By Greg Klein, Resource Clips
The timing seems ominous. As rival American and Chinese warships assert themselves in the disputed South China Sea, the United States Geological Survey reported 20 minerals on which the U.S. imports all of its supply. Included are rare earths—coming almost entirely from China, of course. It was a 2010 conflict in the same troubled waters between Japan and China that caused the latter country to cut off rare earths exports to its adversary. As other supply chains broke apart, REE prices went on an exponential tear. Might China do that again and, this time, are American decision-makers sufficiently concerned?
They should be, say some observers. Additionally, there also looms the possibility of a trade war sparked by U.S. tariffs on Chinese goods. Yet some REEs are necessary not only for consumer electronics and clean energy, but also for military defence.
The 20 entirely foreign-dependent minerals reported by the USGS represent an increase from 19 the previous year and 11 in 1984. The list includes rare earths, scandium and yttrium as three separate categories. In February 2016 Industrial Mineralsreported that the U.S. Department of Defense “identified 15 of the 17 rare earths as critical over the last five years.”
Having foreseen as far back as 2009 the possibility of China using REEs as a geopolitical strategy, Jeff Green watches the topic from a defence perspective. “I think about the tools China has to retaliate and rare earths come right to the top of the list,” he says.
Green has recently served on the U.S. House Armed Services Subcommittee on Readiness. He’s a lawyer, a member of the U.S. Magnetic Materials Association and the REE World Advisory Board, a U.S. Air Force Reserve colonel and a former USAF missile combat crew commander. He describes his Washington firm J.A. Green & Company as “primarily a defence lobbying company that’s really interested in the nexus between national resource security and national security.”
He finds the U.S. government’s concern stronger and better informed than previously. That contrasts with events leading to what he calls the “Molycorp fiasco,” a supposed market solution to the 2010 shock and a strategy that he warned against. It went on to “burn the market to the tune of one and a half billion dollars.”
The result? “Today we’re probably in a more dire China-dependent situation than ever before.”
But Green sees hope in a Congressional bill that he anticipates being introduced within a week or so. Rep. Duncan Hunter’s proposal would help American companies develop domestic supplies of REEs and other minerals critical to defence. Assistance could come in the form of no-interest loans, Green says. Additionally the Department of Defense might pay more for American products made from American commodities, with the government reimbursing the difference between domestic and Chinese costs until American companies can compete.
As for the bill’s chances of success, Green’s optimistic. “You’ve got an administration that is very pro Buy American, Hire American. You’ve got a Congress that very much supports manufacturing. It will be much more pro-mining, pro-industry than we’ve seen. It’s not a pure free market economic philosophy but one that will say: ‘If we’ve got a critical supply risk and we’ve got domestic companies that can fill that gap, then let’s invest in America to protect our national security and grow our manufacturing base.’
“It’s a totally different dynamic than Washington’s seen in 40 years.”
Chris Berry agrees about the need for subsidies, among other assistance. In a research report last year the president of House Mountain Partners and editor of the Disruptive Discoveries Journal warned of the cost of not creating a supply chain outside China. In an e-mail to ResourceClips.com he notes that the “mine permitting, exploration and building process would all need to be expedited through legislation and through subsidies. This is the only way I see non-Chinese deposits being able to compete with China’s RE production costs. The good news is that as various technologies grow in importance (such as EVs) and existing processes grow as well (fluid cracking catalysts), this implies steady demand for REEs.”
While Berry considers the establishment of new supply chains “a multi-year endeavour,” he adds, “a focus on recycling or funding of materials science to minimize foreign dependence of these materials is a reasonable near-term solution to encourage supply chain development.”
As for the raw materials, Green maintains the U.S. has REE resources sufficient for defence needs, which he says are relatively small. “We’re not trying to compete globally in the automotive, magnet or catalyst markets,” he emphasizes. “We’re trying to protect our national security needs.”
Yet the Congressional bill calls for assistance to all aspects of the supply chain, he says, “whether that’s processing, refinement, separation, beneficiation, metal production, alloy production, magnet production.”
Support for supply chains would benefit other sectors, he points out. “This is the old NASA model. The government for years invested in new technologies and we’ve reaped the benefits in consumer advancements. Just look at the refining industry for petroleum products, at catalysts, phosphors in electronics, magnets for vehicles, battery materials. I think the commercial applications are terrific.
“I believe the president will kind of cheerlead this effort along,” he adds. “That’s really a game-changer. He’s going to take the traditional free trade model and turn it on its head. He’ll say the rest of the world doesn’t play by these rules so we’re going to play smarter—we’re going to treat our industries like the rest of the world treats theirs.”