China’s suspension of Rare Earth shipments to Japan in the fall of 2010 kicked off a firestorm and has largely contributed to the extensive media coverage Rare Earth supply issues have received in recent months.

While shipments were since resumed, reports that Japan is diversifying its supply sources have surfaced from time to time. But tensions may soon reach another high point over the issue of REE magnet shipments: Here’s what is happening, according a Rare Metal Blog story from this past weekend:

· Citing intellectual property security reasons and stressing that this is not a trade policy issue, the Japanese Ministry of Economy, Trade and Industry (METI) has thwarted Japanese companies’ plans to manufacture magnets in China.

· Effectively, METI’s move may prevent companies like Hitachi Metals, TDK Corp. and Showa Denko from building their planned factories in China, with planned projects having been delayed “indefinitely.”

In the wake of China’s export restrictions and Japanese companies’ efforts to circumvent these barriers by planning to move manufacturing sites to China (which in turn raised the issue of China wanting to get its hands on Japanese technological secrets), Rare Metal Blog’s Robin Bromby predicts “another impasse between the two countries over METI’s to-be-implemented new trade rules:”

“According to the Nikkei, companies that want to export those will need to show the end products will not be used to make weapons of mass destruction – patently, something that will be near impossible to achieve. After all, are the Chinese going to provide written guarantees along those lines? And even if they did, it would be impossible to check.

The Nikkei says the Chinese may have got wind of the METI plan. Partly completed magnets sent to China for final processing, as well as finished magnets being sent to Japan, are now being held up by Chinese customs.”

Similar problems may well arise for U.S. manufacturers, some of which have decided to go the same route as some of their Japanese peers and build manufacturing sites in China – problems that could be avoided entirely if the U.S. focused on exploration and development of the domestic critical mineral resources we have at our disposal.