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Securing the Supply Chain of Strategic Minerals

Securing the Supply Chain of Strategic Minerals
A study focuses on 23 "mineral commodity groups" classified as critical based on the likelihood of supply interruption and the cost of such an interruption.
Technology Briefing


A major new study from the U.S. Geological Survey addressed the vulnerability of America’s Supply Chain of Strategic Minerals. It focused primarily on 23 "mineral commodity groups" classified as critical based on the assessed likelihood of supply interruption and the possible cost of such an interruption. Begun in 2013, the research found that 20 out of the 23 critical minerals the nation relies on are primarily sourced from China. These materials are used in a broad range of existing and emerging technologies, as well as national security applications.

The elements derived from these critical mineral commodity groups include antimony, barium, beryllium, cobalt, fluorine, gallium, germanium, hafnium, indium, lithium, manganese, niobium, rhenium, selenium, tantalum, tellurium, tin, titanium, vanadium, zirconium and carbon in the form of graphite, as well as the platinum-group elements and the rare-earth elements. The total amounts to 61 out of the 92 naturally occurring elements.

Each of these commodities was identified as critical or strategic in one or more recent U.S. government studies. That is a clear reflection of the rapid advance of material technology and mankind’s soaring demand for raw materials. As recently as 1973, only 12 elements were classified as critical or strategic.

For some of the minerals, current production is limited to only one or a few countries. And for many, the United States currently has neither domestic mine production nor any significant identified resources. And consequently, it is largely dependent on imports to meet its needs.

The potential vulnerability is not purely hypothetical. The sometimes-tenuous nature of these mineral supply chains received worldwide attention in 2010 when China suddenly and drastically cut its export quota for the rare-earth elements. The move highlighted the fact that China had a virtual monopoly on the short-term supply of rare-earth elements - elements that are essential to many high-tech applications. At that time, the rest of the world was left scrambling to find alternative and secure supplies.

China is also the world's primary producer of a number of other mineral commodities that are essential in high-tech applications and national security. These include antimony, bismuth, fluorine, germanium, graphite, and indium. Other important mineral commodities which are largely controlled by one country, include cobalt by the Democratic Republic of the Congo, niobium by Brazil, and platinum by South Africa. These are also considered to be at high risk of supply disruption and would have a high impact if supply restrictions should take place. As a result, the emphasis of U.S. strategic planners is on ensuring the optimal global distribution and availability of each mineral commodity.

Consider the so-called rare-earth elements which have already been cited as a concern going back to the crisis in 2010. These elements include: Scandium, Yttrium, Lanathanum, Cerium, Praseodymium, Neodymium, Promethium, Samarium, Europium, Gadolinium, Terbium, Holmium, Dysprosium, Erbium, Thulium, Ytterbium, and Lutetium. These elements share similar chemical properties, which give them the ability to discharge and accept electrons. That makes them crucial for many modern day electronic, optical, magnetic, and catalytic processes. They are found in personal electronics like smartphones, televisions, and hair dryers, as well as electric cars, hybrid cars, and myriad commercial products including MRI machines. Consider just a few examples:
  • Neodymium is used to make powerful magnets used in loud speakers and hard drives as well as hybrid and electric car motors.
  • Lanthanum is used in camera and telescopic lenses, as well as studio lighting and cinema projection.
  • Cerium is used in catalytic converters in cars, as well as in refining crude oil.
  • Praseodymium is used to create strong alloys for use in aircraft engines. It is also used to make visors to protect welders and glassmakers.
  • Gadolinium is used in X-ray and MRI scanning systems, as well as television screens. And,
  • Yttrium, terbium, and europium are important for television and computer monitors, as well as other devices with visual displays.
Since at least 2000, China has been the world's leading supplier of these crucial materials which are needed to keep the world's factories humming. And that leaderships includes not just the "rare-earth elements," but other obscure materials like
  • arsenic metals, used to make semiconductors;
  • cadmium, found in rechargeable batteries; and
  • tungsten, found in light bulbs, tank armor, and heating elements.
Recent escalation of the on-going "trade wars" risks putting those minerals in the middle of the conflict, and potentially giving China a way to retaliate against the United States by cutting off supplies to American companies.

Already, rare earths have become embroiled in the conflict. They were initially on the long list of Chinese-made goods that the Trump administration wanted to tax.

To understand the situation, it's important to recognize that rare-earth elements aren't actually rare. They are simply 17 elements found together in the ground all over the world, which are in most places hard to commercially extract.

That's because turning the individual minerals into useful materials is complicated, messy and costly.

The current supply chain vulnerability is less a function of geology than of regulation and prioritization. In fact, until about 1990, the United States was the world’s leader in the production of rare-earth elements. But, when the Cold War ended in 1991, national security became less of a consideration. Western decision-makers prioritized cheap access to raw materials and access to the huge Chinese marketplace.

It was at that point that the Chinese bought Magnequench, a U.S. company which produced the most important magnets in technological history. That technology acquisition prompted China to aggressively develop the rare-earth capabilities of an iron mine it operated in Inner Mongolia. And today, China controls everything related to this magnet technology: from the basic raw materials all the way to the end products that go into America’s fighters, smart bombs, and almost everything else. And, because China has a de facto monopoly on rare-earths, there are significant implications for American industrial policy.

In the past, China has used its control of rare-earths to try to get its way. In 2010 crisis cited earlier, it stopped exports to Japan for two months over a territorial dispute. And speculators hoarded rare-earth minerals, sending prices soaring. This highlighted a major hole in the western supply chain that the Clinton, Bush and Obama administrations were willing to accept.

However, this appears to be changing under Trump. In fact, the Trump administration has set out to break that monopoly and get some control back.

To get the ball rolling, President Trump issued an executive order last year calling on the government to reduce foreign reliance on critical minerals, including rare-earths cobalt, tin, lithium, and titanium. The order, which directed Interior Secretary Ryan Zinke to come up with a strategy, calls for "new sources of critical minerals" on U.S. soil and the streamlining of the "leasing and permitting process to expedite production, reprocessing and recycling of minerals at all levels of the supply chain."

In announcing the order, Trump said it will safely and responsibly reduce "the nation's vulnerability to disruptions in our supply of critical minerals." And he went on to say, "The United States must not remain reliant on foreign competitors like Russia and China for the critical minerals needed to keep our economy strong and our country safe."

A key part of this strategy is to develop domestic sources for critical minerals. Another component involves helping a range of allies develop alternative sources.

A big breakthrough occurred on the latter front in April 2018, when a team of Japanese scientists found a huge trove of rare-earth elements off the coast of the country's Minamitori Island. The preliminary study concluded that the roughly 965-square-mile seabed, 1,150 miles southeast of Tokyo, contains more than 16 million tons of rare-earth oxides. The study, published in Nature Scientific Reports estimates that the subsurface mud holds:
  • 780 years' worth of the global demand for yttrium,
  • 620 years’ worth of europium,
  • 420 years' worth of terbium and
  • 730 years' worth of dysprosium.
Extracting these materials would likely be costly, but resource-poor Japan is pushing ahead with research in hopes securing the reliable inputs it will need for next-generation technologies and weapons systems. The Japanese scientists are working on a "hydro-cycle processing technology" that would use centrifugal forces to quickly separate out the unnecessary materials in the sea mud. But this method is still unproven, at scale.

Obviously, this discovery is of geopolitical significance since China currently produces more than 90 percent of the world's supply of rare-earth materials and in the event of a conflict, it could jack up prices for the West, or even shut them out altogether. In that eventuality, the Minamitori hoard would provide another strategic back-stop.

However, experts say that even prior to the Minamitori find the Chinese monopoly was not nearly as threatening as many headlines have implied. Why?

First, it's safe to say that in many ways China’s strategy has ended up subsidizing the OECD tech firms with cheap materials. Rare-earth mining and processing is expensive, difficult, and dangerous. Because of this, the West has been more or less happy to cede production of rare-earths to China. From the 1960s to the '80s, the U.S. supplied the world with these elements; all extracted from a single mine in California named Mountain Pass. But in the '90s, China entered the market and drove down prices, making Mountain Pass unprofitable and leading to its closure in 2002.

There are many reasons production moved overseas. Some of these are familiar: cheap labor costs and a willingness to overlook environmental damage, for example. But there's also the fact that rare earth production in China is a byproduct of other mining operations. Notably, the biggest plant, located in Inner Mongolia, is actually an iron ore mine which extracts rare-earths on the side. This means that, unlike the Mountain Pass mine, producers aren't reliant on just a single product. If a company is trying to only produce rare-earths, then it's too vulnerable to the ups and downs of that one volatile market.

So, while the current market structure appears to give China immense power over the market, that power is seriously limited by competitive forces. Proof of this came in 2010 when China actually started limiting rare-earth exports because of a dispute with Japan. This threat to the supply chain caused prices to rise, while investment flowed into new and old rare-earth mining projects. Meanwhile, consumers of rare-earths like Hitachi and Mitsubishi altered their products to use less of these substances.

In other words, when China tried to take advantage of its monopoly and limit supply, the rest of the world picked up the slack. As a think tank report on the fallout from the 2010 incident put it: “Even with such apparently favorable circumstances and market power, political leverage proved fleeting and difficult [for China] to exploit.” Markets responded and “the problem rapidly faded.” Money even flowed, for a while, back into California’s Mountain Pass mine; although Molycorp, the company operating that mine, collapsed in 2015 when rare-earth prices fell back to 2010 levels.

Therefore, while China seems to wield great power over this critical global supply chain, the truth is that the country can't just bring the West to its knees by limiting the export of rare-earth elements. We know this pretty conclusively, because China tried it in 2010, and it didn't work out.

Given this trend, we offer the following forecasts for your consideration.

First, by the mid-2030s, advancing technology and growing demand for the 23 critical mineral groups will set the stage for the "circular economy." Industrial-scale recycling has remained a green fantasy because biotech and chemistry have not yet advanced to the point where it’s cost-effective. But every year, the numbers get more attractive. For instance, a Japanese research team recently used chelator chemistry to recycle rare earths from spent fluorescent lamps. The optimized process recovered up to 84 percent of the yttrium and europium.

Second, by the mid-2020s, the U.S. coal industry will turn rare-earth elements into a new source of revenue. The first comprehensive study of rare earth elements in coal ashes (from the United States) shows that coal originating from the Appalachian Mountains has the highest concentrations of scarce elements like neodymium, europium, terbium, dysprosium, yttrium and erbium that are needed for critical technologies. The study confirms the importance of on-going Departments of Energy research projects aimed at developing inexpensive and efficient extraction technologies for future rare-earth recovery programs.

Third, as the administration negotiates bilateral and multi-lateral trade agreements over the next two years, it will include a de facto "strategic minerals alliance." This is important, because no nation has a domestic abundance of all 62 critical elements. For instance, Japan’s new Minamitori Island discovery is particularly rich in yttrium, europium, terbium and dysprosium, which are quite scarce at the now-dormant U.S. mines. Meanwhile the U.S. has a relative abundance of Lanathanum, Cerium, Praseodymium, and Neodymium.

Fourth, throughout the coming decade U.S. and Chinese interests in securing access to critical minerals will remain a source of conflict. Whether it's South America, Central Asia, or Central Africa, economically attractive sources of critical minerals groups will remain flash-points between the emerging super-power and the sole hyper-power. The Trends editors believe that the U.S. will be able to contain China's mercantilists ambitions, but that will not happen without both compromise and high-stakes brinksmanship. And,

Fifth, the investment opportunities are not clear. The commodity producers are largely pawns on the geopolitical chess board, while the consumers are vigilantly hedging their bets. For industry insiders these concentrated markets become high-stakes games of chance. For anyone else, they are likely toxic.


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