Archive for April 2nd, 2011

Update: Rare Earths, China´s Not-So-Secret Weapon

- April 2nd, 2011

UPDATE: This is a rewind of a Nosey Parker blog post that originally ran three months ago about rare earths, the troublesome, unstable elements on which the world´s hi-tech and green industries are pitifully dependent — and the production of which is currently 93% controlled by China.

The blog post itself runs as it was written in early January, but I wanted to update it by adding this link to a fascinating article that has just appeared in The Economist magazine about the re-emergence of Nicolai Tesla´s century-old induction motor and how it will allow the automotive industry, at least, to reduce its reliance on rare earths in the production of electric cars.

Here´s the link to the aforementioned Babbage column in The Economist.

It´s very accessible information, advances our understanding of rare earths and electric cars, and does so much more succinctly than I was able to do in the original blog post (although, in my defence, I think I´ve got a lot of very useful information in the piece, if you haven´t read it before). By the way, Babbage is out-of-date when he says 97% of the world´s supply of rare earths comes from China: That was true a few years ago, but increased production elsewhere has reduced China´s share of worldwide production to 93% as of the end of 2010.

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INCIDENT DATE: Sept. 7, 2010

LOCATION: Senkaku Islands in an area of the East China Sea west of Okinawa controlled by Japan but also claimed by China (for at least 500 years).

INITIATING ACTION: A Chinese fishing boat captain got ticked off (either on his own or under orders) by two Japanese Coast Guard vessels birddogging him in the disputed waters — and rammed the two Japanese vessels.

CONSEQUENCES: Well, the primary consequences were what you´d expect — the Japanese Coast Guard seized the Chinese fishing boat, threw the scrappy captain in the brig and delivered ship and master to Japanese soil for legal processing.

And that´s where the fun started. A diplomatic crisis rapidly developed (or was created) with outraged crowds of Chinese government-authorized protesters demanding the release of the brave captain — now a national hero – and his partriotic fishing vessel, and apoplectic crowds of Japanese government supporters demanding the dogfish captain and his hideous hulk be severely chastized as a lesson to the arrogrant Chinese for invading Japanese territorial waters.

Chinese Prime Minister Wen Jiabao even got in on the act, warning of dire consequences for Japan if Captain Ramrage and his boat weren´t released forthwith.

That was on Sept. 19.

The next day, Sept. 20,  two things happened: 1. Four Japanese nationals working in China were arrested for entering restricted military facilities (a building in which they were all authorized employees) and  2. China suddenly put a complete hold on all shipments of  ”rare earths” to Japan.

Panic ensued in Japan.

Nobody (except their families) gave a rat´s rectum for the four detained Japanese workers (or the Chinese fishing skipper, for that matter).

And it wasn´t the might of China´s 3.5-million-strong armed forces or its 300-400 nuclear-tipped intercontinental ballistic missiles aimed at the major capitals of Asia, Europe and North America that was causing the fuss.

No, it was the blockade of Rare Earth Elements (REEs) that did the trick. The REE cold-turkey treatment shook Japan to its very commercial core.

Without an immediate fix of China rare earths,  Japan´s automotive, electronic, military, scientific, medical and even green industries  were suddenly facing  imminent collapse.

It was a chastened and subdued Japanese government that finally released the Chinese captain and his frothy fishboat  on Sept. 25 with a quiet apology for the hulabaloo and best wishes to their good neighbours the Chinese, with whom they hope to work out the minor irritants of the  Senkaku Islands misunderstanding quickly and harmoniously. P.S. Please send rare earths — now.

So what could make Japan curl up like a dribbling baby when threatened with the denial of REEs?

For starters, “rare earths” — most of them anyway — aren´t that rare. They´re just widely dispersed and rarely found in concentrations signigicant enough to warrant commercial exploitation. The scientists who first started playing with them around 1800 called them “rare” just because, well, they hadn´t been too aware of them earlier.

The Rare Earths are 17 (maybe more to come) of the 118 elements currently listed on the scientific establishment´s Periodic Table of Chemical Elements that catalogues all — at least all known and suspected to date — individual basic-level forms of earthly chemical composition from  Hydrogen (Atomic Number 1) to Ununoctium (Atomic Number 118), with life building blocks like Carbon (6), Oxygen (8),  Silicon (14), Calcium (20), Iron (26), Arsenic (33), Krypton (36 — really), Zirconium (40), Silver (47) and Gold (79) along the way.

Most of the so-called Rare Earths fall into the 57-71 spots on the periodic table´s atomic scale  where a weird tribe of 15 elements known as “lanthanides ” resides.

Okay, okay, twist my arm. Here are their names: Lanthanum, cerium, praseodymium, neodymium, promethium, samsrium, europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, ytterbium and lutetium.

The lanthanides are joined in the “rare earths” club by Scandium (21) and Yttrium (39), while eight other spots on the periodic table are currently either blank or only vaguely sketched in with the expectation that all eight will eventually be found to be new varieties of “rare earths.”

What´s so special about rare earths?

Well, you might say they have magical powers , special qualities of  conductivity, magnetism and the like that make them indespensible to the high-tech toys, doo-dahs, machines and weapons that make the 21st Century go around.

Here´s a sampling of the tech stuff that exists in its current form only because of bits and pieces inside made from one of the 17 rare earths:

BlackBerrys, flat-screen TVs, hybrid electric car motors, infrared and solid-state lasers, computer hard drives, wind turbines, guided missiles, high-end headphones, self-cleaning ovens, iPhones, iPads, low-energy lightbulbs, super-conductors, microwave filters,  solar panels, X-ray machines, nuclear batteries, fibre-optic cables, permanent magnets, catalytic converters, fuel-emission reductive additives, turbine generators  and night-vision goggles.

Did I mention iPhones, computer hard drives, flat-screen TVs and guided missiles? Of course I did.

You get the picture — or at least you do as long as rare earths are available to eliminate the cathode ray tube and squish the flat-screen TV down to a three-inch-thick panel while also giving you those zingy colours. An iPhone would be the size of a shoebox  (or at least an old-fashioned video cassette) without the high-powered, light-weight permanent magnets made using rare earth neodymium.

Now this would all be so-what techno mumbo-jumbo except for one thing: China controls more than 93% of all rare-earth production in the world today. Two years ago that figure was even higher — 97%.

So when push comes to shove, China can turn off the world´s manufacturing supply of high-tech consumer, automotive, telecom, scientific, medical and military hardware whenever it wants.

Or, as Japan discovered in September, it can turn off the supply to just one market — and calmly watch that country twist and wheeze like a landed fish until a big chunk of that country´s economy withers and dies.

Of course, China can bring the entire world economic and social order tumbling down any old time it wants simply by calling in the massive U.S. government debt it holds — an unpayable amount, really. But China won´t  do that (threaten to, maybe, in a tough situation) because such a move would also destroy the Chinese economic engine as well with unimaginable consequences.

No, a smart bomb like control of REE exports is a much more surgical and effective weapon on the battlefield of economic survival and dominance.

It wasn´t always so.

Although China is now the dominant, monopolistic producer of Rare Earth Elements, it has only about one-third of the world´s proven significant RRE deposits.

The U.S., Russia, Australia, India, South Africa, Brazil and even Canada all have major deposits.

Before 1960 — back when rare earths had relatively limited commerical uses (like turning glass pretty colours) and the world of high-tech, micro-component computerization was barely a dream — India, Brazil and South Africa were the world´s principal REE suppliers.

As more — and more technologically sophisticated — uses were found for REEs, the U.S. got in on the act, opening the Mountain Pass rare earth mine in California about 80 km southwest of Las Vegas in the 1960s. By the mid-´80s, Mountain Pass was the world´s largest producer of REEs, although other countries like Australia had also developed major rare-earth mining and refining operations during the same period.

And then came the price war of the 1990s.

Slowly but steadily through the early 1990s, China began bringing more and more REEs to the international trading table — and at a much a lower price than the Americans, Australians or other producers were offering theirs for.

That price war continued through the ´90s, with China repeatedly lowering its prices to get more and more of the action while, at the same time, domestic pressure from environmental activists was increasing on American and Australian REE mining and refining operations.

The environment concerns were very real.

Mining and refining rare earth elements is a dirty, dangerous business and — at that time — the Mountain Pass operation in California had a lot of environmental sins to answer for, foremost the massive amounts of toxic, chemical-laced wastewater being pumped out into the Mojave Desert as a result of the open-pit mining technique and multiple chemical processes required to separate the REEs from other ores and from each other.

Then there were the health issues of carcinogenic and radioactive dust floating around the Clark Mountains in the vicinity of the mine. You thought the nuclear bomb tests of the ´50s were the only radioactive worry in the Vegas area?

You see, rare earth elements are mighty useful to 21st Century technology, but they are also tricky, nasty, unstable little buggers, especially when pulled kicking and screaming by man from their inert hiding places in the bosom of the earth. It should be no surprise that the world´s larger REE deposits are usually found in the same vicinity as major lodes of uranium, radium and other radioactive ores. They´re sort of kissin´cousins. Most rare-earth deposits have been found by prospectors seeking radium and uranium, sometimes gold.

So back to the commercial battle for control of the worldwide REE production industry. With China willing to substantially undercut any competitor´s prices and with (valid) evironmental, health and safety complaints about to force a massively expensive overhaul of operations in the U.S., the Mountain Pass mine raised the white flag and shut down in 2002.

By then most other rare-earth producers throughout the world had also given up the losing battle to stay in business against much cheaper Chinese REEs. So, with the collapse of Mountain Pass production, China was master of the rare-earth world as of 2002.

One thing you probably already suspect but which should be clarified is this: China was able to sell its rare earths in part because the government could set whatever arbitrary price it wanted to control the market but, just as importantly, China´s production costs were far lower than anywhere else in the world with effective environmental, health and safety regulations because the Chinese mining and refining operations were not burdened with all those expensive systems required to protect the environment and the people working in the REE industry.

Now I may get a complaint from the Chinese government that the above paragraph is unfair and does not reflect the current state of the Chinese REE industry. I´m sure someone will cite the fact that China has substantially curtailed its REE export quotas over the past year in part because of concerns over environmental and health impacts.

That may be one of several official reasons for the cutbacks, but the only reason that really counts is China´s determination  to keep more finished-goods production use of the REEs in China and to do that it has to keep more of the ore elements at home rather than letting them go to Japan (the biggest market), the U.S., South Korea or other offshore manufacturing centres.

In other words, it doesn´t matter whether the brand label says Sony or Samsung, Toshiba  or  Toyota,  General Electric or General Motors, Hyundai, Honda or Ford. China wants the production label to say “Made in China” with all the increased economically and technologically supercharged effects that entails.

(ASIDE: Based on recent comments on other Nosey Parker blog posts, now is about the time some tousle-haired jabberwockist will say I “hate” China. Not true. I found China to be a fascinating, complex, beautiful, sophisticated, innovative and exhilarating country bubbling around underneath a strong, hard shell of government control. I could easily live there for a year or two, although I doubt the Chinese government would allow me to. The fact that I say the emperor has no clothes doesn´t mean I “hate” the emperor; it just means he´s got a hairy butt and we would all be better off if he acknowleged that he´s naked and put some clothes on — at the very least, a crown and ermine-lined robe.)

Back to our story.

Things went fairly well with China controlling 93-97% of the REE market for five or six years. After all, wasn´t this just another aspect of the West´s burgeoning economic-industrial interdependency with China? By 2008 things began to look a little different.

China started  flexing its monopoly muscle now that most competitors were driven out of business. Prices started to rise even as the world economy went into the dumpster and other commodity prices sagged;  buyers who offended the Chinese government in some way found their shipments of REEs mysteriously delayed or cancelled in response; and supplies overall started to tighten up.

Example: Neodymium, one of the more important rare earths, is used to make ultralight, microthin permanent magnets that are essential for creating/converting energy in a small, intense form for everything from BlackBerrys to computer hard disks to hybrid electric car motors to turbine generators. Since 2008, the price of neodymium has quadrupled, soon to quintuple, as demand increased worldwide and China cut back the supply.

Now there´s an upside and a downside to everything.

The upside, for China, was that it was getting a bigger financial return for its product, had a new weapon with which to influence neighbours and other international friends (read “the U.S.”), and was able to coax more high-end, technologically sophisticated — and capital-intense –manufacturing to be carried on by foreign corporations inside China.

The downside, for the rest of the world, was that China controlled the tap of an essential ingredient in the recipe for high-tech 21st-Century life. And China was showing how easily it could reduce the flow of REEs or cut the flow off altogether. Plus they kept bumping up the price.

The U.S. military was getting especially worried that essential materials for the construction of all their pinpoint, push-button megadeath hardware was completely controlled by a major foreign power, one that — no matter how benign it might appear at any given moment — was still foreign (out of U.S. control) and a competing world power (with a completely different world agenda than the U.S. and/or its military).

So all these military, political and commercial worries have come together at a time when (the upside of the downside) the rising price of REEs has made production economically viable again elsewhere in the world.

Even with all the ultramodern, ultrasafe, eco-friendly production and recycling systems now being installed at the cost of hundreds of millions of dollars at California´s Mountain Pass REE site, that mining and refining operation is expected to be fully operational again later this year.

The mine´s owner, Colorado-based (and possibly U.S. government-controlled) Molycorp, expects to produce 3,000-5,000 tonnes of RREs in 2011. The mine´s output will include the aforementioned neodymium (permanent magnets, solid-state lasers, “daylight” light bulbs), cerium (catalytic converters), lanthanum (high-intensity carbon lighting used in movie-making, electron magniscopes) and Europium (bright phospher colours for TV screens).

The production target for Mountain Pass in 2012 had been set at 20,000 tonnes, but last week Molycorp announced that it plans to double 2012 output to 40,000 tonnes.

In the words of one analyst, that´s good news for the U.S. military: It more than covers all their needs (which leads me to believe those nasty little rare earths have a lot more nefarious uses than making TV images snappier or making your cell phone smaller) with plenty extra for sale on the general market, but commercial industrial users are still looking for alternate supply sources.

The Bloomberg business information organization lists 13 companies around the world that produce REEs in facilities that are compliant with international environmental and health safety standards.

The biggest non-Chinese operation outside the U.S. is Mount Weld in Australia where two companies, Arafura Resources and Lynas Corp., are bumping up production big-time.

The worldwide demand for REEs is going up every year.

In 2009, for example, worldwide demand was placed at around 130,000 tonnes — but output was about 124,000 tonnes.

However, because China has managed to corral so much REE-based manufacturing within its borders, more than half of the rare earth elements it produces stay in China. For the rest of the world, demand  in 2009 was about 60,000 tonnes and supply was about 55,000 tonnes. China supplied 50,000 of those 55,000 tonnes, with the vast majority going to Japan.

The gap between supply and demand was exacerbated in 2010 when China arbitrarily cut its export quota from 50,000 tonnes a year to 30,000 tonnes.

But as Chinese production decreases, production in the rest of the world is increasing.

Australia´s Lynas Corp. estimates global output of REEs will be about 170,000 tonnes in 2014. Of that, Lynas projects that China will produce about 67% of the total (remember, that´s down from the current 93% and 97% a few years ago), the American Mountain Pass operation will produce 13% and Australia´s Mount Weld will produce about 12%. That still leaves 7% for the rest of the world to come up with or fall short.

The search for new sources and supplies of REEs in ever ongoing.

At the moment, Japan is searching the Pacific seabed for REE deposits and European conglomerates are exploring Greenland waters for the same.

Japan has also just completed a deal with Vietnam to finance and expand its small rare-earth industry. Vietnam does have rare earth deposits, but its refining and processing plants also handle tonnes of REEs smuggled into Vietnam from South China (which is one of two principal repositories, along with Inner Mongolia, of China´s REE wealth).

The smuggling goes on despite tough Chinese efforts to control it.  Illicit mining and smuggling operations are often detected when local peasants are admitted to hospital suffering radiation poisoning, a result of handling some REEs improperly.  Authorized REE workers also suffer radiation poisoning, higher-than-normal rates of cancer and other illnesses because of their working conditions, but those are considered legitimate illnesses that do not also carry prosecution and imprisonment as side-effects.

South Korea, meanwhile, has cut a deal to get REEs from the military mafia dictatorship that has run Burma as a criminal state since 1962. (Remember to call it Burma — Myanmar is the name the military junta arbitrarily imposed on the country in 1989 without any public consultation or approval. Canada, thank goodness, still officially recognises the country as Burma although a few other nations and organizations like Germany, Russia, China and the UN bowed to the wishes of the corrupt thug generals and call it Myanmar. Show more class than them and stick to Burma: Aung San Suu Kyi would be proud of you.)

Anyway, I guess South Korea is used to dealing with outlaw, criminal regimes because of its constant interface with North Korea. (North Korea is one of Burma´s main trading partners, by the way, especially in weapons and heavy machinery it can´t get elsewhere, along with a smattering of drug dealing, nuke smuggling and other criminal endeavours.)

As with Vietnam, Burma has some REE deposits of its own, but also relies on a steady supply of smuggled ore from its northern neighbour, China, to feed its processing plants. Again, I don´t think you´re going to find the healthiest working conditions in the world at a Burmese REE refining plant.

And the search goes on elsewhere. As I mentioned before, there´s a direct link between deposits of rare earth elements and deposits of radioactive material like uranium. So it´s not surprising that Canada — the world´s largest supplier of uranium — also has what are believed to be rich deposits of REEs.

Two REE development projects are currently underway in Canada.

The Hoidas Lake Rare Earth Project in northern Saskatchewan is in the most advanced stage of development. With estimated reserves of at least 287,000 tonnes of REEs, Hoidas Lake is expected to supply about 10% of North America´s rare earth requirements for the foreseeable future when it comes on line in the next few years.

Further back on the development path, but still showing great promise, is Thor Lake in the Northwest Territories.

Exploratory drilling is now ongoing there at the Nechalacho REE deposit, which rights holder Avalon Rare Metals Inc. says is “emerging as one of the largest undeveloped rare earth elements resources in the world.”

So, at least as far as Rare Earth Elements are concerned, the future for Canada looks as bright as the REE-zapped colours on a flat-screen TV.  As long as the Chinese government doesn´t start buying up our rare earth industry the same way it is acquiring bigger and bigger chunks of the Alberta oil sands. O, Canada.