GO
Loading...

Common Politics Muddy Waters in Rare Earth Discovery

Question marks over the timing of an announcement of the discovery significant deposits of rare earth minerals on the Pacific sea floor—and over the supposed size of the reserves—have highlighted the increasing role of international politics in the supply of the elements, critical for high technology and defense systems.

Researchers from the Japanese Agency for Marine-Earth Science and Technologyfound high concentrations of rare earths in mud on the seabed near Hawaii, according to a paper in Nature Geoscience, an academic journal.

"We estimate that an area of just one square kilometer, surrounding one of the sampling sites, could provide one fifth of the current annual world consumption of these elements," the report's authors wrote.

News of the find seemed to offer comfort to countries concerned by the monopoly held by China over global rare earth supplies.

China leads the world in terms of production and refining of the minerals—according to the US Government Accountability Office, the country mines 97 percent of the ore currently in production.

"We're not only looking at what the reserves are underground, but also the whole supply chain, so China's dominance comes from not only what it has, its concentration and purity levels, but then down the line they also dominate on the refinement of oxides and also the production of alloys," Karlin Younger, an analyst at political risk consultancy Control Risks, told CNBC.com.

Minerals like dysprosium, tantalum and yttrium are used in the manufacture of cellphones, tablet computers, solar panels and high technology weapons systems. The dominant position of China in the market had raised some concerns that not only would the country's solar industry and technology manufacturers have an advantage, but Beijing would be able to leverage its position for strategic gain by controlling supplies of raw materials for US military hardware.

At the end of 2010, Beijing cut its export quotas for rare earths by 40 percent, causing concern both in the US and in Japan, the largest importer of rare earths, whose high technology industry is a major part of its economy.

In September 2010, during a dispute with Japan over the detention of a Chinese fishing trawler captain in a contested area of the South China Sea, Beijing reportedly blocked exports of rare earths. Although to admit this measure would have attracted censure from the World Trade Organization (WTO), analysts who spoke to CNBC.com said that a de facto export block did appear to have been in effect until the captain, Zhan Qixiong, was released.

In January, US president Barack Obama signed a defense spending authorization targeting security of supply of rare earth minerals.

The US Geological Survey estimates that there are around 110 million metric tons of rare earth reserves on land, half of which are in China. The US has around 13 million tons of reserves.

That Big a Find?

With unattributed figures of 80-100 billion tons of seabed resources making news reports, the scale of the find seemed to be immensely significant.

"Well, it would be if it was a reserve of the size that's being discussed," Gareth Hatch, founding principal at Technology Metals Research, a specialist rare earths research house, told CNBC.com. "The problem that I have is that the original paper makes no mention of the 80-100 billion tons of resources, so I'm a little incredulous at who's playing games with the numbers."

"Regardless of how big the thing is on a unit basis, because of the concentrations of rare earths that are down there - that are actually quite low… I'm not getting excited about it," he said.

Speaking on background, other sources also questioned the rumored size of the deposits, saying that the sample concentrations could not be extrapolated to suggest such significant levels of resources.

Perhaps more importantly, the economics of extracting minerals from sand more than two miles underwater are unlikely to lend themselves to exploitation of the resource in the foreseeable future. The rare earths industry is, relative to other minerals, very small, and the capital investment required to develop the Pacific floor deposits would be huge, Hatch said.

"Theoretically there would be some price in the future above which these would be economical, but, I'm tracking about 380 different rare earth projects on land, and our needs for the indefinite future will be more than taken care of through the exploitation of those projects, before we need to worry about projects on the sea floor," Hatch said.

The reason for the reaction to the announcement – and possibly even its timing – is that the production of rare earths has become heavily politicized.

On July 5, the day after the reports of the Pacific discovery were released, the WTO ruled that China's export quotas on other minerals, including bauxite and magnesium, contravened the organization's guidelines. The complaint, brought in 2009 by the US and Europe, is likely to have some bearing on the rare earth sector, analysts told CNBC.com.

"One would imagine that that work has been ongoing for a couple of years, and here we are in July with it being published. The timing is interesting," Hatch said.

Although China clearly has demonstrated its willingness to use its resources to further its strategic ambitions, analysts said that concerns, widely voiced in the press, are probably overblown.

"Only about 5 percent of what the US uses goes to the military. So in the short term, that is mostly fear-mongering to believe that one, China would go as far as to shut down its export quotas; and two, that that would have an immediate impact," Younger said.

Lobbying by the defense and clean technology industries may be part of the reason for the recent attention to the sector, according to Younger.

The discovery "may increase the hopefulness of some investors to think that this is such a giant reserve that eventually China's dominance can be challenged. But in a way, that has already been known," she said.

There are already assets under development around outside of China, including the Mountain Pass facility in California, once the largest producer in the world, which is being reopened by Molycorp .

"China itself is going to be facing shortages, especially of dysprosium, and probably within 15 years at current rates. So even probably China is heartened by the discovery of another possible supply," Younger added.

Symbol
Price
 
Change
%Change
MC
---

Featured

Contact Europe News

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    › Learn More

Europe Video