mines and the Mountain Pass mine.
 
Between the two efforts, the situation seems bound to improve, but in the short term more immediate remedies were needed.  To that Japan, South Korea, the EU, Australia, and the U.S. were pleased with the WTO's decision.
 
II. Can the U.S. Really Sanction China Without Shooting Itself in the Process?
 
U.S. Trade Representative Mike Froman crowed triumphantly at the news:

We will continue to defend American manufacturers and workers, especially when it comes to leveling the playing field and ensuring that American manufacturers can get the materials they need at a fair market price.

China’s decision to promote its own industry and discriminate against US companies has caused US manufacturers to pay as much as three times more than what their Chinese competitors pay for the exact same rare earths.  WTO rules prohibit this kind of discriminatory export restraint and this win today, along with our win two years ago in an earlier case, demonstrates that clearly.

China's trading rights restrictions breach its WTO obligations.

China's Ministry of Commerce fired back, stating:

China believes that these regulatory measures are perfectly consistent with the objective of sustainable development promoted by the WTO.

Humorously, China has turned a common Western argument back against its economic foes, arguing that if it did not ban exports, rare earth mining would cause undue environmental damage to China.  China has up to 60 days to appeal the decision, which it will likely do.

World Trade Organization
The World Trade Organization [Image Source: AFP]

If it opts not to appeal or if it loses its appeal, it could face sanctions from the EU, Japan, South Korea, Australia, and the U.S.  
 
The question is how precisely these regions could punish China without hurting themselves, given that China assembles most of the world's electronics and is increasingly become an important source of revenue for many international businesses.

China rare earth
Chinese workers mine metal ore. [Image Source: Telegraph]

Most likely they -- like the EU, U.S., and their Asian allies will say a lot and do nothing -- precisely what disgruntled customers with no leverage will always do.  After all, talk is cheap, but rare earth metals are not.

Sources: World Trade Organization, The New York Times



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Very Angry we will be
By Kefner on 3/26/2014 5:01:42 PM , Rating: 5
China, stop or else we will be very angry with you... and we will write you a letter, telling you how angry we are.




RE: Very Angry we will be
By Farfignewton on 3/26/2014 5:11:04 PM , Rating: 5
quote:
China, stop or else we will be very angry with you... and we will write you a letter, telling you how angry we are.


That seems familiar.

Russia, stop or else we will be very angry with you... and we will write you a letter, telling you how angry we are.

The U.N.


RE: Very Angry we will be
By Amedean on 3/27/2014 2:45:47 AM , Rating: 1
I used to think more highly of Putin as somebody with a strategic mind. Now I think he is an idiot. The president is doing pretty well in diplomatic jujitsu.


RE: Very Angry we will be
By FITCamaro on 3/27/2014 10:57:02 AM , Rating: 1
What crack are you smoking? Have left over from some of Obama's dealer days?

Putin is whooping Obama. He knows that Obama is gutless and won't do anything as he takes whatever territory he wants.


RE: Very Angry we will be
By bsd228 on 3/27/2014 2:42:31 PM , Rating: 2
quote:
Putin is whooping Obama. He knows that Obama is gutless and won't do anything as he takes whatever territory he wants.


The prior poster was smoking the crack of 'long term thinking.'

Putin exhausted all the good will (and foreign investment) he had in order to seize Crimea, just 7 months after chiding the US for acting without UN approval. I find it difficult to believe it is valuable enough to warrant the political capital. And monetarily, Crimea has a very high portion of pensioners and now little tourism, so it will be costing billions per year.


RE: Very Angry we will be
By FITCamaro on 3/27/2014 4:38:24 PM , Rating: 3
http://www.businessinsider.com/why-crimea-is-so-va...

And Russia is friends with who it wants to be friends with. China.


RE: Very Angry we will be
By Samus on 3/28/2014 2:04:40 AM , Rating: 1
We should have had troops at the Crimea border waiting for the Russians. We knew Russia was going to invade a month in advance. Ukraine has been unstable for months and it was a golden opportunity for Putin.

But we didn't. Our military is going totally underutilized right now. I get that we don't need the Middle-East presence we've had for the last decade, but we need a presence in Ukraine, Turkey, the Philippines, South Korea, and various other places where assistance is needed.

After all the bogus work in Iraq over oil, we now annex off Russia with sanctions. Russia is a larger supplier of oil than all Middle-East contries outside of Saudi Arabia COMBINED. This is going to totally FUCK China, which is why the Chinese are technically siding with Russia on this (economic principle)


RE: Very Angry we will be
By evo slevven on 4/1/2014 1:40:17 PM , Rating: 2
Actually China isn't any more happy with Crimea than the western media has played out. It's actually one of the few times that the Chinese ruling party, the politburo, has gone on the record saying that they hope Russia will re-consider it's actions. That would transalate to the common language of "really wtf did you just do that". Keep in mind China's not looking at Russia economically at the time being but rather how Crimea reflects Tibet and several other areas where the situation mirrors Crimea; you have a large population in another country and really would prefer to part ways.

China is a technocratic nation making decisions slowly and having a tight fist like Russia but with power behind a central party versus an individual. If China had to choose over resources versus riots and civil disobedience [and most sino~east asian experts who have studied China have well documented the problems they have faced since the 90's in just clamping down], civil disobedience is a bigger concern to them. The hard part of having a huge populous with hundreds of millions of people who lives at poverty levels is that a mass riot would cause infrastructure to buckle more than anything Russia could do. Most americans are used to sporting event riots. In China the concern is a 100-300million person riot. That's been the general logic as to why China DID NOT publicly support Russia's actions in Crimea.

Putin may win Crimea but he risks loosing Ukraine to NATO, China distancing itself, who in turns is watching the situation in North Korea and it's western lands, just killed 1/3 of Russia's economic growth and enforced the issue of countries becoming less global for their economy, which in a recession recovery isn't actually as bad as one thinks becomes you're just encouraging countries like the US to invest in their own infrastructure and create jobs in their own countries which is such a horrible thing too.


RE: Very Angry we will be
By marvdmartian on 3/27/2014 7:12:57 AM , Rating: 2
And we will stomp our feet, and have a VERY angry expression on our face, while talking badly about you to our friends....who are also very angry!


RE: Very Angry we will be
By Jeffk464 on 3/26/2014 5:36:26 PM , Rating: 2
How do you say Feh! in Chinese?


RE: Very Angry we will be
By geekman1024 on 3/27/2014 1:27:39 AM , Rating: 2
Mandarin (the common language used in China) is a complex and fascinating language. Depend on how you refer to "Feh!", it could be pretty hard to pin point a direct translation, but I 'd suggest this:

???????(This fella is an idiot, isn't he?)(note: "the fella" is not referring to the one I reply to.)

As in the context of how (I assume) most China citizens would respond to WTO's threatening (let's assume that's a threat).


RE: Very Angry we will be
By geekman1024 on 3/27/2014 1:29:52 AM , Rating: 2
darn! DT doesn't has the ability to display Chinese characters!


RE: Very Angry we will be
By Helbore on 3/27/2014 10:55:53 AM , Rating: 5
They used to, but it was withdrawn by order of the WTO in order to punish China.


Value of Ore was Reason Why Most Stopped Mining
By sigmatau on 3/26/2014 6:51:42 PM , Rating: 4
The article seems to fail to mention that the reason most countries stopped mining rare earth metals was because of the low price of the ores coming from China for decades. This could be considered dumping as China is trying to do the same with solar panels to put everyone else out of business and then to corner the market.

Rare earth metals had a very low price and it simply wasn't worth the cost of mining in many countries. China's use of extremely cheap labor helped them corner the market. They care nothing about the environment as you may have noticed with the pollution clouds that are almost as thick as sand storms in some places.

Over the past 5-10 years, they have increased prices drastically not to keep up with demand, but to keep their factories supplied at the cost of everyone else's. This is very evident with the limit they recently set on exports for these ores.

I hope we ramp up the process to get our mines back on line in addition to Japan and other countries. No one should be allowed to control an important commodity like China is doing today.




By Warren21 on 3/26/2014 8:27:50 PM , Rating: 3
I wholeheartedly agree with the sentiment you're conveying -- but "No one should be allowed to control an important commodity like China is doing today." is no one's fault but our own for executing the capitalist mindset.

It's hard to say "shame on China" for outplaying the global community; no one forced domestic mining to be shut down, we simply made a choice. China is profiting from that choice now, but it was ultimately a choice we made. We can get mad all we want; in the end China simply played the better hand.


By Jeffk464 on 3/26/2014 10:28:46 PM , Rating: 2
Yup, it seems to me China is always a step ahead of us.


By bug77 on 3/27/2014 6:44:44 AM , Rating: 2
quote:
no one forced domestic mining to be shut down


Maybe you should look into environmental groups' funding.


By Dr of crap on 3/27/2014 12:48:58 PM , Rating: 2
AND you think that oil isn't in the important world commodity market you speak of???

Yet NOTHING is done about the cost of oil / gas!

Good luck with your shame!


By Donkey2008 on 3/27/2014 3:13:26 AM , Rating: 2
"I hope we ramp up the process to get our mines back on line..."

Who ramp up the process?

As of now it is up to private companies to ramp up mining with no government help at all. The Federal gubment is more interested in dumping billions of dollars on "green" energy than getting real mining going again. There are dozens of gold, copper, moly and rare earth mines in the United States which the gubment could help get back online with federal assistance (low interest loans). These are mines that would be profitable and employ thousands of Americans, but the companies cannot get financing through conventional financing. The mining sector does not have the unrealistic margins of tech/pharmy companies which means investors stay away, so it is harder to raise private equity to finance a new mine (which can take 7-8 years with the current, ridiculous permitting process).

So while China looks at mining as a long-term strategic investment, western countries look at it as just another business subject to the winds of capitalism. Reality vs economic philosophy. Reality is winning.


By inperfectdarkness on 3/27/2014 9:02:12 AM , Rating: 2
Same reason why the USA shut down drilling operations--foreign oil was cheaper. And look where that's put us with the middle-east.

I'm not a fan of tariffs by any stretch, but with certain markets--like rare earth metals--there should be a cap on how much is allowed to be imported. If for no other reason that it compromises our national security to be hamstrung on another country's whims. And we all know how benevolent China is.


By FITCamaro on 3/27/2014 10:59:15 AM , Rating: 2
I think you missed the part where we need what they have because we don't have enough ourselves.


By inperfectdarkness on 3/27/2014 4:44:25 PM , Rating: 2
Which is why the Nixon administration...and every administration since then...has pretty much dropped the ball. After 1974, we should have been dedicated to independent energy--but nobody cared. Apart from Reagan killing off the vestiges of the USSR, I can't really credit any president since 1974 with doing something of unequivocal benefit. If Kennedy's push got us to the moon in 10 years, wtf are we...40 years hence, still dependent upon foreign oil?


By Mint on 3/28/2014 5:20:57 PM , Rating: 2
What do you want? Black magic to conjure oil out of nowhere? Trillions in subsidies to extract $150/bbl shale oil in the 90's (if the state of technology even made it possible) when the middle east sold it for <$40/bbl?

Just be happy that we got all that cheap oil back then to develop our economy. I'm sure oil fields that sold $25/bbl oil in 2002 are kicking themselves for not keeping it in the ground and selling for triple that price today.

A trip to the moon needs orders of magnitude less funds and materials than energy independence. Nature doesn't always give you what you want.


By SuckRaven on 3/27/2014 1:14:59 PM , Rating: 1
And what stupid governments, and greedy corporations without an iota of foresight failed to realize, is that if someone else controls ALL (or nearly 90%) or your supply, then exactly this situation arises. I don't blame the Chinese one bit. They made the initial investment to get their mines up and running, and kept them running when everyone else packed up and went home to smoke a cigar, because hey..."the idiot Chinese are doing all the work for us, and are even selling the stuff dirt cheap."

Well, here is the result. Good for them I say. The problem in this country now, is that the rest of the world is not going to tolerate our "tantrums" any more. The U.S. is like one big teenage baby when it doesn't get its way. Same thing with Putin and Russia. We need to quit being such whiny bitches about everything, when we were the ones that effed up.


Lynas share price worth a thousand words..
By thebeastie on 3/27/2014 10:46:22 AM , Rating: 2
Funny reading articles like this because some companies like Lynas in Australia are actively pumping out 11 tons of Rare Earth Metals each year but are just loosing money doing so just waiting for the price of rare earths to go up per pound.

Doesn't seem for some gay reason you can't post with a URL to google.com/finance to show off the massive downfall of the Lynas share price selling rare earth minerals so you would have to look it up your self.




By thebeastie on 3/27/2014 10:47:53 AM , Rating: 2
Let me try one more time without https..
www.google.com/finance?q=ASX%3ALYC
OK this might go through?


Anti-"big" oil people
By FITCamaro on 3/27/2014 10:58:26 AM , Rating: 2
Please remind us all again about how we need to switch to electric cars so we are less dependent on foreign oil.




RE: Anti-"big" oil people
By Dr of crap on 3/27/2014 12:51:12 PM , Rating: 2
LMFAO - you are correct sir!

Think I'll continue to burn and cause warming!


chinese after all
By dimsum888 on 3/27/2014 5:30:46 AM , Rating: 1
china is slowly showing its true colors to the world.




RE: chinese after all
By Helbore on 3/28/2014 10:01:23 AM , Rating: 2
Slowly?


I don't get it
By Fidget on 3/27/2014 12:06:34 PM , Rating: 3
Why do these rare earth metals need to be exported when everything is built in China anyway?




I feel bad for China sometimes
By coburn_c on 3/26/2014 9:55:29 PM , Rating: 2
Friday: China needs to stop inflating its economy

Monday: China let a bond default, their economy is doomed!

Tuesday: China needs to reduce pollution.

Wednesday: China isn't strip mining enough toxic metals!




Mining in North America
By Donkey2008 on 3/27/2014 2:45:45 AM , Rating: 1
The green movement has made it almost impossible to start new mines in North America. The permitting process alone is ridiculous and forget it if there is any species that might get its feelings hurt if mining begins in an area. If the mine is anywhere near native American land, then expect lawsuit after lawsuit for daring to mine on "sacred" federal land (of course it isn't sacred until gold or other metal is found under it). It's a total joke.

Until these morons (wackjob environs) realize that every physical possession they own in life is either mined, extracted or grown they will never get it. Everything they use daily is counter to their own beliefs.




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