China's dominance on rare-earth elements still poses risk

23 October 2019

As the US-China trade war heated up earlier this year, China made a veiled threat that quickly caught the headlines. It hinted at blocking the export of rare-earth elements should the US continue increasing tariffs on Chinese goods.

According to a report by CNBC in May 2019, a Chinese official warned that products using China’s rare-earth minerals should not be used against China’s development.

This wouldn’t be the first time China has tightened its stranglehold on the market in rare-earth elements – a group of 17 metals with critical importance in many products such as cancer treatment drugs, smartphones, renewable energy technologies and defence applications. When it became embroiled in a dispute with Japan in 2010, China unofficially blocked exports of these metals to its neighbour.

The resulting uncertainty and sense of economic vulnerability appeared to act as a wake-up call among its economic rivals. It led to vows in countries such as Australia and the US to create their own sources of supply – a pledge that didn’t seem at face value to be an impossible undertaking. 

Until the 1980s, the US was the world’s leading supplier of rare-earth elements. However, given much-vaunted pledges by China’s economic rivals to develop their own supplies, is China truly capable of carrying through its threats to restrict exports? If it isn’t, what has happened to Western attempts to diversify sources? 

Brian Menell, CEO of TechMet, a private industrial company which invests in the rare-earth elements supply chain, told SM that China’s dominance is very much intact.

“They have continued to consolidate their control so that now we have a situation where China controls 90% of the global rare-earth elements and rare minerals supply,” he said. “Efforts to counter China’s control have been a failure.”

The prime reason for this, he explained, was that China itself used its supply to flood the market once the crisis with Japan had been resolved. The resulting low prices were enough to kill off many fledgling rare-earth mining operations that had been set up around the world in the wake of the China-Japan crisis.

Another advantage for China in the supply chain of these elements is its dominance of processing the metals in question.

Given the failure of previous attempts to offset China’s dominance in this market, what is the likelihood that future attempts will succeed?

This time it will be difficult for China to flood the market and kill off new sources of supply, as China no longer has a sufficient surplus after meeting domestic demand, Menell explained.

He believed it is not in China’s interest to provoke a strong counter-reaction in the west.

“China will cause some disruption in the supply of rare-earth metals to show that they are serious, but they will not stop supplying,” he said. “This is too disruptive and aggressive for the present state of conflict. China also does not want a flood of new rare-earth investments into non-Chinese sources of supply.”

Menell noted that China has successfully executed a 15-year programme to secure a dominant position in the supply of key strategic metals. Besides rare-earth elements, it also controls around 65% of global cobalt supply; nearly 80% of processing capacity in cobalt intermediate products; more than 50% of global lithium supply and processing; and 70% of tungsten and 75% of natural graphite supply and processing.

However, another approach that could reduce China’s dominance is to make the rare-earth economy itself “circular”.

Ben Smye, head of growth at online materials supplier database Matmatch, explained how: “If rare-earth elements can be appropriated from refuse and reused, the political spider’s web is avoided.

“This approach also addresses a subtle issue that arises in rare-earth element production – the mismatch between elemental abundance and industry demand.”

Paradoxically rare-earth elements are not actually rare, but they are difficult to mine as they are distributed evenly in the Earth’s crust – a factor which could work in favour of a circular approach.

Meanwhile Menell is urging governments in the US and Japan to do more to finance mining initiatives.

One problem with these elements, he said, is that mining is not large-scale enough to “move the dial for the likes of Rio Tinto and Anglo”. This means the industry is the preserve of poorly-funded small to medium-sized mining companies which struggle to develop scale and meet supply. 

So how long will it take the West to counter China’s control of rare-earth elements? “Provided other non-Chinese sources are developed and expanded, it may take five to 10 years for the US to wean itself off Chinese supply,” Menell said.

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