The price of China’s tech metal monopoly

October 28, 2010 — (Source: —

U.S. got out the rare metals business, and helped create a Chinese monopoly that’s incenting companies to open plants in China

China produces 97% of the world’s supply of rare earth elements, and it’s using that monopoly power against the U.S. by cutting exports and raising prices, as well as leveraging it as an incentive for electronics makers to increase or shift production to China.

China announced in 2000 that it was setting export quotas. At the time, it exported 75% of the rare earth ore for processing outside of China, but today its exports are at about 15%, said Jack Lifton, an analyst at Technology Metals Research in Carpentersville, Ill.

Export declines are expected next year, and prices for some elements are skyrocketing, he added.

But companies that manufacture goods that use rare earth elements in China and then export those goods are not affected by the export reductions and price spikes. This creates an incentive for manufacturers to keep their production in China and move new production there as well, said Lifton. “From the Chinese point of view, that’s perfect — they want jobs created in China,” he said.

“We knew this was coming, and as usual in America, we never bother with anything until it’s a crisis,” said Lifton. “We sent the mining of ores to China because it was cheaper there. Now, it’s payback time for our shortsightedness.”

China’s rare earth elements monopoly may be seen as part of an indigenous innovation policy, a program where China-originated technology is owned by Chinese companies. The geopolitical implications of China’s monopoly were illustrated last month when it blocked rare earth exports to Japan following Japan’s detaining of Chinese fishing boat captain over a disputed island area.

Yaron Vorona, executive director of the Technology and Rare Earth Metals Center, which is part of the Institute for the Analysis of Global Security, says that China is using its monopoly to gain strategic advantage. “Whether they intend for it to be a strategic threat or not is a very good question,” he said, at the Critical and Rare Metals Summit here on Wednesday.

Congress is beginning to take action. Last month the U.S. House of Representatives passed the Rare Earths and Critical Metals Act of 2010, which offers some loan guarantees and funds some research efforts. However, that the legislation was criticized at Wednesday’s meeting as not going far enough to provide the funding.

“China has no incentive to support supply chains outside of its own country,” said Keith Delaney, executive director of the Rare Earth Industry and Technology Association, and re-creating rare earth production, which includes separating, refining, alloying and component making, can take a decade or longer.

Rare earth elements, such as neodymium, are used to make hard-drive magnets. They are also used in cell phones, monitors and many defense systems, because they have unique capabilities, such as the ability to withstand demagnetization at very high temperatures, according to a recent U.S. Government Accountability Office report.

By shifting production to China, the U.S. also set itself on the path of losing technical expertise in the production and processing of rare earth elements as the workers who were once in this industry get older.

Peter Dent is vice president of business development at Electron Energy Corp., which makes rare earth magnets. He said that because the company’s customers include the U.S. Defense Dept., it has to hire U.S. workers for defense projects.

But Dent said that finding U.S. workers with the right education, and some experience with magnets, is becoming difficult. But “China has research centers with thousands of qualified people,” he said.

There’s discussion about creating substitutes to rare earth materials that could reduce some of the demand, but substitution is difficult and not quickly accomplished, according to Gareth Hatch, another analyst at Technology Metals Research. He said the focus should be on producing rare earth materials.

In the U.S., Molycorp Inc. is working on resuming production in Mountain Pass, Calif., the site of a longstanding rare earth mine.

The Congressional Research Service, in a report last month, warned of potential shortfall of rare earth elements as demand rises. By 2014, global demand may exceed 200,000 tons per year, but production may only reach 160,000 tons. But, “in the long run, however, the [U.S. Geological Survey] expects that reserves and undiscovered resources are large enough to meet demand,” said the report.

Long term, “I really don’t think there will be an issue” in meeting supply needs, said Hatch, “it’s just getting through the next one to two years.”

Can Jim Kennedy’s plan to break the Chinese metal monopoly affect the price of tech metals in China?

Jim Kennedy’s plan to disrupt the Chinese metal monopoly could have a significant impact on the price of tech metals in China. If successful, this move could create more competition in the market, potentially leading to a decrease in prices for these essential materials. The¬†chinese monopoly disruption¬†could lead to a more balanced and competitive market for tech metals.

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