Watch Out for China’s Rare-earth Export Restrictions

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There are times when space industry leaders need to be forewarned about potential shortages of critical components that potentially could delay or halt the production of satellites, launch vehicles and other kinds of technology-laden equipment. Such a situation may be on the horizon if China continues its policy of choking off the export of rare-earth metals and thereby driving up costs for its customers.

The term “rare earth” actually is a misnomer, since the elements are not really scarce. In truth, the metals are relatively plentiful in the Earth’s crust, even though none of the rare-earth elements is a household name such as gold or silver. Specifically, rare-earth minerals consist of 17 naturally occurring metallic elements, including neodymium, lanthanum, cerium, scandium, yttrium and europium, which are used in relatively small amounts for multiple purposes in a wide variety of industries.

However, the rare-earth elements are not widely available either, since China controls 97 percent of the market. The dilemma for companies and countries that need to use rare-earth elements for an increasing number of technologies is that China has been wielding its market power with impunity lately.

“China is building strategic reserves in rare-earth metals, an effort that could give Beijing increased power to influence global prices and supplies in a sector it already dominates,” The Wall Street Journal reported recently.

For now, the problem is not a crisis. But it has the potential to become one. Rare-earth elements are used for a variety of consumer electronics products, as well as for military devices such as night-vision goggles, radar and precision-guided weapons. Satellite and launch vehicle manufacturers also could be incurring increased costs and bracing for an uncertain supply of rare-earth elements. Rare-earth elements are used in the industry as a light aluminum scandium alloy for aerospace components, as well as in alloys that reduce operating weights and aid high-tech missile systems for military applications.

A company such as Boeing sells commercial aircraft to China, so its executives are not likely to complain publicly. However, prudent executives have good reason to be concerned about relying on China as a sole supplier for any rare-earth metal that is required to sustain their manufacturing operations.

In addition, demand is expected to grow as the use of rare-earth elements expands in electronic, optical, magnetic and catalytic applications. Indeed, the elements already are integral to energy efficiency, environmental technologies, hybrid and electric motors, digital technology and computer disk drives.

China wielded its near-monopoly power in mining the metals when it imposed a de facto embargo on their export last fall. The embargo of rare-earth exports to the United States and Europe began abruptly on Oct. 18 when China’s top energy official, Zhang Guobao, summoned foreign journalists in Beijing to chastise the U.S. government for announcing plans to investigate whether China unfairly gave financial support to the Asian country’s domestic clean-energy industry. The probe is intended to assess whether China subsidized advanced batteries, as well as wind and solar energy products, in violation of World Trade Organization rules.

China already had ceased exporting rare-earth elements to Japan on Sept. 21, 2010, in apparent retaliation for Japan’s arrest of a Chinese fishing boat captain. The seaman allegedly crashed his vessel into two Japanese Coast Guard ships on Sept. 8. Japan released the captain on Sept. 24, just three days after China stopped shipping rare-earth shipments to its Asian trading partner. On Oct. 28, China resumed rare-earth exports to Japan, the United States and Europe without stating that the embargo was retribution by its government against its trading partners.

U.S. government officials are aware of the value and strategic significance of rare-earth elements. U.S. Secretary of State Hillary Clinton described China’s embargo as a “wake-up call.”

The Chinese policies meant that the rare-earth element lanthanum sold for less than $4,500 a ton in China but for up to 10 times that much to buyers outside of the country, The New York Times reported in October.

Despite China’s current hammerlock on the production of rare-earth elements, the British Geological Survey estimates that the world’s most populous country has only 37 percent, or 36 million metric tons, of the Earth’s estimated reserves. The former Soviet bloc nations have roughly 19 million metric tons, and the United States possesses 13 million, while smaller amounts exist in Australia, India, Brazil and Malaysia.

However, the U.S. Government Accountability Office predicted in a congressional briefing on April 1, 2010, that rebuilding a U.S. rare-earth supply chain could take up to 15 years. The reasons for needing such a long time to gear up include securing capital investments in processing infrastructure, developing new technologies and acquiring patents currently held by international companies.

It seems that Western users of the metals no longer have a dependable source of the important elements, based on the latest actions of the Chinese government. The key question now is whether China may respond to a future dispute with the United States, Europe and Japan by banning the export of rare-earth metals outright. With very limited options to go elsewhere for the metals, the industry would be wise to prepare accordingly.

 

Paul Dykewicz is a freelance writer and analyst who closely follows business, economic, political and policy issues that affect the space industry, as well as others.