Many have expressed concerns about the state of several metals markets that typically receive much less media attention than their more popular steel/aluminum/copper peers – the minor metals, the rare earths and the critical metals. But as we (and some others) have previously reported, many of these metals are necessary to fuel the new green economy. And that rather recent development (recent meaning that some of these technologies are new or are just coming onto the market) has raised a concern that goes something like this, instead of depending upon the Middle East for oil, we will create a dependence upon China for all of the minor metals, critical metals and rare earths that are used for many of these new technologies. Now certainly, that broad statement is not true for all of these metals. But for a good portion of them, the concern appears justified. And in recent days, new evidence appears to support that argument.
That evidence relates to an article published by The Australian on May 28 which stated, In Japan, the world’s biggest importer of rare-earth metals, more than 10,000 tonnes per year about a fifth of the country’s total annual consumption are thought to enter the country through a thriving black import network without which Japan would already be in a severe supply crisis, a senior government official said. We believe a black market exists, in this particular case, because of several actions taken by the Chinese government (by the way, the RE (rare earths) black market in Japan receives its supply from China). The biggest reason a black market exists however, relates to mining quotas and export restrictions. In addition, China has taken an active international M&A stance to make strategic investments.
We know black markets exist to get around laws, regulations, and taxes. Clearly some enterprising Chinese companies would like to have the opportunity to tap into global demand for these metals because they can likely command a price premium in the export markets, particularly in Japan. Eventually, Japan and other high tech producer Korea will lose their technology manufacturing edge to China, according to this recent Financial Times article because Chinese controls the supply in many of these markets and has easy access to government capital (unlike Japan and Korea).
All of this raises some interesting issues such as:
- What metals are truly at risk from a sole-source situation? And which new green industries face the greatest risks?
- Have US stimulus dollars gone toward break-through technologies within existing industries (e.g. have we invested enough in sectors/companies that can get cars to say 50 mpg without moving to hybrid or electric?)
- What changes should US policy makers take with regard to US mining and domestic mineral development?
We’ll cover these and related topics in upcoming posts. We’ll also tell you about a conference this fall that will address some of these issues.