Posted by: tristar3research | January 4, 2011

China Cuts Exports of Rare Earths by 35% in H1 11

Sorry, China controls 95% of rare earth production according to the Wall Street Journal, and so “Houston, we have a problem” – no longer is our oil demand pushing us overseas into ill-advised adventures, now look at the rare earth problem.

Resource Wars - A Growth Industry!

China cut its quotas on first-half exports of rare-earth metals around 35%, a move likely to feed trade tensions and concerns among global buyers after an even deeper cut late this year. China supplies around 95% of the world’s rare-earth metals, which are used in high-tech batteries, television sets, mobile phones and defense products. Beijing’s decision to cut export quotas by 72% for this year’s second half sparked criticism that China was taking undue advantage of its position to raise prices. A supply crunch would have its deepest impact on Japanese technology manufacturers, such as Hitachi Ltd., but the problem extends further. Sumitomo Corp. and other companies process the metals and ship them world-wide, said Hallgarten.

As the Center for A New American Security points out in its “Natural Security” section,

Today’s global economy depends on the availability of a wide-range of non-fuel minerals that are essential for the manufacture of everything from aircraft to computer screens. Consider that a modern automobile can contain up to 39 different minerals, according to the National Academies of Science. Despite the importance of these resources, including for defense systems, the vulnerabilities of the global supply chain is not well understood. It is hard to know exactly how shortages of these minerals would affect the U.S. economy, but it is possible to imagine a scenario similar to that of oil markets. The United States is limited in how much leverage it is willing to exert over a nation such as Saudi Arabia, which is crucial to global oil supplies and the U.S. economy; there may be similar constraints in dealing with major suppliers of some minerals in the future.

US Rare Earth Production Fell Off Late Last Century

The US faces a critical minerals shortage highlighted by its complete reliance on imports for at least 19 different minerals today. Dr. John Lee of the Hudson Institute explains in Forbes that China’s dominance is not by accident: China’s status as the dominant supplier has not been an accident. Realizing the growing importance of these metals, Beijing has spent the best part of the past sixteen years attempting to control the market in the supply of these materials. While state-owned Chinese mines were able to mine these metals at much cheaper prices than foreign competitors–in the process pushing these competitors out of the market–foreign governments and corporations were content to increase their reliance on Chinese suppliers.

Leap Frogged by China & Worse

Of course, as Dr. Lee details, industrial espionage is a lot easier to accomplish if foreign producers are effectively blackmailed to produce advanced products in your home country, bringing capital, jobs and intellectual property to your doorstep. How’s that for Import Substitution Industrialization?


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