China has announced a series of moves designed to place additional controls on global rare earth metal supply. Meanwhile, U.S. Federal and state policymakers continue to dither over domestic mining policy initiatives.
According to the National Mining Association, the US has $6.2 trillion dollars of mineral reserves, but it also has one of the slowest permitting processes in the world for new mines, running on average 7-10 years. As China’s influence swells, America’s dependence on foreign sources of supply becomes a greater cause for concern.
China’s New Policies
According to MetalMiner IndX(SM), the Rare Earths MMI®, a price index for Chinese Rare Earth metals fell 10 points since June 1, 2012 and 48 points since January of this year.
This is attributable to falling domestic demand in China, and Beijing has made several policy changes within its rare earth manufacturing sector to stabilize prices. These reforms will place additional pressure on the U.S. and all other countries that rely on China for rare earths.
The first announcement came approximately 45 days ago, indicating that China would begin stockpiling rare earth metals. China has successfully moved global markets for a range of metals through stockpiling, particularly when it comes to copper and zinc. China’s copper stockpile (1.9 million metric tons) is more than the U.S. consumes in an entire year.
Copper is an extremely valuable metal due to its extensive security, technology and energy applications. It is the second-most used material by the U.S. Department of Defense. Copper is also the primary mineral for other critical and strategic minerals, such as Molybdenum, Rhenium, Tellurium, and Selenium. China’s stockpiling has reduced the availability of global supply, boosting demand and the price in turn.
According to intelligence group Stratfor, citing China National Radio and Xinhua, Chinese authorities have set a minimum production threshold on rare earth producers which will have the effect of reducing output by 20 percent. The Stratfor report also quoted a Chinese ministry official as saying the new thresholds may shut down one-third of rare earth mining operators and potentially half of smelting and metallurgy businesses involved in the rare earth mining sector. This strategy will further shore up prices and demonstrate China’s market power when it comes to rare earth metals.
Finally, China has just announced it will begin publishing a rare earth metal price index, ostensibly to create greater visibility into price trends for these metals (though how this index will benefit Chinese producers remains unclear).
U.S. Manufacturing Needs Smart Minerals and Metals Policies
These developments underscore the near stranglehold China has on the global supply of rare earth metals. When China keeps the price of these raw materials high, it increases costs for US manufacturers and hampers our economy, from the national down to the local level. Players in key manufacturing states, such as Wisconsin, are looking for smarter regulations and policies that allow the minerals and metals industry to give American manufacturing the boost it needs.
During a recent manufacturing summit in Milwaukee, hosted by the Metal Service Center Institute, its President and CEO Bob Weidner hosted a panel made up of executives from several metal companies including executives from Brillion-based Ariens Company, Chicago-based Lapham-Hickey Steel Corp., Dalco Metals Inc. of Walworth, Nucor and Bucyrus International. The panel addressed questions around policies that would boost job creation and improve manufacturing prospects for the US. The most frequent answers, as quoted from The Business Journal, included “simplifying and reducing taxes, less strict regulations that still protect the environment, developing a national energy policy, enforcing international trade laws with China and passing a federal debt plan so the country doesn’t go the way of Greece.”
Job creation goes hand in hand with sound government policy. Ironically, some of these manufacturing policies require little to no money to implement (e.g. streamlining the permitting process does not require new government expenditures) but they take coordinated action and a willing executive and legislative branch to implement.