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China’s Continuing Rare Earth Dominance

Shebonti Ray Dadwal is Consultant at the Manohar Parrikar Institute for Defence Studies and Analyses, New Delhi. Click here for detailed profile
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  • September 27, 2019

    In 2010, China had used its dominance over rare earth elements (REEs) to effectively implement its ban on exports to Japan, ostensibly following the collision of a Chinese fishing vessel with Japanese coast guard vessels. Almost a decade later, as China threatens to ban exports to the United States (US), a replay of the same could be in the offing.

    US President Donald Trump upped the ante when on August 01 he announced an additional 10 per cent tariff on the remaining US$ 300 billion worth of Chinese imports, starting September 01, 2019.1 Interestingly, rare earths were excluded from the list.

    The REEs are a set of 17 minerals2 used to make, among other things, permanent magnets which are used in defence equipment, including actuators, to control guidance systems for airborne smart missiles, as well as in aerospace applications for aircraft components and airstrip maintenance equipment. REEs are also used in electronic items like television sets and cell phones and renewable energy equipment like wind turbines and solar panels. However, of the 17 minerals, neodymium and praseodymium form the majority of minerals used in permanent magnets, while dysprosium is used in neodymium‐iron‐boron (NdFeB) permanent magnets to improve their high temperature performance.3

    Ironically, rare earths are not rare at all.  In fact, they are found in several countries including China, the US, Australia, Brazil, Burundi, India, Malaysia, Myanmar, Russia, Thailand and Vietnam – with global deposit reserves estimated at 120 million tonnes.  However, they are considered ‘rare’ as they usually exist as compounds fused with other metals, and they also oxidise quickly, making the process of refining and extracting them in commercially viable quantities very expensive, especially in countries with strict environmental and effluent standards. Moreover, many of these minerals are found in deposits mixed with radioactive thorium and uranium, which makes processing and disposal quite risky due to possible radiation leaks.

    In the 1960s, the US emerged as the frontrunner in the REE production following the discovery that europium -- one of the REE elements – could enhance the colour red in television sets, and held on to that position till the 1980s. But, bringing rare earths under the same regulation as thorium mining by the Nuclear Regulatory Commission and the International Regulatory Agency made the REE mining uneconomical.4 Moreover, mining and processing REEs involve huge environmental costs including water contamination through radioactive materials. Introducing environment friendly technology also makes it economically unviable. In fact, one of the reasons why the US, despite having substantial reserves of REE, became dependent on imports was due to a small leak that prevented the last American mine to renew its operating license leading to its closure in 2002.5 As a result, at present, the US has just one operational rare earth mine and not a single processing facility. 

    China was quick to exploit the situation to its advantage. Almost 30 years ago, in the 1980s, China took the decision to make rare earths a strategic commodity. Due to the country’s low labour costs and lax environmental regulations, it soon became a market leader. Although it possessed around 40 per cent of the REE deposits, it produced around 80 per cent of the global supply. To put China’s position in the REE export market in perspective, it may be noted that the second largest supplier, which is Australia, produces around 20,000 metric tonnes as against China’s 120,000 metric tonnes. Moreover, in China, the REEs are mostly located in clay deposits which makes it easier to extract. Also, the Chinese environmental standards are less stringent than in the US.

    The first signs of Beijing’s intention to use REEs as a strategic tool became apparent during its dispute with Japan in 2010, although some studies suggest that the decline in the REE exports to Japan was a result of China’s decision to cut worldwide exports due to environmental concerns. However, at the end of May this year, Beijing indicated that it may weaponise its rare earth resources in the event of an escalation of the trade war with the US. In May this year, a spokesperson from the National Development and Reform Commission (NDRC), country’s powerful state planner, responding to a query about rare earths being used as a weapon in the trade war, stated that “If any country wants to use products made of China’s rare earth exports to contain China’s development, the Chinese people would not be happy with that.”6

    US Response

    Given the US dependence on China for sourcing the REEs, the US Department of Defence has been holding talks with REE miners worldwide to explore the alternative sources of supply. It has also restarted rare earth mining and has so far produced 15,000 metric tonnes, as against zero in 2017, and is examining the possibility of developing more sites. In December 2017, President Trump signed an executive order to create a federal critical minerals strategy, which would cut red tape and boost resources for exploration. In June 2019, the US Government released ‘A Federal Strategy to Ensure Secure and Reliable Supplies of Critical Minerals’,7 which according to a press release “directs the U.S. Department of the Interior (DOI) to locate domestic supplies of those minerals, ensure access to information necessary for the study and production of minerals, and expedite permitting for minerals projects.”8 A bill has reportedly been introduced (but is yet to be passed) to allocate finances to the Department of Energy and its National Energy Technology Laboratory (NETL) in order to develop technologies that could extract REEs from coal and coal by-products from the US mines. 9 However, it will take years before the US rebuilds its REE sector and is able to increase the supplies.

    Options for India

    Given China’s stated policy of using its dominance over the REE market for strategic purposes, countries have been looking for ways to diversify their sources of supply. India is one of the few countries that has substantial REE reserves. However, it ranks low in the REE market and is seen, at best, as a low-cost supplier of raw materials. Some of the estimates from 2016 indicate that with 35 per cent of the world’s beach sand mineral deposits, the Indian REE industry has the potential to generate about Rs. 121,000 crores.

    Although over the years India has developed some expertise in extracting and processing rare earths from mineral ores (mainly monazite), it has yet to acquire the requisite expertise in the downstream sector, that is, in the manufacture of intermediate products like permanent magnets, phosphors, etc., mainly due to the volatility of the REE market prices.  

    India imports most of the rare earths in finished form as electric vehicle manufacturing is still in its infancy. According to the Indian Mines Bureau, the total consumption of rare earths during the fiscal year ending March 2016 was 31.9 tonnes. Currently, India is dependent on importing most of the REEs from China, followed by Hong Kong and South Africa.10 However, by doing so, it is losing out on the opportunity to earn substantial revenues as a supplier of hi-tech equipment like neodymium magnets. Interestingly, Japan currently imports dysprosium from India, using it to manufacture advanced neodymium magnets which are of high value, and today controls a sizeable portion of the global neodymium magnets market.11

    With growing global trends in clean technologies, the demand for critical rare earth minerals will grow. While late in joining the race, the Government of India is taking steps to develop and strengthen India’s position in the rare earths market. Moreover, if India wants to position itself as a global leader in renewable energy and be more self-sufficient in defence equipment, it should seek to reduce its dependence on import of renewable energy equipment like solar panels and modules as well as defence equipment. In 2015, India and Japan had set up a joint venture company -- Toyotsu Rare Earths India – in Visakhapatnam for the extraction and processing of rare earth oxides.

    While a beginning has been made with the announcement of a National Mineral Policy 2019, covering non-fuel and non-coal minerals, India must strive to acquire expertise in valorising these minerals and shift to developing its downstream sector. To that end, India should seek to leverage its ties with Japan and other countries that have the requisite technology for manufacturing downstream equipment so that it can set itself up as an alternative source of the REE-based technology, with its own supply chain of minerals and metals required for the same, instead of being content with being a mere supplier of upstream materials. 

    Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.