Worries mount over China’s ‘rare earth’ export ban

Raw materials Reuters.JPG

Beijing's plan to ban exports of key raw materials called 'rare earths' as of 2015 should cause concern among manufacturers of high-tech products ranging from computers to electric car batteries and wind turbines, experts warned.

Since 2005, China has imposed a "rapid diminution of export quotas" on a number of rare metals and is planning a full export ban as of 2015, said Christian Hoquart, an economist at BRGM, a French public institute specialised in earth sciences.

Rare Earth Elements are used in the manufacturing of high-tech products such as wind turbines, electronic consumer goods, nanotechnologies, batteries for electric cars and various military applications.

Neodymium magnets, for example, are used in computer hard drives but also on offshore wind turbines, Hoquart said. A kilo of neodymium is necessary to make high-power, lightweight magnets for electric motors of hybrid cars, such as the Toyota Prius.

Although reserves are sufficient, over 95% of production is currently located in China and potential supply disruptions could hamper the development of the green economy, experts told a roundtable organised on 20 May by the French Institute of International Relations (IFRI) in Brussels.

"Rare earths are not rare," said James B. Hedrick, a former employee at the US Geological Survey who has since opened his own consulting firm. "However, the number of economic concentrations discovered to date are limited," he added, indicating that the vast majority of these were located in China. 

"The Middle East has oil, China has rare earths," he quoted Den Xiaoping as saying back in 1992.

Chinese exports to be banned as of 2015

However, the large quantities of rare earths that China has so far been supplying unhindered to the world's high-tech industries could soon dry out, the experts warned.

"The real trouble is a recent report by the Chinese Ministry of Industry and Information Technology that some heavy rare earths – Dysprosium, Terbium, Thulium, Lutetium, Yttrium – will be prohibited from exporting after 2015," said Hoquart, the French rare earth specialist.

"We see an urgency to develop a complete supply chain outside China," he said.

A number of mining projects have been launched outside China, Hoquart said – in the US, Canada and Australia, for instance – but low Chinese prices are discouraging new market entrants.

With prices of neodymium recently increasing five-fold to $23 a pound, ten companies have shown an interest in opening new rare earth mines, Hoquart said.

But they still face challenges matching China's low costs, which are mainly driven by low wages, he said. In any case, projects need to be speeded up in view of China's export ban in 2015, he said.

"2014 is really around the corner," Hoquart warned. "Supply shortages are really not impossible."

EU 'critical list' of raw materials

The warning comes as the European Commission is finalising a report that will define raw materials considered 'critical' to EU industries.

The report will be officially presented on 16 June at a 'European Minerals' conference in Madrid under the patronage of the Spanish EU Presidency.

A first batch of raw materials – cobalt, lithium and rare earths – was examined by a Commission expert group in November 2009. Various indicators will be used to determine whether they can be substituted or whether there is a real supply risk, EU officials explained (EURACTIV 01/12/09).

At the same time, the EU has also pursued a more aggressive policy on the litigation side by filing a joint complaint with the United States at the World Trade Organisation in June last year, accusing Beijing of unfairly favouring its industries by restricting access to nine types of key raw materials (EURACTIV 24/06/09).

China's attempt to attract high-tech investors

In the long run, Christian Hoquart said that Beijing's aim was to attract foreign investors in the country. "What we see is that China it is pressuring high-tech manufacturers to invest and produce in China where they can find the raw materials to do it," he said.

The French economist said the problem was not one of geological resources, which he said are plentiful. "The problem is availability for the manufacturing industry for key heavy rare earths – Dysprosium, Terbium – and also for light rare earths – Neodymium – and the trouble with short-term shortage risk."

But he warned that stockpiling, like Japan has started doing, was "not the true solution". "Perhaps better is to develop a complete view of the supply chain," he said.

To do this, Hoquart suggested setting up an observatory for rare earths and metals in order to have a better outlook on price volatility and potential supply shortages. "Statistics are difficult to find, incomplete and subject to manipulation," he warned. 

China is responsible for 95% of global rare earth production and about 60% of consumption currently originates from there, according to the US Geological Survey, a federal agency.

In November 2008, the European Commission presented a new 'integrated strategy' for raw materials, suggesting three pillars for the EU's policy response to global resource scarcity (EURACTIV 05/11/08):

The strategy was supported by EU industry ministers who called for EU "raw materials diplomacy" and a stronger focus on resource-efficiency and recycling (EURACTIV 04/06/09).

In November, the European Commission set up an expert group which began screening a list of thirty-nine "potentially critical" raw materials whose availability to industry could come under threat as global competition for natural resources intensifies (EURACTIV 01/12/09).

  • 16 June:  Commission to present report on "critical" raw materials in Madrid.

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