Rare earth minerals aren’t as rare as you think. The mining of rare earth minerals – well, that’s another story.
China has a stranglehold on the market, mining more than 95% of the world’s production of rare earth minerals. And because these minerals are critical elements to many high-tech products that business, government and consumers use every day – high-def TVs, mobile phones, PCs, wind turbines; even missiles – China’s monopoly puts U.S. manufacturers in a tough spot. China calls the shots on price and availability, and manufacturers take what they can get.
The situation became a bit more urgent when China recently announced new restrictions on rare earth exports to the U.S. and other countries. The U.S., Japan and the EU countered by filing a complaint with the World Trade Organization claiming China was choking off global exports for its domestic benefit.
The Chinese government stands by its export caps, though, claiming the need to protect national resources and the environmental impact associated with mining. And as what some would consider a “take that” maneuver, China recently handed out additional quotas to 12 companies that had passed environment checks.
Politics aside, one thing is clear: high-tech manufacturers are at the mercy of China when it comes to the availability of rare earth minerals.
Accelerating a shift in rare earth market share
The news isn’t all grim for the rest of the world, though. North America is finally waking up to the consequences of a continued Chinese monopoly and has quietly invested significant money and resources into mining rare earth minerals domestically. In fact, there are currently 35 rare earth projects at various stages in development outside of China (according to advisory firm Technology Metals Research). The most mature operation is right here in North America – Molycorp‘s Mountain Pass, California mine. Several other mines are also progressing nicely in the Northeast Corridor of Canada.
A major shift is taking place, and it’s possible that 15-20 percent of rare earth minerals could be mined outside of China by the end of 2020. In addition to loosening China’s stranglehold on the market, even a 10 percent shift in market share would have a positive ripple effect on the U.S. manufacturing and technology sectors:
An increase in U.S. high-tech production could spur the revival of other domestic manufacturing. Many U.S. companies are already relocating portions of their high-tech production from China to North America for cost savings – mainly due to high logistics and rising labor costs. Add to that the multitude of unpredictable global supply risks – like we saw with the Japan earthquake and tsunami – a new and steady source of domestic rare earth minerals could accelerate a U.S. manufacturing revival.
New electronics suppliers will push product innovation. There’s been a woeful lack of innovation coming out of China and Japan over the past few years. Instead of new genre-defining products, the most highly sought-after products we see every holiday season tend to be the “latest and greatest” – third and fourth generations of already existing products. Without major competition from new suppliers trying to make a splash in the tech scene, the big boys are able to maintain the status quo. Increased competition will create more products and lower prices: a welcome win for innovation-starved consumers.
More consumer-friendly prices. An upswing in U.S. high-tech manufacturing also has the potential to drive product prices down. The obvious reasons: logistic costs and supply risk. Beyond saving on transportation costs, U.S. companies will be able to strike longer deals with suppliers – thus locking in better terms. Domestic sources must operate under U.S. business regulations, making them a more predictable and reliable source of supplies.
The bottom line: the shift in market share of rare earth minerals won’t happen overnight, but there’s a lot of hope for the U.S. in the long term.
Meanwhile, the rare earth crisis has subsided to a degree recently: after prices skyrocketed following China’s cap on exports, they have once again began to fall, and companies outside of China are stockpiling rare earth minerals – putting themselves in the best position possible until a time when they no longer are at the mercy of China for supplies.