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BUSINESS  |  6/21/2012 @ 10:58AM | 9,118 views

Behind China's Rare EarthControversy 

Rare earth ore, shown with a United States pennyfor size comparison (Photo credit: Wikipedia)

On Wednesday in Beijing, the

Information Office of the State

Council, China’s cabinet, published

he country’s first white paper, on

China’s rare earth industry. Some

f the information in the report

aused a stir in the U.S. equity 

arkets. Shares of Molycorp, Inc.

(NYSE: MCP), owner of the

Mountain Pass rare earth mine in

California, traded as much as 12.8ercent higher on Wednesday 

orning on the New York Stock 

Exchange, before closing at $22.43 per share, up 8.7 percent on the day.

Shares of smaller companies developing rare earth projects in the United

States and Canada also climbed, with Rare Element Resources Ltd. (REE)

ncreasing by 12.8 percent and Quest Rare Minerals Ltd. (QRM) by 17.7

ercent.

Uncertainty about the level of rare-earth exports from China and the future

lobal supply of these critical raw materials was heightened by the white

aper, which said that China has just 23 percent of the world’s rare-earth

inerals, not the 36 percent that the U.S. has estimated. China currently ccounts for approximately 95 percent of the global supply of rare earths. In

n effort to curtail environmental pollution and to preserve its rare earth

esources for domestic consumption, however, China has imposed quotas on

xports. In March, the United States, the European Union (EU), Japan and

Canada lodged a complaint with the World Trade Organization (WTO),

laiming that Beijing is unfairly choking off exports of the commodities to

enefit its domestic industries.

In the 21st century, natural resource battles will be fought not only over oil

nd water, but over 17 elements with names like dysprosium, yttrium and

eodymium. While they are called “rare,” rare earth minerals are found in

lmost all massive rock formations. However, their concentrations range from

10 to a few hundred parts per million by weight, making them difficult to mine

conomically. Rare earth metals are important because they are used in a wide

ange of consumer products such as cell phones, flat screen TVs and

omputers. They are also a strategic resource because they are a crucial

NEWS People P laces Companies

 

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Having lived in Beijing for almost two decades

now, I've learned a thing or two abo ut China and

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country . I autho red "Managing the Dragon: How 

I’m Building a Billion Dollar Business In China,"

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omponent in wind turbines and other new energy technologies, automobiles,

nd a wide range of military and defense applications.

Rare earth deposits were first discovered in China in 1927 in Bayan Obo in

Inner Mongolia. After a detailed geological study, the Bayan Obo mine was

uilt in the 1950s. Deng Xiaoping recognized the importance of rare earths

o China’s future when he famously said in 1992 that “The Middle East has oil.

China has rare earths.” In 1986, six years before, Deng had approved the

National High Technology Research and Development Program, which

ccording to China’s Ministry of Science and Technology, was established toelp the country “to achieve breakthroughs in key technical fields that

oncern the national economic lifeline and national security; and to achieve

eapfrog development in key high-tech fields in which China enjoys relative

dvantages.”

Because rare earth elements are an important strategic resource in which

China has a considerable advantage due to the massive reserves in the

ountry, a great deal of money has gone toward researching rare earths. In

rder to close its technology gap with the West, China has also drawn on the

esearch of others. Nearly 50 percent of the graduate students who study at

he U.S. Department of Energy ’s Ames National Laboratory are from China.

Each time a visiting student returns, he or she is replaced by another Chinese

isiting student.

Between 1978 and 1989, China increased its production of rare earth minerals

 y an average of 40 percent annually, making it one of the world’s largest

roducers. Through the 1990s, China’s exports of rare earth elements grew,

ausing prices worldwide to plunge. This undercut business for Molycorp and

ther producers, and eventually either drove them out of business or

ignificantly reduced production efforts. As a result, China ended up in its

urrent position of providing nearly the entire global supply of rare earths, an

nstable supply situation in such critical raw materials that led to the WTO

omplaint.

he timing of the WTO action by the U.S., the EU, Japan and Canada is

urious, though, because it appears that market forces are already correcting

he current imbalance. Molycorp is in the process of modernizing and

eopening its Mountain Pass mine, which is expected to come online later this

ear. A study by the U.S. Defense Department published in March, the same

onth that the WTO complaint was filed, found that the stranglehold that

China has on rare earth production could be coming to an end with the

pening of new production facilities in North America. The Defense

Department report concluded that by 2013 the U.S. military, which is almost

ompletely dependent on China for rare earth elements, will be able to meet a

ajority of its demand from North American sources.

In testimony before the U.S. House of Representatives in September 2011,

Mark Smith, President and Chief Executive Officer of Molycorp, advised

gainst the filing of a WTO complaint. According to Smith, WTO proceedings

ould take years to complete, and by that time, the U.S. would have its own

upply. Smith was referring to Molycorp’s $781 million modernization and

xpansion of the company’s rare earth mining and manufacturing facilities at

Mountain Pass that will create the most technologically advanced, energy 

fficient, and environmentally superior rare earth processing facility in the

orld.

Smith said in his testimony that Phase 1 of the project would be completed by uly, 2012, and would take the company’s production from an estimated

5,000 to 6,000 metric tons of rare earth oxide (REO) equivalent to an annual

roduction of 19,050 metric tons or more of by the end of 2012. By the end of 

2013, when Phase 2 of the expansion is scheduled for completion, Molycorp’s

J A C K P E R K O W S K I’ S P O P U L A R P O S T S

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