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China threatens to curb rare earths exports to the US

May 31, 2019
Energy & Chemical Value Chain

China has dramatically raised the stakes in the increasingly bitter trade war with the US, with an explicit threat in the official Communist Party newspaper, the People’s Daily, to cut off supplies of rare earth elements (REEs). “Will rare earths become a counter-weapon for China to hit back against the pressure the United States has put on for no reason at all? The answer is no mystery,” the newspaper said earlier this week. The article noted that “waging a trade war against China, the United States risks losing the supply of materials that are vital to sustaining its technological strength.”

The US Geological Survey (USGS) says that China accounted for about 40% of the world’s reserves and 81% of the world’s REE production in 2017. Due to US government concerns over dependence on China for these strategic raw materials, REE mining restarted in the US last year, for the first time since 2015. Output at the Mountain Pass, California, mine, which had been on a care-and-maintenance status for over two years, was estimated at 15,000 metric tons of ore, representing about 9% of 2018 global production. Even so, the ore is still shipped to China for processing as the US currently lacks separation capacity. China’s grip on the REE supply chain is reinforced by its number of processing plants, benefiting from the country’s relatively loose environmental standards, which also refine ores from other countries.

Despite the restart of domestic production, the US still imports 80% of its REE needs from China. US imports of REEs last year reached $160 million, an increase from $137 million in 2017. Many of the imports are indirect, incorporated in products from other countries, including Japan. In December 2017, US President Donald Trump signed an executive order to reduce the country’s dependence on external sources of critical minerals, including REEs, calling reliance of foreign supplies a “strategic vulnerability” for the US economy and military. The products also figure on the US Department of the Interior’s 2018 list of 35 minerals deemed to be critical to economic and national security.

The Chinese threat to weaponize REE supplies comes before an expected meeting between Presidents Xi Jinping and Donald Trump at the G-20 meeting in Osaka, Japan, toward the end of June. It follows a series of increasingly stringent tit-for-tat measures imposed over the past year by the two countries on each others’ exports, including tariffs on billions of dollars of agricultural and industrial goods, which include many chemicals and plastics products. Tensions escalated sharply this month after the Trump administration accused China of having “reneged” on its previous promises to make structural changes to its internal economic policies. The US also blacklisted Huawei, which led to several chipmakers and internet firms cutting ties with the Chinese telecommunications and electronics company.

An added twist in the latest escalation is that some forecasters were expecting China to become a net importer of REEs in 2020, as domestic demand rises and the country moves to clean up or shut down polluting mines and processing plants. Several commentators have also publicly expressed doubts that China will go ahead with the threatened curbs because they would likely lead to a surge in the number of competing REE projects elsewhere in the world—despite their name, rare earth elements are not all that rare—and because of their likely impact on global supply chains, including domestic and foreign-owned operations in China that incorporate REEs into their products for export. However, China has employed REEs as trade weapons before. In 2010, it briefly halted shipments to Japan in a clash over ownership of islands in the East China Sea and last year it imposed a 10% tariff on imports of REE ores, set to rise to 25% on 1 June.

Ominously, the People’s Daily commentary threatening to restrict REE exports included a Chinese phrase that means “don’t say I didn’t warn you.” This specific wording was used by the paper in 1962 before China went to war with India, and ahead of the China-Vietnam War in 1979. “Those familiar with Chinese diplomatic language know the weight of this phrase,” the Global Times, a newspaper affiliated with the Communist Party, said in an article last April.

REEs are a group of 17 elements used in applications ranging from high-tech consumer electronics, automobiles, wind turbines, and lithium-ion batteries to aerospace and military equipment. Their estimated distribution by end use in 2018 was catalysts, 60%; ceramics and glass, 15%; metallurgical applications and alloys, 10%; polishing, 10%; and others, 5%, according to the USGS.

Earlier this month, Lynas Corp, an Australian firm headquartered in Kuantan, Malaysia, and Blue Line Corp. (San Antonio, Texas) signed a memorandum of understanding for a US joint venture (JV) to develop REE separation capacity at Blue Line’s Hondo, Texas, site. Lynas already operates REE mining and separation facilities in Western Australia and separation facilities in Malaysia—Australia is the world’s second-largest source of REEs, accounting for 12% of global production—while Blue Line is a leading processor of REE products. The JV, which would be majority-owned by Lynas, would be the only large-scale producer of separated medium and heavy rare earth products in the world outside China, the companies say. At least one other company is thought to be mulling an REE project in the US, but neither this, nor the Lynas–Blue Line plant, would start production before 2022.

Meanwhile, uncertainty over Lynas’s existing production in Malaysia was lifted this week when the Malaysian prime minister said the government would allow the company to continue operating its processing plant at Gebeng, in Pahang state. Malaysia had previously halted the process for renewing the $800-million unit’s operating license because of concerns over toxic waste disposal. Shares in Lynas, one of the few significant REE producers outside China, rocketed to a five-year high on the Sydney, Australia, stock exchange yesterday on news of the Chinese REE threat.

By Natasha Alperowicz

Source: Chemical Week

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