Rare-earth mineralsPosted on July 19, 2011 08:27:00 PM
Asia Business Breakout -- By Pauline Chiou
Rare-earth minerals
We need rare-earth minerals every day.
China extracts and produces about 95% of the world’s rare-earth minerals and since last year, it has cut its exports.
The World Trade Organization recently ruled China’s export quotason certain raw materials violate international trade laws. Japan, theEU, and the United States have all contested that China’s quotas driveup the price of products, while China argues that it’s trying to protectthe environment by foraging less land for rare earth minerals.
So why should you or I care about the global spat over rare-earthminerals? I posed that question to David O’Brock, the CEO of MolycorpSilmet AS, an American who runs a rare earth processing plant inEstonia.
“Since the average person buys most of his household items,electronics and clothing from China, it directly relates to every aspectof his life,“ O’Brock explains.
The list of rare-earth minerals and metals reads like a foreignlanguage to me so I asked O’Brock to explain the practical uses of someof them:
• Didymium -- mainly used in high-strength magnets which are put intoelectronics that make noise or have a small motor in them. Didymium isalso used in cars with electric seats and windows.
• Nobium -- used in MRI machines, rockets, and atomic accelerators. Thisis an element that’s needed for super-conductivity or high-temperatureapplications.
• Tantalum -- used in chemical plants, aerospace turbines, glasscoating, and wire coating. Tantalum actually helps to keep our phonesand laptops small because it has a very high surface area when it’s madeinto powder form. It regulates the electricity flow without burning outthe circuitry.
Because China has such a foothold in the rare- earth industry,international companies find themselves forced to manufacture insideChina to get around the export quotas. The European Trade CommissionerKarel de Gucht told CNN, “If they continue like this, we will nothesitate to take action and we will certainly consider retaliatoryaction.... Losing jobs in the US and EU is not acceptable. We arearguing there should be a level playing field.”
But don’t hold your breath. China plays hardball. Shortly afterthe WTO ruling, China released its export quotas for the second half ofthe year. There was virtually no change from the previous number. TheChinese government maintains it’s cutting back on domestic production tocontrol the immense environmental damage that results from mining rareearths. According to Xinhua News, the government has suspended issuingnew rare-earth mining licenses and announced more stringentenvironmental standards.
China’s quotas have dramatically pushed up prices in therare-earth minerals market. While O’Brock has seen an enormous financialboom to his own business (US-based Molycorp acquired a majority sharein his Estonian company in April), the price increases have squeezed hiscustomers’ profit margins. However, O’Brock is optimistic that thesituation may improve over time. “I will wait and see what China doesnow. I am assuming that they are going to appeal the WTO decision whichcould take several years. By then , it may no longer be an issue as wetrust there will be enough rare- earth projects [in other countries]already online .”
Pauline Chiou is a CNN anchor/correspondent based in Hong Kong and co-hosts the daily, live morning edition of World Business Today.
Follow Pauline on Twitter @PaulineCNN