China & the Geopolitics of Rare Earth Dominance - Balasubramanian C
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China & the Geopolitics of
Rare Earth Dominance
Balasubramanian C
China & the Geopolitics of Rare Earth Dominance
“There is oil in the Middle East; there are rare earths in China”
- Deng Xiaoping
Rare earths elements, often simply called REE, are group of metals that are essential for the high-tech industry
and therefore they play a pivotal role in the contemporary economy. Daily products like smartphones and
computers all contain rare earths, but they are also present in green power generators like wind turbines, in
medical devices and in military hardware.
The International Union of Pure and Applied Chemistry, or IUPAC, has defined rare earths elements as
lanthanoids with atomic numbers 57 to 71; but elements with similar properties like yttrium and scandium are
also generally included in this group of transition metals characterised by their special electron configurations.
Fig: 1 – REE in Periodic Table (Rare Earth Elements, n.d.)
Contrarily to what the name might suggest, rare earths are actually not so rare. The problem is that they are hard
to find in concentrations high enough to make their mining economically profitable. Rare earths elements can
be used in different forms: mineral concentrates, mixed chemicals, oxides and metals, magnets, phosphors and
powders.
In the 1980s, their main use was within the metallurgic industry; but after 2010 they became mostly employed
in the medical sector for lasers, X-ray machines, MRIs, or in electronics for producing cathode ray tube
televisions, or energy-efficient fluorescent lamps. Their magnetic properties are also very useful for the creation
of wind turbines, laptops, smartphones and other hi-tech products. Magnets and phosphors have also application
in the military sector for those technologies that require lasers or communication and transmission devices.
Fig: 2 – Applications of REEs (Applications-of-Rare-Earth-Elements-Walters-Lusty-and-Hill-2011.Png (850×533), n.d.)
Fig: 3 – Applications of REEs
Until the 1980s, the world's leading producer of rare earth was the United States. The massive Mountain Pass
mine in California was the main extraction centre, but it was eventually closed mostly out of environmental
concerns over the effects of the mining process.
Yet, there was also a second important factor at play: China was emerging as a fierce competing producer. China
had huge reserves, and its low labour costs meant that the Chinese rare earth industry was much more
competitive than the American one, to the point of ultimately overwhelming it. With time, China obtained a
quasi-monopoly over the global production of rare earths.
According to the Maastricht Economic and social Research Institute on Innovation and Technology, between
1988 and 2013, "China increased its rare earths production by 237%, "while the rest of the world decreased
production by 66%". (Bartekova, E., 2014)
China strengthened its monopoly by implementing four related economic measures.
First, it banned foreign companies from taking part in any part of the supply chain, only leaving room
for the creation of joint ventures with Chinese companies.
Second, Beijing introduced production and export quotas for both domestic companies and joint
ventures: for example, in 2018, China decided to limit the production of rare earth elements to 45,000
tonnes for the first semester of the year.
Third, most of the companies were merged into a single megacompany and new exploitation licences
were banned.
And finally, China implemented a strict and well-controlled pricing system.
In 2013, 40% of the word's known rare earths' reserves were located in China; and in 2017 its share was estimated
at around 80% of the worldwide production of rare earths. In this regard, former Chinese President Deng
Xiaoping made a remarkable declaration: "There is oil in the Middle East; "there is rare earth in China".
Apart from the purely economic implications, having the monopoly over rare earth production also gave China
a notable political leverage. Japan is a country that has directly experienced China's willingness to use its near
monopoly over rare earth as a foreign policy tool.
In 2010, a Chinese trawler collided with two Japanese coast guard ships inside of Japanese territorial waters. The
Chinese captain was then captured by the Japanese authorities. This sparked a diplomatic crisis between the two
countries, during which China blocked its exports of rare earth to Japan. (McCurry, 2010). In the short term,
this affected the economy of both Japan and of its trading partners; prompting them to take countermeasures.
As a response to China's actions; Japan, the European Union, Canada and the United States submitted a case
before an international court claiming that China's export quotas were infringing WTO Law.
More precisely, they accused China of charging export duties that, in their own words, "are inconsistent with
China's WTO obligations "because in its Accession Protocol, China undertook "to eliminate all export duties,
except for those imposed "on a number of products listed "in Annex 6 to China's Accession Protocol". (World
Trade Organisation, 2011)
The complainants argued that, with the exception of tungsten ores and concentrates (which they excluded from the scope of their claim), none of the products at issue are included in Annex 6, and China is therefore not entitled to impose the export duties on them. Beijing responded by stating that, "export duties are necessary to protect human, "animal and plant life and health from the pollution "caused by mining the products at issue". Moreover, China defended its position by referring to the exceptions indicated in Article XX(g) of the 1994 General Agreement on Tariffs and Trade in regard to the conservation of exhaustible natural resources. In the end, the court ruled that, "China's export quotas were designed to achieve industrial "policy goals rather than conservation". (World Trade Organisation, 2011) The Panel also agreed with China on the preservation of natural resources, adding that "every WTO Member can take "its own sustainable development needs and objectives "into account when designing a conservation policy". Yet, the Panel made it clear that this measure could not be introduced in order to take control of the international market for production of one specific resource. The WTO ruling might give the impression that the environmental costs of mining rare earths elements is low, but in reality, rare earths are often mixed with uranium and thorium and therefore their extraction is far from being environmentally friendly. According to the Chinese Society of Rare Earths and Materials Department of the Ministry of Industry and Information Technology, for each tonne of rare earth produced are emitted 12,000 cubic metres of waste gas, 75 cubic metres of acidic waste water, as well as one tonne of radioactive waste residue and 2,000 tonnes of mine tailings containing thorium. These by-products were often discharged in rivers without any treatment, thus polluting water used for irrigation of farmlands. This had heavy consequences: for instance, in the village of Baotou more than 70% of all deceases occurred in 2006 were caused by cancer; probably resulting from these polluting activities. In spite of China having immense reserves, there are also other countries holding vast amounts of rare earths. Within Europe, the main exploitations are in Greenland and Scandinavia. The mine of Kvanejfeld, in Greenland, contains substantial reserves of rare earths as well as zinc and uranium; and it holds a particular importance. (World Nuclear News, n.d.) In 2016, the Chinese company Shenghe Resources planned to buy participation shares of Greenland Minerals and Energy, which is currently developing the Kvanejfeld site. The Danish government worries that Chinese interests for Greenland could be part of a broader strategy aimed at strengthening its control over the rare earth international market. Moreover, Denmark is concerned over the effects that Chinese investment could have on Greenland's economy and on the political leverage that this might give to Beijing; but also, that they could boost the island's economy and fuel its quest for independence. However, in 2021 elections the left-wing party Inuit Ataqatigiit (IA) won the Greenland vote and are now saying no to the Australian company with close Chinese connections, Greenland Minerals, regarding a proposed mining project in Kvandefjeld. Greenland Minerals has been operating in Greenland since 2007 and the company’s primary focus is the development of the Kvanefjeld rare earth project in southwest Greenland. Despite the company’s Australian domicile and management, its major shareholder, with a 9.4 percent stake in Greenland Minerals, is the Chinese company, Shenghe
Resources. In an interview the leader of the IA party, Mute Egede who will be Greenland’s new Prime
Minister, said that the mining project in Kvandefjeld will be stopped. (Larsen, 2021)
Apart from that, the Kola Peninsula in Russia and countries like Poland are also said to contain some deposits.
A Norwegian company called REETec is also developing a technology to separate rare earth elements without
solvents in an environmentally friendly way. In the rest of
the world, Brazil, Vietnam and India also have important
reserves, but extraction is still underdeveloped because
of the lack of investments and infrastructures combined
with environmental concerns. Australia is another
country with important rare earth reserves. It does not
relay on Chinese investment and it refines its mineral in
Malaysia, thus exporting the environmental costs.
Fig: 4 – China's Rare Earth Monopoly vis-à-vis other countries
(Infographic, n.d.)
The US is also trying to revive its production: it reopened
the Mountain Pass mine in 2012, but it was shut down
once more in 2015 after the company managing it went
into bankruptcy. In 2017, the site was bought by two
American companies along with a minority stakeholder
from China; and production has resumed. With their
multiple applications, rare earths seem poised to
represent for the 21st Century what oil represented for the
20th Century. They correspond to the definition of critical
and strategic raw materials given by the US law, and the
Chinese is naturally raising concerns in Washington;
especially now that relations are strained also because of
the ongoing trade war. It is quite significant that China
decided to play the rare earth card as a response to
American tariffs and restrictions against Huawei;
something that unleashed deep economic and political
consequences. It is expected that the US and like-
minded countries will try to find alternative sources of
rare earths, but this will take time, and breaking China's
supremacy will not be easy.
Fig: 5 – China's Rare Earth Monopoly vis-à-vis other countries
(Bhutada, 2021)
To view enlarged image: Click here
Non – Chinese Alternate
Half a century ago, the Mountain Pass mine in California was the world's leading source of rare earths. But a
successful push by Beijing to become the global leader in the sector means it now produces about 80 per cent
of the world's rare earths. Today western countries fear they don't have an alternative, which could have serious
implications for the future of manufacturing. The sharp deterioration in relations between the US and China is
fuelling concerns that Beijing could cut off the supply.
As a group, REEs tend to have high melting and boiling points, when they react with other elements, they become
really useful especially the defence industry. In July 2020, China threatened to impose sanctions on Lockheed
Martin, the biggest US arms manufacturer in response to U.S. approved sale of $620 million deal to supply
missile parts to Taiwan. This has prompted the US, Australia, and the EU to step up efforts to create an
alternative supply chain. Currently, there is just one major non-Chinese supplier of rare earths, Lynas, an
Australian-listed company. But Lynas can only handle the so-called light rare earths at its Malaysian processing
facility, leaving western companies totally reliant on Chinese suppliers for heavy rare earths. In July 2020, the
Pentagon provided funding to Lynas and US-based MP Materials to design heavy rare earths processing facilities
that could be based in the US. The US and Australian governments have also signed an agreement to source
new rare earth deposits to boost security of supply.
Fig: 6 – World’s Mine Production and Reserves of Rare Earths (USGC Report 2021) (Mcs2021-Rare-Earths.Pdf, n.d.)
The task of establishing a non-Chinese supply chain will not be easy, however. Even though rare earths are
relatively abundant the process of separating them poses technical and environmental challenges. China's
dominance of the market enables it to control prices and put pressure on challengers. Beijing's Made in China
2025 strategy is to create a vertically integrated supply chain that dominates mining magnates in high-tech
manufacturing, such as electric vehicles. But an increasing number of western experts say this is exactly why the
west needs to begin producing its own supply of rare earths and also the high volumes of high-performance
magnets required to power the digital age. Otherwise, millions more high-tech jobs could migrate to China. In
fact, they're indispensable for many electronic, optical, and magnetic applications and currently irreplaceable for modern devices such as electric vehicles and mobile phones. China’s Playbook In China, the mining of Rare Earths began during 1950s. But it remained limited as a cottage industry until the 1970s, when Chinese chemist Xu Guangxian found a way to separate the Rare Earth elements from the ore. Post the Cultural Revolution China focussed on exploiting its natural resources. In 1990, the Chinese Government declared rare earths to be a protected and strategic mineral. As a consequence, foreign investors are prohibited from mining rare earths and are restricted from participating in rare-earth smelting and separation projects except in joint ventures with Chinese firms. China’s main rare-earth production takes place in the Provinces of Fujian, Guangdong, Jiangxi, and Sichuan and in Nei Mongol Autonomous Region. (Tse, 2011)Nei Mongol accounted for between 50 percent and 60 percent of China’s total rare-earth concentrate output during the past decade. Sichuan Province was the second leading rare-earth concentrate producer, accounting for between 24 percent and 30 percent of production during the past decade. The remaining output was from the Provinces of Fujian, Guangdong, and Jiangxi, which are important for their production of “heavy” rare earths. (Tse, 2011) China dominates around 98 percent of the rare earth market and are we at the point where china is crucial in the supply chain to build the defence systems that can be in in a future engagement used against China if need be. Rapid increases in the consumption of rare earths are also because of the emergence of new clean-energy and defence-related technologies, combined with Beijing’s decisions to restrict exports of rare earths, that have resulted in heightened concerns about the future availability of rare earths. Guillaume Petron, a French journalist and author of book ‘The rare metals war’ explains the term rare earth has been named back in the 18th century after European geologists discovered them and they thought these metals were rare but actually we can find deposits everywhere around the world, we could mine hundreds of mines of rare earth on different continents and even in the oceans. Chinese miners would extract specifically RE’s like neodymium even it being a very small element in a diluted form and hard to extract apart from being energy consuming. Many of the big mining companies across globe have iron mines but they don't focus much on RE’s at all. Presently only ‘Linus’ based out of Western Australia and a handful of Chinese owned conglomerates do RE specific extraction. Despite RE’s being important to the market none of the big mining companies focus on its extraction because it’s too expensive to extract them and time consuming. The economics doesn’t add up to the balance sheet of companies which makes it dull and uninteresting. But Chinese are less interested in deriving a quick profit and they understood its strategic value. In recent times Australia has started to extract REs as they have been doing such kind of exploitation for the last decades. Challenge also lies in finding a suitable business model that can guarantee profit. In Japan they fund RE extraction activities even if the Japanese lose money.
The Mountain Pass mine in California was shut down due to non-profit. While in China companies don't need
to make a profit as they're owned by the state. Almost every other RE mine plunged into a loss the 1980s and
1990s also due to Beijing’s strategy of undercutting. The US in the 1980s shut down RE mines and the process
because it was environmentally damaging and was bad economics. In addition to abundant natural resources
and lax environmental regulations, China invested heavily in mining and processing technology while benefiting
from the world’s largest supply of cheap labour. The key to China’s market dominance lies in the complete
economic ecosystem it has built around rare earth metals. The fundamentals of this situation are changed as the
US is looking at Mountain Pass in California indicating its ambition of mineral sovereignty in RE’s. However,
the US lack the refineries to refine which has to be sent to China. All these denote a lack of downstream supply
chain of industries. It is alarming for the US that it cannot build an F-35 fighter without the support of China
and with worsening ties post US trade war on China it has even more become a serious concern.
India & REs
REs are predominantly found in China, Australia, Russia, India and the US. India occupies the fourth position
with around 1.4 million tonnes of rare earth oxides (REO) content. But Dept. of Atomic Energy estimates put
India’s estimates around 10.21 million tonnes. With this it puts India above Australia. (Choudhury, n.d.)
Figure 7: Major reservoirs of the rare earth (1000 MT REO)
India and China started mining REs almost at the same time. China started in 1959 while India on August 18,
1950 incorporated Indian Rare Earths Limited (IREL) with its first unit Rare Earths Division (RED), Aluva in
Kerala. Later, it became a full-fledged GoI Undertaking, under Department of Atomic Energy (DAE) in the
year 1963. It then took over companies engaged in mining and separation of beach sand minerals in southern
part of the country, by establishing two more divisions one at Chavara, Kerala and the other at Manavalakurichi
in Tamil Nadu. (IREL (India) Limited, n.d.)
Despite having an early mover’s advantage, India could not capitalise on its strength. While China went ahead
in building a strong domestic RE ecosystem, India still remains a primary supplier of raw materials of REMs.Global concerns over China have prompted countries to look at India as an alternate supplier. As of today,
Tamil Nadu, Kerala and Orissa account for nearly 95% of the India’s production of rare earths. In India,
monazite is the principal source of REMs. It occurs in other heavy minerals such as ilmenite, sillimanite, rutile,
zircon and etc in the inland placer deposits and beach sands. Monazite also contains thorium and uranium.
Figure 8: REEs mineral deposit in IndiaFigure 9: Resources of Monazite in various Indian states A study, conducted by the think-tank Council on Energy Environment and Water, identifies 12 minerals out of 49 that were evaluated as ‘most critical’ for India’s manufacturing sector by 2030. These are beryllium, chromium, germanium, limestone, niobium, graphite, rare earth, rhenium, strontium, tantalum and zirconium. Other minerals like limestone and graphite, while currently abundantly available in India, are deemed ‘critical’ because extractable resources could be scarce in the future. (The Hindu, 2016) For others, the report says, India is 100 percent import-dependent for seven out of 12 identified critical minerals and does not have any declared resources for them, except light rare earth (found along with monazite sands) and beryllium. (The Hindu, 2016) Way ahead for India is to create upstream and downstream industries which includes refining facilities. Opening up this strategic sector to private players can be considered as a policy decision since the mining and extraction processes are capital-intensive, consume large amounts of energy, and release toxic by-products. Currently there is a clear absence of manufacturing facility in India for intermediate RE products which can be addressed by linking research and end user segments. As most of the RE products in India is imported in finished form serious efforts are needed to go up the value chain and create an ecosystem of entire value chain within India as
part of ‘Atmanirbhar Bharat’. India needs to specially promote the downstream sector using the public–private
partnership model or under the Make in India initiative for permanent magnets on a priority basis.
Geologically the landmasses around the Indian Ocean contains REEs in the surrounding rocks. The coastline
of the Indian states is enriched in black colour mineral sands containing REEs. Monazite mineral is one which
in association with other minerals such as ilmenite, rutile and zircon in the beach sands and inland placer
deposits are the main source of REE in India. The carbonatites of southern India (Pakkanadu, Samalpatti,
Mulakkadu,) are dominated by monazite. Not much benefciation work has been carried out on the Indian
carbonatites apart from those at Sevattur, Samchampi, and Sung Valley (NE India) and their REE potentiality
need to be ascertained.
Opportunities for India lie in the domains such climate change mitigation, pollution control, and energy security
with a low-carbon economy for which the sustainability of the rare-earth industry is important. Here there is a
opportunity for India to strengthen ties with countries like Japan for the exchange of knowledge and new
technologies for the upstream and downstream processes of the rare-earth industries. Another viable solution is
encouraging the Indian private sector to look overseas and secure REE industries under prospecting/mining
concessions.
Shortcomings in India
Despite possessing fifth largest reserves India has failed to revive the growth of REE. This primarily due to the
following reasons:
1. The separation of the individual elements. Eradicating REEs substances from discarded products is
difficult and costly.
2. The imbalance between supply and demand of rare earths results in large fluctuations in the cost of
individual rare earths.
3. Extraction and mining of rare earth metals involves land-use exploitation, environmental damage, and
ecological burden. This includes increased carbon emissions into the atmosphere and toxins into the
ground. Thereby damaging to the health of land and aquatic ecosystems including humans.
4. The price pressure in establishing the downstream sector and unequal distribution of individual rare
earths in ores. Also, there is a wide difference in the price of light REEs (LREE) and heavy REEs
(HREE).
Way ahead: Policy options to spur growth
▪ The feasibility of exploring some other non-radioactive minerals need to be accelerated in public-private
partnership mode. The model can help in investing on R&D programme in the area of following viz
A. Development of environment- friendly methods for the extraction and processing of REEs
B. Manufacturing of selected RE products that are low hanging fruits.
C. Development of plant for the recovery of rare earths from e-waste and coal fly ash.
▪ Recycling technologies of REE containing products need to be developed on a large commercial scale.▪ There is a felt need for strengthening of exploration expertise with modern concepts and tools including
remote sensing capabilities. ISRO and capabilities may be capitalised on this.
▪ REE metals extraction techniques and facilities have to be pooled and the gap in the niche areas needs
to be ascertained.
▪ Need to identify new applications for the REE and use it as a substitute for the scarce or critical rare
earths used in various applications.
▪ Finally devising an optimized market strategies for a sustainable RE industry.
India has the mineral resources and expertise in the exploration, mining, and extraction of REE. However, with
increasing demand of REs containing products, India needs an appropriate strategy for the Indian RE industry
landscape, wherein the focus must be on the value chain of REE in the global market.
*****
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