Hidden Rare Earth Elements War Heats Up
Europe considers "pursuing dispute settlement" against producers
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China vs. the World
Roughly until 1950, Brazil and India led the world supply of rare earth elements. South Africa took over then, only to be replaced by the USA in the mid-sixties. Since the 1980’s the USA production is in decline despite this country having discovered new deposits of this rare goods. Despite having been initially discovered in Sweden, Europe doesn’t produce any significant quantities. Japan owns large quantities in the form of old electronic products; nowadays it is recycling them at a very slow pace, so that it develops the technologies without flooding the market. Moreover, recently Japanese scientists discovered almost seven million tons of rare earth elements near the island of Minami-Tori-Shima. This is enough to supply Japan’s current consumption for over 200 years. Of the known world reserves, China owns just 35%; yet, around 90% of the world’s production of rare earth elements comes from China. Japan imports 60% of that. The behavior of China is opposite to the one mentioned in the oil and silver industries. If they continue with this policy, later this century China will have no significant deposits left, while its former main customer—Japan—will rule the market. Moreover, the USA has discovered large reserves in Afghanistan; the Pentagon has estimated the value of the light rare earth elements discovered there at about $7.4 billion. This probably means that the US Army won’t let the Afghani people live in peace until this resource is depleted.
If the USA or Europe were in a similar situation, they would probably place a complete export ban on the strategic resource. However, China just placed a limit on its annual exports of the raw metals (finished products are not counted); the quota is above 30,000 tones, which is enough to supply most of the world requirements. Moreover, it is rapidly developing its market for products using rare earth elements. Can this unusual strategy be explained?
It is difficult to understand this American-Israeli eagerness to conquer the goodwill of one of the most sparsely populated countries on earth; a country whose main richness is empty steppes. This is true unless they consider Mongolia a springboard to Inner Mongolia. Mongolia could request the unification of its historical core and find itself backed by the USA, Israel and Europe. Such a shaky alliance probably can’t beat China, but it could cause a lot of expensive troubles. Later today, July 5, 2012, Antonio Tajani, the European Union Commissioner for Enterprise will present the abovementioned report on Key Tech Minerals in Spain. The report is unfriendly to the world. It claims that the European Union is facing shortages of 14 critical raw materials needed for mobile phones and emerging technologies like solar panels and synthetic fuels. Among the critical products appear the rare earth elements. The document claims that the markets for these materials will be highly volatile because “rapid diffusion of new technologies can drastically change the demand for critical raw materials.” The positive side of the report says the European Union should improve its recycling policies, develop products that require fewer raw materials and encourage research on finding substitutes. However, it also claims that the shortages may be the result of trade policies, taxation and political decisions from the producing countries to reserve their resources for their exclusive use. “It is our aim to make sure that Europe’s industry will be able to continue to play a leading role in new technologies and innovation, and we have to ensure that we have the necessary elements to do so,” Mr. Tajani said in a formal statement. He also recommended that the Union “consider the merits of pursuing dispute settlement initiatives” at the World Trade Organization because “such actions may give rise to important case law.” In other words, Europe will fight for the Chinese resources; history shows that Europe can get awfully violent and untrustworthy in such circumstances.
China doesn’t have a confrontational culture. Moreover, at the very strategic level, rare earth elements are relatively unimportant. Now China dominates the market and sells them at premium prices; once recycling becomes the main source of the products the prices will drop. A few years from now, China will be the largest economy in the world. It will enjoy a preferred commercial position for the purchase of anything. Its leaders probably assume that it won’t have any problem in purchasing rare earth elements from its neighbor Japan. Under these circumstances, creating a very expensive confrontation along the Mongolian border is senseless. Better to get rid of the troublemaker resources. This explains the Chinese eagerness to deplete its main mine in a long-term, peaceful strategy that the West never mastered. Bravo, China!
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