U.S. Technology, Security to Feel Impact of Rare Earth Supply Squeeze

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Written by Richard Finlayson, Senior International Editor, Industrial Info Resources (Johannesburg, South Africa)--In the face of China's domestic hoarding of rare earth metals and minerals, concerns are growing about the global supply and the search for new sources. It is useful to have a guide to demythologize much of the hype about rare earth materials.

"Rare Earth Myth-Fact," a report from the U.S. Magnetic Materials Association (USMMA), clarifies key points relevant to the successful reintroduction of a "mine-to-magnets" rare earth supply chain. The USMMA says that it is concerned with recent news reports, think tank positions, academic reports, U.S. government generalizations, and promotional activities by rare earth industry participants that oversimplify and downplay the seriousness of the rare earth crisis. The USMMA is a trade association dedicated to restoring a competitive, secure, end-to-end rare earth supply-chain to support the U.S. domestic manufacturing of rare earth permanent magnets.

Qualifying the assumption that there is very limited supply of rare earths in the world, the paper says that while the 17 distinct elements in the rare earths grouping are abundant in the earth's crust, the ability to locate concentrations that are economically viable for extraction and processing is rare. With levels of concentration sometimes as low as 10 parts per million by weight, exploration is challenging. Some miners have caused severe environmental damage, and now regulations have slowed the extraction process and driven up the cost of extraction.

China, which has been the supplier of 95% of all rare earth oxides for world consumption, is consolidating its domestic industry by decreasing the number of mining permits and enforcing new environmental regulations. In July 2010, export quota allocations were decreased by more than 70%. Japan, the U.S. and Europe were targeted with export restrictions; prices have risen in 2011, ranging from five to more than 20 times their pre-July 2010 levels. This unreliability has highlighted a critical vulnerability in the supply chain.

The assumption that extracting rare elements is simple and that U.S.-based companies can quickly develop this capability is contradicted by the fact that the concentration and separation processes to produce individual oxides can cost up to $500 million per location and up to 10 years for mine development and permitting. Facing the complexities in the processing and refining section of the supply chain, the Government Accountability Office (GAO) reported that rebuilding a U.S. rare earth supply chain could take up to 15 years.

Increasing demand is being driven by green technologies such as hybrid cars, wind turbines and compact fluorescent lights. Digitized and miniaturized electronic consumer goods, such as flat-screen TVs, mobile phones and disk drives, also are soaring in demand. Strategic technologies such as munitions, missiles, radar surveillance and avionics are key consumers of rare earth products.

Commercial enterprises are locking suppliers into long-term contracts, and China may become a net importer of rare earths in the next five to 10 years, which will impact the U.S. technology and national security sectors. The U.S. government can establish a stockpile of neodymium iron boron and dysprosium iron alloys, as called for in H.R. 1388, the rare Earths Supply-Chain Technology and Resources Transformation Act (RESTART) of 2011 that calls for a limited, value-added inventory of the alloys. Allowing long-term contracts for the Department of Defense would encourage a domestic U.S. manufacturing capability for neodymium iron boron magnets.

The USMMA queries the belief that, apart from the Chinese reliability factor, the industrial base that the U.S. Department of Defense depends on is reliable, cost-effective and sufficient to meet defense requirements in the near and long terms. The report says that the U.S. currently produces limited rare earth oxides, has no rare earth metals and no producers of neodymium iron boron magnets, and has one vertically integrated producer of samarium cobalt magnets. Stockpiling value-added materials to support defense requirements and an emphasis on re-starting a reliable domestic magnet manufacturing capability is recommended.

For more information, see May 24, 2011, article - Japan Seeks to Increase Rare Earth Metal Recycling and April 5, 2011, article - China Announces Upper Limit for Rare Earth Exploitation in 2011.

Rare earth recovery and recycling is being implemented by many consumers, particularly in Japan, but this is not yet happening in the U.S. Research and development activities are being pursued, but no rare earth substitution process has appeared on the horizon, and U.S. national security will depend on rare earth metals, alloys and magnets for the foreseeable future.

Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. IIR's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.