rare earths

Beginning today, official Washington hosts a visit from China’s Vice-President Xi Jinping, widely seen as the successor to current President Hu Jintao, who steps down later this year as head of China’s Communist Party, and cedes the presidency in 2013.

The visit highlights a number of issues that make the current U.S-China relationship contentious. For followers of American Resources, the obvious question is whether rare metals — and rare earths in particular — will be on the bilateral agenda.

According to the long-time China hands I’ve spoken with, the short answer is No. (In spite of a Congressional effort spearheaded by Colorado’s Mike Coffman to put China’s rare earth quotas on the docket in the wake of last week’s WTO ruling on China’s industrial metals export policies.) Key issues expected to dominate the closed-door sessions will range from currency valuation and the rebalancing of the Yuan and Intellectual Property (IP) rights and China’s interest in getting serious about IP piracy, to human rights (think Tibet and Internet/social media freedoms) and the role of China’s hybrid State-Owned Enterprises (SOEs), commercial behemoths that blend characteristics of private-sector multinationals with access to government funding and strategic support.

That said, metals may push their way into the bilateral discussions, as they play a part in these larger issues. Here’s how:

Metals and piracy. Non-Chinese companies — see Ford and GE for instance — will state for the record they’re not about to hand over any IP as the price of admission to the Chinese manufacturing sector, but the pressure is there, and the list of U.S. companies that have lost IP to Chinese piracy is long and growing. No one wants to hemorrhage IP, but with access to scarce metals as a magnet, companies may feel they have little choice.

How vulnerable are we on the metals front? According to the USGS, which last month provided its annual snapshot of U.S. import-dependency on a range of 60+ metals and minerals, of the 19 metals for which the U.S. is 100% foreign-dependent, China is a Top 3 provider for 11. That’s up from 8 of 18 metals — in just one year.

The private sector versus the SOE. This uneven battle is the economic version of asymmetrical warfare: U.S. firms wage the battle for market-share on their own — with perhaps a bit of government-backed market advocacy — against Chinese mega-nationals that are locked into government planning and routinely benefit from government subsidy. In the metals sector, this plays out in China’s rapid emergence as a major resource development partner in Africa, as well as in grating one-offs like Afghanistan, where U.S. troops provided security patrols for key transport routes in Logar Province used by the Chinese to develop a massive $3.5 billion copper mine at Ainak.

On metals as on all else, the Chinese notoriously think long term — how long? Just take a look at 863 Program, now in its 26th year — while American politicians wrangle over two-week federal budget extensions and American captains of industry scramble for the next quarterly earnings call.

Thomas Friedman may fantasize about the U.S. being China for a day, but I’m sticking with America’s market-based, innovation-unleashing economic and political system. Even so, we could borrow from the Chinese a mentality that looks both longer-term and deeper at the foundational issues that affect our economic competitiveness, our technological progress and our national security. In each case, we’d see the need to base our policies on a sound rare metals strategy — one that puts a premium on developing domestic sources of metals and minerals that decrease our Chinese dependency.

The World Trade Organization (WTO) recently made headlines over its decision to notify the Chinese government that it is in violation of international trade rules regarding the country’s raw materials export restrictions covering bauxite, zinc, yellow phosphorus and six other industrial minerals.

The case – brought about by the U.S., European Union, and Mexico in 2009 – upheld an the initial WTO ruling, and constitutes the supra-national body’s final holding on China’s policies.

Implications for rare earths?

Rare earth elements (REEs) – the group of 17 elements without which we would not have our smartphones, tablets, and flat screen TVs – were not at issue in the WTO’s decision. While the WTO does not treat prior rulings as precedent, some in the international trade community were quick to claim a linkage in the WTO’s logic to China’s export controls on rare earths.  European Union Trade Commissioner, Karl De Gucht, had this to say in a press statement:

China now must comply by removing these export restrictions swiftly and furthermore, I expect China to bring its overall export regime – including for rare earths – in line with WTO rules.

Supra-Nationalism versus Sovereignty

In a recent post for RareMetalBlog, American Resources principal, Daniel McGroarty, expressed skepticism that China would accept this linkage, citing what he called the “limits of law in cases of sovereignty,” pointing out that China’s REE stranglehold is neither a “force of nature” nor a “fact of geology.”

China may have a rare earth production monopoly, McGroarty explained, but it only possesses 36 percent of the world’s known reserves. He noted that compelling a sovereign nation to export what other nations could arguably explore and develop themselves would be a “tough case to make in the court of public opinion.”

Chinese officials have said they will adhere to the WTO ruling, but exactly how far they would go remains in question. Already, Reuters has pointed to a loophole in the ruling that allows for leaving export quotas in place for environmental reasons — a rationale frequently mentioned by Chinese authorities as they consolidate their rare earths mining sector.

The United States Geological Survey announced that it has granted more than $260,000 for “new research on mineral resources important to [US] economy, national security, and land-use decisions,” including rare earths, niobium, and tantalum.

With this week’s WTO ruling on China’s raw materials exports (visit RareMetalBlog for our very own Daniel McGroarty’s take) all eyes are once again on rare earths – and for good reasons, as these critical elements are the poster child of the challenges associated with resource dependency. However, a broader focus is needed, and tungsten [...]

In 2011, we saw a lot of countries enter into cooperative agreements to develop critical minerals.  This trend will likely continue this year, as nations that do not possess or develop some of the most sough-after metals and minerals are looking to secure future access and alleviate or stave off supply shortages. The last few [...]

Just when American Resources has read its thousandth story on companies substituting around scare metals like the Rare Earths to reduce usage, along comes this Platts report on a new discovery in Russia’s RUSAL research labs, working in conjunction with a team from the Siberian Federal University.  Scientists there have fabricated a new aluminum alloy [...]

On Wednesday, December 14, I attended the first-ever meeting of the Congressional Rare Earths Caucus. The brainchild of Colorado Congressman Mike Coffman, a leader on the issue of rare earths and resource dependency, the new caucus will push for rare earths supply chain.  The U.S. Magnetic Materials Association’s Jeff Green conducted the briefing, focusing on [...]

Much was made of a recent discovery of significant rare earth deposits on the seabed of the Pacific Ocean. Some were even heralding the beginning of the end of China’s rare earth near-total monopoly. Lending credibility to those cautioning against this sentiment, a new Canadian-led study published in the journal Geology concludes that “accessible supplies [...]

Bearing testimony to the fact that China’s geopolitical power play stretches beyond rare earths elements, around which its restrictive export policies were centered in recent months, China has announced it is going to cut export quotas for other specialty metals as well.   According to Nasdaq, Beijing’s China Daily News and the Rare Earths industry journal have [...]

The Indian Express ran an excellent article this week on India’s efforts to develop a mineral strategy.  The piece gives a broad overview on the global context of the critical mineral mining environment from an Indian perspective. It points out that China not only accounts for more than 90 percent of global REE supply, but [...]