The official newspaper of the Communist Party of China explicitly warned the U.S. on Wednesday that China would cut off rare earth minerals as a countermeasure in the escalated trade battle.
About 35% of rare earth global reserves are in China, the most in the world, and the country is a mining machine, producing 120,000 metric tons or 70% of total rare earths in 2018, according to the United States Geological Survey. The U.S. pales in comparison as it mined 15,000 metric tons of rare earths in 2018 and has a total of 1.4 million metric tons of reserves, versus China’s 44 million.
U.S. consumption of rare earth compounds and metals relies heavily on imports, which rose to $160 million in 2018, according to USGS. Eighty percent were from China. To make it worse, although other countries supply to the U.S. including Estonia (6%), France (3%) and Japan (3%), much of their materials were derived from mineral concentrates and chemical substances produced in China, according to Hui Shan, commodities analyst at Goldman Sachs.
Given U.S. dependence on Chinese supply, the threat of a restriction could hurt many industries including high-tech devices, automotives, clean energy and defense. An example is the element lanthanum.
“Dangerous interaction”
Rare earth materials are also crucial to U.S. defense systems because of their usage in lasers, radar, sonar, night vision systems, missile guidance, jet engines and even alloys for armored vehicles, all of which the U.S. relies upon for national security.
The Pentagon on Wednesday presented a report to Congress on rare earth minerals in an effort to reduce reliance on China. The move came after the Chinese newspaper People’s Daily warned it would cut off the rare earth supply, saying “don’t say we didn’t warn you. ”
Non-Chinese suppliers
While China remains a dominant player in the rare earth market, production outside of the country is also growing, which could provide the U.S. with some alternatives, according to Credit Suisse.
Non-Chinese production has grown to about 29% of the global output from just 3% in 2009, said Manish Nigam, Credit Suisse’s equity analyst, said in a note Thursday.
“A U.S. facility is under a revival plan since last year, and the fully operational Australian/ Malaysian venture (Lynas) has a production capacity that is more than the entire demand of the U.S., though processing of some oxides still gets done in China,” Nigam said.
Thai
Eng