Rare Earth Elements cause international trade dispute

Rare earth minerals: From smart bombs to smartphones – what four major economies are fighting over

by Josh Rubin, Toronto Star


Rare earths can be found in everything from big screen TVs to smartphone and smart bombs, which is why a global trade dispute has erupted over them.
Krzysztof Grzymaj¬ao/Dreamstime
A fight over obscure minerals used in the electronics industry pits four of the world’s largest economies against each other in a massive trade dispute that could take several years to resolve.

Tuesday, the U.S., Japan and EU filed a complaint with the World Trade Organization claiming that China was illegally restricting the export of several so-called rare earth minerals, favouring Chinese manufacturers in the process.

U.S. president Barack Obama railed against China’s efforts to restrict the exports, saying it was hampering competition in the electronics manufacturing market. China currently uses 70 per cent of the world’s supply of “rare earths,” including several used in the making of everything from glass on smart phones to industrial coatings and smart bombs.

“We want our companies building those products right here in America,” Obama told an audience in Washington, D.C. “But to do that, American manufacturers need to have access to rare earth materials, which China supplies.”

Here’s a look at what the dispute’s about, what it all means, and why Canada’s not actively taking part — at least not for now:

Lantha-what?

Though rare earths aren’t exactly household names, the minerals are found over much of the planet’s surface. The “rare” part of the name comes because they’re often spread so thinly, or mixed with so many other material, that extracting them can be a giant pain.

Among the rare earths are such fun-to-pronounce minerals as lanthanum, dysprosium oxide and neodymium oxide. A form of lanthanum oxide is used in fuel cells for hybrid cars.

Who cares?

Manufacturers outside of China are keeping a close eye on the trade dispute. That’s because they’re more vulnerable than ever to interruptions in their supply chain, says Duncan Stewart, head of technology research at Deloitte Canada.

“Decades ago, companies would have several month’s supply of parts and materials on hand. Now, that’s just not the case any more. Supply interruptions can have a real ripple effect,” said Stewart.

Still, Stewart says most manufacturers haven’t experienced major shortages of rare earth minerals. At least not yet.

A rare price

China could be attempting to drive up the price of the various rare earths it mines, as well as ensuring its own manufacturers have a steady supply, says lawyer John Boscariol, head of the international trade division at McCarthy Tetrault.

Those would both be no-nos, according to Boscariol.

“If you’re doing this to favour Chinese companies, or drive up the price, the WTO rules say you can’t,” said Boscariol, adding the U.S.-led trade complaint is a strong one.

“There’s a legitimate case here.”

The West heads to WTO over China's rare earths hegemony

U.S.A., European Union and Japan oppose China's rare earth metals monopoly

by JOE MCDONALD, BRUSSELS — Reuters

The European Union, United States and Japan formally asked the World Trade Organization on Tuesday to settle a dispute with China over Beijing’s restriction on exports of raw materials, including rare earth elements critical to major industries.

The EU’s trade chief, Karel De Gucht, said the three trading powers were making the dispute settlement request, the first step before filing a full trade case, following a successful EU challenge at the WTO on similar restrictions earlier this year.

“China’s restrictions on rare earths and other products violate international trade rules and must be removed,” Mr. De Gucht said. “These measures hurt our producers and consumers in the EU and across the world, including manufacturers of pioneering hi-tech and ‘green’ business applications.”

China accounts for about 97 per cent of the world’s output of the 17 rare earth metals, which are crucial for global electronics production and the defence and renewable-energy industries. They are also used in a wide range of consumer products, from mobile phones to electric cars.

The dispute is one of several between Beijing and the world’s other three largest economic powers, as China’s rise changes the world economic order. It is the first case to be jointly filed by the EU, United States and Japan with the WTO, an EU official said.

Mr. De Gucht said during a recent visit to Hong Kong that China needed to be sensitive to perceptions that its huge economy is a threat in Europe. The cost to EU businesses of China’s export restrictions runs into the billions of euros, officials say.

Trade between the EU and China has boomed in recent years, reaching almost €400-billion ($524-billion U.S.) in 2010, but EU complaints against Chinese dumping range from the shoe industry to steel fasteners. De Gucht has in the past complained that China subsidizes “nearly everything,” making it hard to compete.

An EU decision to make all airlines using EU airports pay for carbon emissions has brought threats of retaliation from China, as well as from the United States and Russia.

Critics complain it is a tax, which infringes sovereignty. The EU says it is not a tax because it is based on buying and selling allowances on a market and airlines can avoid costs by finding other ways to offset their emissions.

Japan has been worried about supply of rare earths, especially after fears that China held back shipments of rare earths as punishment after the territorial dispute last year.

U.S. President Barack Obama is currently toughening his stance on China trade ahead of November’s presidential election. He recently created a new interagency trade enforcement centre, which is expected to be up and running in the coming months and whose primary focus is to make sure China honours WTO rules.

Obama administration officials also have been considering a WTO complaint against anti-dumping and countervailing duties that China imposed late last year on U.S. auto exports.

Beijing’s restrictions on exports of the valuable minerals became a flash point in 2010, when China halted rare earth shipments to Japan during a diplomatic dispute.

The United States and the EU have long been expected to file a WTO case against China’s rare earth mineral export curbs, but appeared to be awaiting the outcome of a separate case against Beijing’s exports on a long list of other raw materials.

That dispute was finally decided in favour of the United States, EU and Mexico in January after China lost an appeal to keep its raw material export curbs. Beijing has not yet announced how it intends to comply with the January ruling.

MolyCorp deal for rare earths technology worries some

Deal Shows China's Sway in Rare-Earth Minerals

from Wall Street Journal

SHANGHAI—Molycorp Inc.'s $1.3 billion deal to acquire a key processor of rare-earth minerals has sparked a warning from industry officials that it could reinforce China as the main source for specialized magnets used in consumer electronics and sophisticated weapons.

Molycorp said Thursday it plans to buy Toronto-listed Neo Material Technologies Inc., one of the world's leading experts in chemistry needed to transform rare earths—minerals used in applications that range from car batteries to advanced weaponry—into specialized magnets. Molycorp said the deal creates the most diversified rare-earth company outside of China, which dominates the industry.

The transaction, said Mark A. Smith, president and chief executive of Greenwood Village, Colo.-based Molycorp, links a world-class miner with a world-class processing company.

But the deal also paves the way for Molycorp to ship minerals from its California mine to the Chinese operations of a Neo Material arm called Magnequench, in a reminder of how much technological rare-earth capability resides in China.

Ed Richardson, president of the U.S. Magnetic Materials Association, says the plan is worrisome. The U.S. is already "dangerously dependent on China" for rare-earth-magnet materials, including to supply its weapons systems, Mr. Richardson said in an email. Molycorp's "export of U.S. rare earth assets into China will only exacerbate this problem," he added.

Mr. Smith played down political and historical implications of the deal that now ties Molycorp, Magnequench and China. He said sending rare-earth oxides to China is a bid for "higher volume, higher margin" that will only reduce production costs in the U.S. and by implication boost supply of the metals for industrial users. "It does not in any way deplete our ability to serve the market outside of China whatsoever," Mr. Smith said.

While much of the debate over China's hold on the rare-earths market has focused on mining, the Molycorp deal highlights China's ability to process mined oxides into metals that help electric cars hold their charge, make wind turbines turn and bring precision to military gyroscopes.

Like most developments in the tiny but critical rare-earth industry, the merger is a response to China's market supremacy. Companies such as Molycorp and Australia's Lynas Corp. are trying to provide supply alternatives to China, which has 90% market share in many aspects of the industry. It comes as analysts predict a formal challenge of China at the World Trade Organization over its rules to limit export of some rare-earth materials, rules that Beijing says are meant to protect the environment but Washington labels a trade barrier.

Analysts concur with Molycorp's assertion that the acquisition of Neo Material gives it significant new technological capability, particularly in powders used in sophisticated high-performance bonded magnets. The U.S. company becomes more global, with production and sales in a number of new markets. Molycorp argues that the deal also can lower production costs as the company restarts its California mine, which was once the world's No. 1 rare-earth mine before it was closed several years ago due to falling rare-earth prices and environmental concerns.

Molycorp's acquisition includes magnet-materials maker Magnequench, the name of a Neo Material predecessor that started in the U.S. and later moved primary operations to China. Western nations, including the U.S., remain reluctant to permit often-polluting rare-earth processing. Molycorp itself last year dropped plans to build a rare-earth magnet plant in the U.S. in partnership with Hitachi Ltd. of Japan.

General Motors Co. divested itself of Magnequench in 1995, and a group of investors including government-owned China National Non-Ferrous Metals Import & Export Corp. acquired the highly specialized producer of magnet materials. The investment group then opened a facility in the Chinese city Tianjin and closed an Indiana plant. For many rare-earth industry experts, that chain of events marked a shift toward China's domination of the industry that U.S. policy makers didn't expect.

Neo Material's Tianjin plant and its other facility in China have spare processing capacity that Molycorp's Mr. Smith said he intends to exploit by sending output from the California mine to be processed there. Molycorp sold no material to Neo Technology in China last year, he said.

The acquisition—coming amid cooling prices for rare earths and shares of the production companies such as Molycorp—will give existing shareholders of Neo Material about 14% of the combined company, a written statement from the companies said.

Molycorp and Neo Material executives told analysts in a conference call Friday they had informed authorities in Washington and Beijing about the deal hours after the announcement and that they don't expect regulatory hurdles in either country.

Constantine Karayannopoulos, the CEO of Neo Materials, said he expects Chinese authorities to honor existing quotas that permit its export of material the company produces once it becomes U.S.-owned. "The early indications are there shouldn't be any issue," he said.