China and rare earth metals

The Economist has just published a new article about China’s abundant and ever more precious rare earth metals. This adds to a flurry or articles, which have recently made it into major English language publications here in the US and Canada—including the Wall Street Journal, Market Watch and Business Week-Canada.

The value of global rare-earth trade last year was just $1.25 billion, and it is projected to grow to about $3 billion by 2015—not much by most accords. However, the metals in question are absolutely essential for many high tech industries because of their phosphorescent and magnetic properties.

Rare earth metals include terbium, dysprosium, yttrium, thulium, lutetium, neodymium, europium, cerium, and lanthanum. These metals, as described by The Columbia Encyclopedia usually occur together in minerals as their oxides ( rare earths ) and are somewhat difficult to separate because of their chemical similarity.

The state-controlled Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Company dominates production of “rare earth metals” in China. Alistair Stephens of Arafura Resources in Australia, explains, “the Chinese realized the strategic importance of rare earths decades before the West.”

Producing the latest flat screen TV’s, smart phones, wine turbines, solar panels and even electric batteries which power America’s new Chevy Volt (battery powered car), are all simply not possible without these rare earth metals.

I am not one to doubt the incredible potential of the free market system, but in this particular situation, Deng Xiaoping was wise not to trust in the free market to dictate his “rare earth metals” policy in the 80’s.

As commodity prices fell in the mid 80’s, rare earth producers in the United States and Canada were priced out of the market. Deng Xiaoping, the man associated with introducing markets in China, instead encouraged the development of mines in the mid-1980s as prices fell dramatically.

Rare earth metals may not generate as much revenue as oil does for Saudi Arabia or Russia, but it is clear if China chokes off supply and begins consuming more of their rare earth metals domestically, the developed world will need to find new sources.

Additional articles on rare earth metals:

Will China Tighten 'Rare Earth' Grip? - The Wall Street Journal

Rare earths are vital; and China owns them all - Market Watch

Rare-earth metals: The new China syndrome - The Canadian Business Week