Rare earth metals are quickly becoming the next important strategic
resource. For many countries in Asia, the stakes are big.
Rare earth metals (REM) are
increasingly becoming a critical strategic resource. The 17 elements can be
found in most high-tech gadgets, from advanced military technology to mobile
phones. China currently holds claim to over 90 percent of the world’s
production. As global demand increases, Beijing’s export reductions in recent
years have forced high-tech firms to relocate to China and forced other
governments to pour money into their exploration and production. An emergent
India is among those concerned about China’s control of rare earths. In the
past 12 months, the geopolitics of rare earths has become evident. REMs are
becoming a strategic resource over which the two emerging giants are competing
in Asia. Indeed, one might say rare earths are fast becoming “the next oil.”
The name, rare earth metal, is a
misnomer. The metals are, in fact, far more abundant than many precious
minerals. Yet their dispersion means they are rarely found in economically
viable quantities. The similarity of chemical properties of the 17 REMs,
demonstrated by their close proximity on the periodic table, makes them very
difficult to separate. Their extraction is capital- and skill- intensive. End
uses for REMs are varied but recent figures cited by the U.S. Geological Survey
noted that in the U.S. the end use was predominantly for battery alloys,
ceramics and magnets, sectors that are continuing to grow to cater for
high-tech industry. The extent to which REM’s are used in defense technology is
such that without their production modern warfare—fighter jets, drones, and
most computer-controlled equipment—would have to undertake a lengthy process of
redevelopment. A sovereign monopoly of such a resource is therefore a serious
concern for any nation.
Two decades ago, Deng Xiaoping,
the former leader of the Communist Party of China, noted the importance of
REMs, “The Middle East has oil and China has rare earth,” he said in 1992. His
foresight was impressive. China holds half of the world’s deposits of REMs, 55
megatons (Mt), according to the U.S. Geological Survey. Not counting countries
comprising the Commonwealth of Independent States (CIS), the U.S. holds the
next largest national reserves with approximately 13Mt. India, on the other
hand, has a mere 3.1Mt of estimated reserves. Continued cuts in China’s exports
have led to a scramble for production, as other countries realize their
reliance on China’s resources. Propelled by increasing demand and a need for
self-sufficiency to provide for growing industry demands, India plans to triple
its output by 2017.
In 2010, China halted shipments
of REMs to Japan for two months following a diplomatic crisis, crippling
high-tech manufacturing in the country. A trade official announced that Japan
would try to reduce its dependency on Chinese REMs by cutting consumption by
10,000 tons annually over the coming years, noting that almost half a billion
U.S. dollars would be paid in subsidies to support the initiative. Tokyo, the
largest REM importer in the world, has also moved to diversify its REM
suppliers, inking deals with Lynas Corp from Australia and Molycorp in the U.S,
among others. Most recently, in November 2012, India and Japan signed a
Memorandum of Understanding in which Japan, the world’s largest REMs importer,
pledged to purchase as much as 20 percent of its REM imports from India.
Tensions between China and India
are nothing new. The two BRICS countries remain deadlocked on issues such as
the border dispute over Arunachal Pradesh and Aksai Chin, Chinese naval
activity in the Indian Ocean and Sino-Pakistani relations. Economically, the
two emerging giants are also stamping their influence on Asia, often stepping
on each other’s toes in a delicate half-wrestle, half-waltz—a race for
influence in which China is often more proactive.
Asian countries, many of which
are increasing military spending, have bound together in an effort to stave off
dependence on China’s REMs. The most
unlikely of these alliances has been on the Korean Peninsula. North and South
Korea met in November 2011 to discuss joint exploitation of Pyongyang’s rare
earths, which some estimates put at six trillion dollars. Yet investment in
heavy industry in North Korea has been less than attractive for even
Pyongyang’s closest allies, as demonstrated by the failed venture of Chinese
firm Haicheng Xiyang Group. Meanwhile, Japan has also engaged in talks to
jointly develop Myanmar’s REM deposits.
In recent years, South Korea and
Japan have collaborated to stockpile and share energy resources to ensure the
security of energy imports. Such resource sharing agreements may very well be
applied for rare earth minerals in the future. In 2011 Rep. Mike Coffman (R-CO)
introduced the RESTART (Rare Earths Supply Chain Technology and Resources
Transformation) Act into the U.S. House of Representations. The Act, which
wasn’t passed during the just concluded session of Congress, included a
provision that called for creating a national stockpile organized under the
U.S. Department of Defense, a proposal which has been floated a number of times
over the past few years. After years of foreign reports, in July 2012 the state-owned
China Securities Journal said that China had begun stockpiling REMs, without
specifying when the initiative began.
India, however, isn’t in a
position to stockpile the resources. Instead it has begun to boost production
and exploration to try and meet domestic demand. In Orissa, a new 10,000 ton
REM processing plant is expected to be operational by early next year. The U.S.
$25 million plant is expected to process 4 percent of global production of
Monazite. Much of this will be used to meet domestic demand.
India and China have both begun
offshore exploration for REMs. Production from deep-sea mining is still years
away, some estimates say 2030-2040, if it is viable at all. Many experts liken
the idea to trying to mine a moving asteroid. Despite the inherent and costly
problems, China paved the way for such exploration and won exploration rights
from the International Seabed Authority to a 10,000 sq kilometer block in the
Southwest Indian Ocean. India followed suit. New Delhi is spending U.S. $135 million
to buy a new exploration vessel, hoping to complement its small onshore
resources with offshore mining. A cross-disciplinary team, including space and
nuclear energy engineers, will develop India’s offshore mining capacity.
According to India’s Minister for Earth Sciences, Ashwani Kumar, the program
will address the country’s “critical and strategic needs.” Kumar was quoted by
local media as saying that, "Countries like China have taken to deep-sea
mining with a strategic purpose." India, for its own strategic purposes is
forced to do the same.
While prices of REMs have dropped
since their earlier peak, a bullish outlook remains. KPMG believes that 75
percent of companies will close in the next 24 months due to current low
prices. If such a major collapse of the industry in fact occurs, the industry
will consolidate into the hands of a few. Government-owned Indian Rare Earths
Ltd will no doubt be propped up by New Delhi. Similarly, China’s new fund to
“restructure” its rare earth industry, as announced in a November press
release, will likely centralize and consolidate the industry making it smaller
and more manageable for Beijing.
Despite countries such as the
U.S. and Australia pushing investments forward in REM production, their
viability as profit-making enterprises is dubious given the high costs of labor
and the difficulties in meeting environmentally-friendly regulations. Jack
Lifton, founder of Technology Metals Research, told Reuters in 2011 that he
believes only 4 percent of ventures will prove profitable. With estimates like
this, India’s expensive entry into production and exploration of REMs, when
prices have bottomed out, demonstrates the strategic importance of the resource
for New Delhi. Low labor cost countries with REMs, such as Myanmar, Mongolia
and possibly North Korea, will be courted by developed countries, and, of
course, India. Regardless of increased production from countries other than
China, Beijing will remain the largest producer and likely the cheapest.
The fact remains that the
commercial viability and spillover politico-environmental costs make production
of REMs too expensive in developed countries. China has more leeway in such
issues and the lion’s share of current production. Prices will remain largely
controlled by Beijing’s propensity to export. India has similarly cheap labor
costs and, while actual reserves are low, boosting production is more viable
there than in the U.S. or Australia. New Delhi wants to balance China’s
influence in the region in order to expand its own. Japan and South Korea are
among the countries more than willing to begin importing Indian REMs, while
India’s growing domestic demand leaves little choice but to secure more
domestic reserves. The geopolitical battle for REMs is well underway between
China and India, and across the world. Indeed, rare earths look likely to
become the next crucial strategic resource, the next oil.
Elliot Brennan
Elliot Brennan is editor and project coordinator of research in resource
security at the Institute for Security and Development Policy, Stockholm,
Sweden.
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