Rare earth: China’s winning card?

BY BLOOMBERG and SILVI WRITER

The only US rare-earths miner is crying foul over China’s decision to raise tariffs on American shipments of raw materials used in electric vehicles.

MP Materials – once the world’s biggest producer of rare-earth materials – exports 3,000 to 4,000 metric tons of concentrates to the Asian nation from its Mountain Pass mine in California. The elements MP exports include neodymium and praseodymium, used in the magnets for electric motors.

The higher levies will squeeze the margins of the California producer at a time when American consumers of rare earths are pushing the US to challenge China’s dominance in the market. The Asian nation has become, by far, the leader in producing rare earth elements.

“It is accurate to call this a targeted, unilateral tariff on the only US rare earths producer,” James Litinsky, chief executive officer of JHL Capital Group LLC, the majority owner of the project, said by phone on Monday. “We are in the process of becoming a self-sufficient, global rare earths producer, we just want a level playing field to compete as a low cost producer.”

rareearths

China ships out about 80 percent of the rare-earth materials imported by the US, according to the US Geological Survey. By hitting America’s only producer, China has sent a message to the Trump administration about its growing prominence in this key supply chain.

“China seeks to control the global supply of rare earth minerals so it has the ability to sabotage America’s military in the future,” the Trumpet argued in a recent article.

China has a contingency plan to undermine the US military by cutting off the natural resources critical to America’s defense. There are 16 strategically critical metals necessary for manufacturing nearly all high-tech products, from smartphones to guided missiles, it goes.

Until the late 1990s, most rare earth minerals were processed in the US. But as the US government began to enact more environmental regulations, the cost of processing these minerals increased.

US processing operations closed down, and China stepped up, exploiting cheap labor and lax environmental regulations. China now controls 98 percent of the globe’s rare earth minerals supply.

“It uses government subsidies to maintain its monopoly. This monopoly gives China great power over other nations,” the article argues.

China rare earth 1

The Asian nation’s control of rare earths has long been flagged as a risk for advanced manufacturers in developed nations. Countries, including the US, took China to the World Trade Organization earlier this decade to force the nation to ease export restrictions.

MP Materials ships semi-processed output in China, where the raw material is refined and used in car manufacturing. Meanwhile, Tesla Inc. is rushing to complete a multibillion-dollar factory on the outskirts of Shanghai to capitalize on growing demand in the world’s largest electric-car market. The facility could eventually rival production from its U.S. plant.

“Maybe the US will begin to take steps on the other side of these tariffs, such as taking action on those critical minerals with an eye towards reducing the leverage China has on those elements at this time,” said Dan McGroarty, the founder of Carmot Strategic Group, a consulting firm that advises companies on rare-earths and critical minerals.

China last year also emerged as the biggest importer of the group of minerals used in everything from ceramics to consumer electronics, according to Reuters.

In the case of at least seven key rare earths — including praseodymium, used in magnets, and yttrium, used in ceramics — China was a net importer in 2018 for the first time in more than 30 years.

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