Is China's rare earth power play really such a big deal?

Posted By Steve LeVine Thursday, October 21, 2010 - 1:54 PM Share

The supply of so-called strategic rare earth metals -- needed for wind turbines, advanced batteries, disc drives, flat-screen TVs, and smart bombs, among other things -- has definitely either slowed or stopped from China. The question is why: Has China cut off Japan in a pique of ill-will triggered by festering resentment over World War II or over the maltreatment of a fisherman? Is the U.S. now suffering because it has dared to challenge China's clean-energy industry subsidies? Or are there more benign reasons, such as the possibility that widely announced quotas for the minerals have run out in the late part of the year?

Chinese Premier Wen Jinbao says that China isn't using its near rare-earths monopoly as a "bargaining chip," China Daily reports. Beijing also says it is not violating its pledges under the World Trade Organization, as the Financial Times' Leslie Hook and Mure Dickie write.

The rare-earth hullabaloo is reminiscent of the alarm bells raised over Middle East control of oil -- it is inherently concerning, after all, when one country or a set of countries wield leverage over a desperately and widely needed product. The more so when those holding that near-monopoly shrink the product's availability, as China has done. China retorts that it's a bunch of Sturm und Drang: It is not embargoing anyone, and if shipments are down, it is because China must husband a limited resource, protect its environment, and supply its own industries.

Unsurprisingly, some are benefitting from the chaos, namely traders -- prices for the 17 rare earths are going through the roof, report Bloomberg's Mark Drajem and Gopal Ratnam. According to their report, prices for cerium oxide (used for polishing semiconductors) have risen nine-times, to $36 a kilogram on Tuesday from about $4.70 a kilogram on April 20. Neodymium, used in magnets, doubled in price to $92 a kilogram from about $41 in April.

I emailed a couple of rare earth experts to try to make sense of what is really going on. Jeff Green, a rare earth specialist who runs a consultant firm called J.A Green and Company, says that if China is reducing rare-earth exports next year by 30 percent, as reported, on top of the 40 percent decrease this year, industries could see problematic supply disruptions. So what is behind the reduction? Green told me:

As best we can tell, there is no official "embargo" against the United States or Europe regarding the export of rare earth materials. Nevertheless, companies worldwide have seen an ongoing delay in delivery of materials. It is reported that these materials are delayed by Chinese customs officials and are not leaving the country. Some companies speculate that this may be a result of a lack of material available for export under China's reduced export quota system, meaning most or all of the 8,000 tons of material for export have already been sold or will be sold in the near future. Another possibility is an unofficially sanctioned response to U.S. government action on the rare earth issue such as the recent 301 case filed by the United States Trade Representative or other measures directed at China such as recent House passed currency manipulation and rare earth legislation. It is likely that the answer lies on many levels with no single motivation driving the current situation in China.

I also emailed Jack Lifton, a rare-earths maven at Technology Metals Research. He had a lot to say, namely that China is conducting a quite conventional industry restructuring. One takeaway: The U.S. military is in no crisis, but the green-energy industry is. Lifton's note to me:

I am amazed at the parochialism of the press on this issue. It would seem as if the NYT thinks the tail is wagging the dog. China is restructuring its rare earth mining industry to reduce 129 legal, and no one knows how many illegal, producers of rare earth mine concentrates to just 3 or 4 entities controlled by regionally based, state-owned base metals giants. Currently 3 have been officially named: BaoSteel, Ziangxi Copper, and China MinMetal (This last is a trading company, not a miner per se). Chinalco seems to have added itself to the list also.

The purpose of this "consolidation" is to discover the industry's pricing and actual production both for the purpose of central planning. China, in my view, is acting quite rationally in order to organize an industry it has long recognized as too important to be left to the fierce and often destructive competition arising from China's wild west approach to capitalist development of new industries. The next two five-year plans feature a massive green development drive that cannot happen without the regular and smooth production and delivery of technology metals to the manufacturers whose green economy products critically depend upon them.

If you consider that man is trying to conquer the environment before it destroys his way of life and his hope for a better way of life then you must, I think, applaud the Chinese for going forward with a plan to strengthen their hand while Western nations leave such "planning" to the operations of a market economy that is subject to lowest common denominator political pressures by unschooled and unskilled legislators being advised by those with narrow self-serving special interests.

America's military will be just fine regardless of its direct access to rare earth raw materials. America's green industry will die in childbirth without such access. The fact that the lobbying in the USA to get federal subsidies for mining is focused on a fantasy military supply crisis tells you the unfortunate truth that Americans can't handle the truth. The green economy begins in the black earth. The first step in the construction of a wind turbine, a solar cell, an electrified vehicle, or a nuclear power reactor is to MINE the specialized metals, the technology metals, critically needed to make such devices work.

AFP/Getty Images

EXPLORE:EAST ASIA, NORTH AMERICA, BUSINESS, CHINA, INTERNATIONAL RELATIONS, JAPAN, MILITARY, OIL, POLITICS, SCIENCE & TECHNOLOGY, TRADE, U.S. FOREIGN POLICY

(4)

HIDE COMMENTS LOGIN OR REGISTER REPORT ABUSE

MARTY MARTEL

6:44 PM ET

October 22, 2010

China is NO Japan

This should dispel doubts anyone may have about US taming China the way US tamed Japan in 1980s.

Real face of China has started to emerge though America’s China-apologists beginning with Henry Kissinger may not like it.

Nixon’s embrace of China to counter Soviet Union in 1972 has come back to haunt US in the form of second cold war just as Reagan’s embrace of Islamic fundamentalists to counter Soviet Union in 1980s Afghanistan came back to haunt US in the form of 9/11 attacks.

Had it not been for that Nixon embrace in 1972, China’s economic miracle would have been far more slower with all the US, West European and East Asian markets closed to cheap Chinese products. Had it not been for that Nixon embrace, China’s technological progress would have been far slower in the absence of West’s technology transfers. Had it not been for that Nixon embrace, China’s military progress would have been far slower in the absence of huge forex reserves that China accumulated from the massive exports of cheap Chinese products and China used those forex reserves to acquire latest military technology.

PUBLICUS

3:21 PM ET

October 23, 2010

Same same from Marty Martel

It's the same rote and recited anti US line from the same same person, Marty Martel.

Marty, are you for the fascist dictatorship In Beijing or for Western Liberalism?

Make yourself clear.

PUBLICUS

3:37 PM ET

October 23, 2010

It means fascist Beijing power politics

The CC/PRC using rare earths elements as an instrument to try to control the economies and thus, the policies of other countries is another clear indication of the shamelessly and blunt, unhidden aggressive agenda of Beijing to exert dominance over both its democratic regional neighbors and eventually the rest of us - yes, you and I.

There's nothing subtle in the heavy footed and klutz approaches of Beijing to begin now to use its economic clout and leverage to control the economies and democratic government policies of other countries.

Xi Pinying, the CPC apparachik who in 2013 will become the new leader of the PRC and who hasn't any other claim to respectability or credibility than that feeble credential, has said that the CPC/PRC is not trying to export revolution. That's because the otherwise historically slow and dense Chinese learned a powerful lesson from the failure of the USSR, recognizing that trying to export revolution would create another self destructive Cold War.

Instead, the CPC/PRC is conspicuously exerting its newfound economic power to try to subdue and subjugate other countries, Japan being foremost on the agenda. Why Japan? Because the CPC/PRC knows it cannot become a global hegemon without first becoming a regional power. To become a regional power, the CPC/PRC must first subdue, subjugate and subordinate Japan. However, this will never happen for the obvious reasons.

There's just nothing subtle about the CCP cave men Beijing Peking man who carry a big club and pound it anywhere, where ever and whenever they think they can use it. This klutz approach is no better than trying to export revolution. It is in fact an organized and systematic campaign by Beijing to bring the world under the control of its fascist censoring dictatorship and its state corporatism.

Beijing is playing a deadly dangerous game and it's more than unfortunate for all of us that the arrogant domineering dopes in Beijing cannot realize the fact.

Indeed, the United States of America, which in response to Hitler's Germany initiated and completed the successful conclusion the Manhattan Project to suddenly end WW2, then later conducted the first human mission(s) to the Moon and back, certainly can gear up quickly to get up to speed, and then much more, to become independent of the CPC/PRC current but transitory dominance of the rare earth elements resource market.

The Jung Gwo/CPC/PRC are ham handed fools to show their hand in using REE as instruments of their economic and foreign policies so readily and imprudently as they presently are doing.

Any 'central country' aka the 'middle kingdom,' that in its grandest of grandiose delusions wants to try to dominate and rule the world, impresses no one by such a blatant and heavy handed use of its state and export policies to try to impose its fascist authoritarian attitudes and behaviors against Japan and the West, and thereby try to dominate and control the democracies and their free peoples of the world.

Who could miss the bull in the China Shoppe that Beijing is in this matter, which is only an early symptom of the CPC/PRC mindset of bullying and bossing the world to at long last kow tow to it, and to comply with its fascist censoring willfulness? Beijing is self revealing of its nothing less than frothing at the mouth impulsiveness and compulsiveness to use its economic power sooner and immediately rather than later to try to gain control of the global economy and to become the fascist censoring dictatorial hegemon of the world.

This domineering Jung Gwo policy raises the question as to what major modern and future movements or trends of human history and civilization does Beijing stand for or represent? The fact and reality is that the Jung Gwo/CPC/PRC are a reactionary force of history in their absolute opposition to the modern philosophies of government, i.e., democracy, democratic society, culture, civilization.

The Jung Gwo, i.e., the Chinese make their claim to rule the world only on the basis of their being the Jung Gwo, and in their nostalgia for their 5000 year Jung Gwo civilization of totalitarianism and authoritarianism - there is nothing more to the 5000 year old Jung Gwo that these highly objectionable vacuous and reactionary claims. The Jug Gwo reactionary and regressive through and through - a menace to modern and future cvililzation.

SANDYBOY

4:46 AM ET

October 28, 2010

Underestimating Reserves

The slow in China's demand for rare earth may be an example of using their vast raw material inventory to spook their trading partners. With technology sales and iphone development growing exponentially, it is unlikely that China's demand is waning.