This is a four-part article series on the reality of how and why China retains its dominance in the Rare Earth (RE) industry. Part one investigates how China built its multi-commodity monopolies across the technological spectrum. Part two provides a brief historical overview on what China learned from its Rare Earth monopoly. Part three looks at how China turned Rare Earth metals, alloys & magnets into ‘utility goods’ for its domestic economy. The final part of this article series explores how China’s current monopolistic strategy feeds on the ‘Free Market’ actions of its adversaries and explores a possible solution to overcome Chinese global control in Rare Earths.
It cannot be accounted for or overcome by any traditional capitalistic or economic measure and that is the point. It amounts to ‘Utility’ pricing for Chinese and Domestic utilization. For domestic utilization, China provides metallic conversion subsidies and tax rebates that reflect utility pricing — like a public road, a power line or municipal drinking water.
Export-reliant end-users face taxation and non-competitive disadvantages that when combined with uncertainty of delivery may reflect or exceed the real cost of RE metal and magnet production. US government policy has focused on private (for profit) mining, refining and elemental separation projects to overcome China’s monopoly. The unrecognized reality is that there is no profit in RE metals. Betting on for-profit enterprises is dead-end.
These misguided policies only end up feeding China’s metal monopoly. All talk of a US “mine to magnets” company or developing a stand-alone RE metal / magnet industry are of three varieties:
The economics are impossible to match (as Chinese pricing would become a moving target). Even if the US wanted to diversify its Rare Earth supply from allied nations such as Australia (Lynas), Rare Earths shipment routes to the US maybe influenced as companies face Chinese naval presence in the Strait of Malacca. The latter geopolitical implications can increase shipment time and cost making it uncompetitive for non-Chinese rare earth producers.
Lobbyists for MP and other interests successfully campaigned the Pentagon and Armed Services Committees to convince them that the U.S. could never make RE metals for environmental reasons. The message was that China’s RE metal monopoly is a permanent fixture and inevitable reality that the US would have to accept. The US private sector should not even think about investing in the rare earths sector unless they have financial guarantees from the government.
The historical problem with subsidies is that there are no incentives to reduce costs. RE magnet costs would be reminiscent of the price distortions once common in the defense industry. Through subsidies China is able to produce and sell near or below U.S. producer costs. The latter action makes it unprofitable for US companies, backed by private equity, to even compete and operate at zero or negative margins with China in the same market. Multinational technology companies may choose not to participate for pricing reasons, but they also may shy away from what would be perceived as a U.S. defense industry program (sure to result in Chinese retaliations).
Recycling can only be viewed as supplemental based on the following: Highly subsidized European recycling has proven non- competitive vs Chinese ‘costs. Recovery limitations define application opportunities. Recycling remains dependent on Chinese virgin ore for advanced applications.
Yes, there are alternative solutions. First is converting existing mining waste, which is currently considered a liability, into a high-value feedstock that typically contains up to 10 times the economic value of what comes out of the Mt. Pass deposit. These resources are currently disposed of to avoid a 1980 regulatory change that defined the waste as “source material (nuclear fuel)”. Resources could be acquired below market prices and the actinide liabilities could be profitably stored thorium or sold uranium.
A second option is a fully integrated cooperative (co-op) value chain, with no profit motive, could roll all savings forward into finished metal, alloy and magnet products. The notion of a cooperative is not new, and is typically managed under shared risk, production and distribution in a privately funded vehicle. The structure of the co-op would include multiple stake holders across the non-Chinese world. Under US law the many competing technology and manufacturing companies can enjoy collaborative ownership of the cooperative without violating anti-trust laws and have access to finished products that would have been domestically unavailable.
These products would be sold to owner/end-users “at cost”, in exchange for fixed off-take agreements. Chinese competitive pricing could not be guaranteed, but end-users would have an uninterruptable supply of finished RE metals, alloys, magnets and other value-added materials “at cost”. Surplus would be sold to non-owner/members on a cost-plus or market basis.
The multi-national cooperative would be open to any RE end-user, per CFIUS clearance, thus greatly enhancing the competitive scale of the operation. This option is detailed in Senate bill 2093 and House bill H.R.4410, of the last Congress
and will be reintroduced in the current Congressional session. Like most U.S. cooperatives, finished goods wouldbe delivered to owner / members at a “utility” price.
China did not always dominate the supply chain. According to Jack lifton Director of the Industrial Policy institute, “The Rare earths’ value chain is not the same as the supply chain. It is very difficult to make money mining, extracting, or even separating mixed rare earths into individual rare earths and blends”. The current reality is China holds control over bottlenecks in the Rare Earth market and other critical raw materials as well.
A change in regulation and the wilful transfer of technology shifted control of Rare Earth from US to China. China has a clear economic advantage and unlimited political will that makes it difficult for the US to compete. The United States can protect itself from China’s monopoly over Rare Earth prices by establishing a domestic solution that utilize ‘uninterruptable’ resources. A cooperative structure is best suited to address market failure. However, the cooperative would involve multi-lateral efforts with allied nations under the consideration of a global governance framework.
To succeed, the United States must do two things: first rationalize the 1980 regulation by the NRC, to allow the United States to utilize Heavy Rare Earth materials within the country from actinide bearing resources; second, through policy the US government must provide an ecosystem for vertically integrated initiatives, such as a Rare Earth Cooperative.
Part 4 of 4
Jamil Hijazi: Jamil is a Mineral Economist and Energy analyst who holds a Dual Master’s Degree from the University of Dundee Centre for Energy, Petroleum, Mineral Law and Policy (CEPMLP). His expertise and research interests are in Supply Security of Critical Raw Materials, Energy transition, Local Content and Development in the Extractives Industry.
James Kennedy is President of ThREE, a consultancy focused on the geopolitical, national security and economic, ramifications of China’s rare earth and critical materials monopoly. He currently consults private industry, the U.S. Federal government and other governments on macro issues and trends related to rare earths, critical materials, and thorium (waste and energy systems).