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Tuesday 22 Aug 2017 | 21:12 | SYDNEY
Tuesday 22 Aug 2017 | 21:12 | SYDNEY

Rare earths and geo-economics

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COMMENTS

19 October 2010 11:57

The economically vital rare earth element industry (background on REEs in my previous post) hit the headlines last month when it was claimed that China had blocked the export of REEs to Japan as part of the dispute over Tokyo's detention of a Chinese fishing boat captain. Beijing has denied this, but Japanese officials say a ban is in place, and some Japanese traders have said their supplies have been stuck in Chinese ports (although some observers suggest that the problem is that this year's reduced export quota has now been exhausted).

Japanese producers were worried about their dependence on China for REEs even before last month's problems, but recent events have reinforced their concerns, and encouraged a search for alternative supplies. Companies including Toyota, Sumitomo and Mitsubishi are reported to be looking at options in Vietnam, Kazakhstan, Brazil, Argentina and elsewhere.

Washington has also been paying more attention to REEs, and last month the US Congress approved legislation aimed at reviving the US position as a producer. This is easier said than done, however: according to one report, it could take the US anywhere between 7 and 15 years to rebuild a US rare earth supply chain, and even then, success would depend on a series of factors including securing the necessary funding for investment, developing new technologies, and acquiring the required patents. The same report estimates that developing alternatives to REEs that would reduce the demand and dependence on such elements would take about 10 to 15 years.

Meanwhile, US and Japanese trade officials are reportedly considering whether to file cases against China at the WTO. Trade dispute lawyers reckon that the informal nature of the supposed Chinese measures would make a case hard to win, but an indicator might come early next year: the US and the EU have already launched similar WTO cases against China relating to export quotas and taxes on a range of industrial minerals, with a ruling due in February.

Finally, some look to a purely commercial solution to the issue. Higher prices have already made production elsewhere look more attractive, and as this production comes on-line, it seems likely that any China squeeze will be temporary – although 'temporary' could last for some time. That said, just as China's policy measures have produced a price jump, they could also potentially trigger a price slump – so commercially-based plans to develop alternatives to Chinese production still remain hostage to future changes in Chinese policy.

Photo by Flickr user Noah Sussman, used under a Creative Commons license.

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