28 March 2012

Rare Earth Elements: Are They the Petroleum of the New Century?

Recently, the US, EU and Japan filed a case against China at the World Trade Organization alleging that China was unfairly restricting trade in Rare Earth Elements (REEs or "Rare Earths" as they are sometimes called).

Despite the rarity of such unified action at WTO, I am sure very few people noticed it. And I am guessing, you are asking the obvious question: why do you think we are interested in trade disputes?

Well, there is something quite important about these metals and we need to keep an eye on them to understand a lot of neo-colonial incidents that are taking place and will continue to do so in the near future..

Rare Earths are 17 chemical elements in the Periodical Table: Scandium, Yttrium and 15 lanthanides. They are essential for the manufacture of most high tech equipment:
Rare earth metals are crucial in the manufacture of a range of high-tech commercial and military products, from cell phones to gasoline-electric cars, wind turbines, catalytic converters, avionics devices, and advanced weapons.
Despite their moniker "rare" with the exception of promethium, these elements are not particularly scarce. They can be found all over the world, notably Mongolia, Brasil, India, Central and South Africa, the US, Australia and a host of other regions. Oddly, China has roughly 37 percent of proven reserves but it supplies 97 percent of the global demand.

In recent years, it curtailed its exports to other countries and in a few instances it stopped selling them as a retaliation to unrelated incidents. So, the rationale of the WTO case is to force China to give up its arbitrary control over these metals. And, you are right, in and of itself a trade dispute would not be a big deal.

What interests me is the cut-throat race to grab these resources behind this case. There is also a whole new application for one of these metals and this could turn the whole thing into an even bloodier fight.

First a bit of background.

You may be wondering how China is providing 97 percent of the global demand even though it has roughly one third of proven reserves. When REEs were being mined in Brazil, India, South Africa and California, China flooded the market with cheap REEs, thanks to its giant processing facilities in China and Inner Mongolia. Essentially, they rendered all other sources non-profitable. Once everybody left the market they began to exert a steady pressure to move prices upwards. They are helped in this by the fact that REEs are not exchange-traded like most minerals but they are sold in private markets.

Now that China has a near monopoly, other players are panicking. The WTO case is the public effort to gain some time. What is happening behind the scenes is a huge fight over known deposits. Last October, at the height of the Eurozone crisis, Angela Merkel surprised everyone by going to Mongolia for a state visit. She came back with a deal that gave Germany unlimited access to Mongolia's huge reserves. To get that she agreed to invest in processing plants in Mongolia and therefore buy these Rare Earths at a much higher price.

Germany was relatively lucky. Other countries had a hard time signing such a large deal and had to work with companies. For instance, Japan is working with Australian companies to get a solid supplier outside China and signed up the Lynas plant in Malaysia. Other players include Molycorp in Colorado and California, Hastings plant in Australia, Rare Elements Resources in Wyoming and a number of smaller Canadian outfits, like Frontier and Quantum

But not everything is taking place in corporate boardroom. The case of a Rare Earth known as Coltan and its extraction in Central Africa is a good illustration of the other side of this battle:
Coltan, a rare earth combining columbite and tantalite and prized for its properties as a semi-conductor, has been the main spark of bloody militia wars and razed villages in Congo over the middle of this decade, as warlords linked with high-tech multinationals have fought for profits. Extraction of coltan in the brutal deep-mud mines of southeastern Congo reached a fever pitch in 2006, when the manufacture of a much-hyped Sony playstation was stalled for several months because the supply of coltan could not keep up.
Yes, Sony PlayStation. And the human cost, you ask:
The human cost of coltan and other rare mineral extractions in central Africa – at one time involving the militaries of six countries and termed “The Third World War,” with an estimated four million deaths – is a blunt indication of how lethally obsessive the hunt for rare earths can be.
But there is one more twist to the story.

Rare Earths are extracted from a mineral called monazite. One of the byproducts of the extraction process is another element called Thorium.  Thorium is a well known replacement for uranium as nuclear fuel. There is even one nuclear reactor in India that is currently using thorium-232 isotope as a neutron source.

Thorium has many advantages over uranium:

  • It is much harder to get weapons-grade fissionable material from thorium
  • It produces up to 10,000 times less radioactive waste
  • the isotope is naturally occurring and does not require enrichment
  • it cannot sustain a nuclear chain reaction by itself so accidental fission is not an issue

Moreover, it is relatively abundant (compared to uranium). It can be re-used in a chain of reactors, as experts put it: "the second thorium reactor may activate a third thorium reactor. This could continue in a chain of reactors for a millennium if we so choose."

Think about it. Rare Earths hold the key to manufacturing in our high tech world. But now, they could also provide an essentially endless supply of relatively safe energy much more quickly and cheaply than newer technologies.

This is why, all the industrialized countries and the new comers are positioning themselves to ensure that they have a steady supply of these minerals.
''We are as addicted to rare earths as we are to oil, we just don't know it,'' says Nicholas Curtis, chief executive of Australian rare-earths miner Lynas Corporation.
Indeed, this is why I use petroleum as an analogy: think of all the wealth transfers, colonial wars and human suffering that accompanied the extraction and distribution of oil in the 20th century. Rare earths and  thorium have the potential to lead to a lot of wars and bloodshed, especially as the process to own and control them intensifies, countries become more desperate and companies become more ruthless.

Europe is especially vulnerable in all this, which explains Merkel's sense of urgency and the generous terms of the deal she signed up with Mongolia.

One small irony to note, which is in line with my general preoccupation with the Middle East and Turkey: If, as suggested here, Turkey becomes an important source for these elements (and given its diversified geology and soils this is quite likely)  Europe may rue the day they closed the EU membership door on them.


I realized that I left out a very important source in all that: Michael T. Klare's new book The Race for What's Left: The Global Scramble for the World's Last Resources.

If you don't have time to read the book, here is a very recent interview with the author where he provides a much larger overview than what I did in this post and explains why South China Sea is the likely spot for a US-China conflict.

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