A colleague recently sent me a report that he had stumbled upon published by IFRI, a French think tank, entitled, Rare Earths and Clean Energy: Analyzing China’s Upper Hand. Though most of the policy arguments made throughout the appear have appeared in numerous other reports (and quite often on these pages here at MetalMiner) the paper makes for worthwhile reading because it takes a comparative geopolitical look at the rare earth (dare I say crisis) from a Japanese, American and European angle. The policy options outlined by nation highlight the relative competitive position of each region.
Take Japan for instance because it lacks rare earth resources, the country has deployed a strategy to “succeed in creating a foot-hold in the production of rare earth applications further upstream. Moreover, Japan has become “the largest producer of NDFeB and Samariam-Cobalt magnets outside of China, according to the paper. The country has aggressively sought partnerships with global mining organizations in the form of off-take agreements, joint ventures and acquisitions. Each of these initiatives will provide Japan and companies like Toyota Motor Corp, Mitsui, Mitsubishi etc with access to key supplies.
The US, on the other hand, a country rich with rare earth resources, has taken a different policy stance in action one that emphasizes the development of these mines in particular such as Molycorp Minerals with production capacity of 20,000 tons of rare earth oxides by 2012, according to the paper, and several others including US Rare Earths as we have reported. In comparison to Japan and Europe for that matter, the policy debate within the US has focused on national security concerns and defense as opposed to green technology or green jobs. The paper goes on to say that the US policy platform consists primarily of three strategies to diversify supplies by creating global supply chains, to develop recycling methods for more efficient use and to invest in rare earth metal substitutes. But certainly development of key resources within the US appears to have taken hold as well.
Contrast Japanese and American policies with those of Europe. The European policy to address the rare earth situation appears to lag the American or Japanese policy debate. ISRI characterizes the discussion as in the “assessment stage. The Raw Materials Supply Group of the European Commission’s Raw Materials Supply Group released a report this summer outlining key policy recommendations which appear similar to US policy initiatives improve access to raw materials by promoting exploration, research on mineral processing, good governance practices, improving trade and investment opportunities via bilateral and multilateral agreements, improving overall efficiency of material usage and promoting recycling programs (stay tuned for a MetalMiner radio spot on this topic, hopefully by next week). Finally the EU will pursue “dispute settlement initiatives via the WTO when necessary (the US has also taken up this policy).
Interestingly enough, the ISRI paper concurs with MetalMiner’s own views that any tightening of export restrictions by China on rare earth metals will have the effect of spurring competition in two ways. The first and most obvious effect – rising prices will spur investment in other mining initiatives. Second, ISRI argues, “But levying export taxes and imposing ever-stricter quotas have only increased the payoffs for smuggling and illegal mining, of which rare earths and end-users outside of China are the ultimate beneficiaries, the paper describes local government officials in China as “complicit in these grey market activities. We’d argue, however, one can hardly characterize these activities as “grey markets, they are in fact, black markets. (Think price differentials among countries for items such as pharmaceuticals – grey markets vs. illegal mining and smuggling – black markets). But that is hardly the point – choking supply makes goods more “dear,” – think guns and butter.
Some arguments made in the executive summary also appeared weak. For example, the report says, “the issue demands a higher quality of public debate.”Â We’d argue that debate has occurred and is occurring here in the US not only among academics, social media networks and industry participants but also the US Congress, the President, labor unions, the DOD etc. Perhaps the authors refer to the debate within Europe, we don’t know. Another argument that we find rather overdone is the, “there are substantial risks to the environment associated with mining and separating rare earths. The environmental discussion regarding mining initiatives should not drive whether or not the decision to mine rare earths is made. In fact, we’d argue Western nations are in a much better position to initiate mining projects and subsequent refining activities precisely because they can do so in a more environmentally conscious fashion. And given Europe’s relative lack of rare earth resource deposits, the environmental argument completely weakens.
Despite these points, anyone involved in the rare earth metals industry will want to spend a few minutes examining this report.