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Rare Earth Elements Supply Restrictions: Market Failures, Not Scarcity, Hamper Their Current Use in High-Tech Applications Arnold Tukker* Institute of Environmental Sciences (CML), Leiden University, Leiden 2311 EZ, Netherlands TNO, Delft 2600 AA, Netherlands RARE EARTHS CERTAINLY NOT SCARCE
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An analysis of how this situation arose produces surprising insights. First, REE are by no means scarce. Reserves are more than 800 times the current annual production of 130 000 tons, while the reserves of most other metals will not last for more than a few decades.3 Second, until 1995 the United States was the biggest supplier, via the Mountain Pass mine. Only after the mine closed in around 2002 did China gain its near-monopoly position, providing over 95% of global REE supply. Third, China is restricting exports for a reason. Its own high-tech industry is booming and China foresaw that it would need most of its REE production to meet its own requirements by about 2014. And, finally, developing mining and refining capacity for the 40 000−60 000 tons of REE used outside China would have required an investment of just several billion dollars at most,4 which is a fraction of the annual value of end products made with REE.
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NOT ANTICIPATING THE FUTURE These insights prompt a number of fascinating conclusions. Sure, it may be that China does not apply strict environmental standards in mining and hence could outcompete Western mines. But the key is this. China, as a guided market economy, very clearly set out its store early on. It consciously strengthened its high-tech industry and invested in REE mining and processing technologies, as well as manufacturing technologies for REE-containing high-tech products like small permanent magnets. In contrast, the EU, the U.S. and Japan clung to the mechanism of allowing the free market to regulate the supply of REE. The threat of China’s monopoly was already spotted by the United States Geological Survey in 2002,5 but no one reacted. In market-based economies it is not customary to intervene when specific industries, like REE mining and refining operations in this case, close down. And for their part, the end-user industries−scarcely noticing how crucial REE are for their products, since they accounted for such a small fraction of production costs−were neither sufficiently aware of the need to keep these mines running nor sufficiently organized, whereby the closure of mining operations was not compensated by exploration for new sources of REE. Finally, major Western mining companies are not interested in these materials, which represent a small market compared with minerals such as iron ore and bauxite and require dedicated separation technologies and hence specialized knowledge. The implication is that REE mining is carried on by smaller mining
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hina has recently curtailed the export of rare earth elements (REE). An assessment by the World Trade Organisation at the request of the U.S. and EU published in the spring of 2014 concluded that China is not complying with the principles of free trade. But is China’s export policy the only reason for the West’s problems with access to REE? Not really, and at most only partially, in my opinion. The situation is far more complex. Chinese export restrictions are causing problems for many Western companies that use metals such as neodymium, europium, and dysprosium. Although only used in tiny quantities, these are essential raw materials for high-tech products such as miniaturized speakers in thin smart phones and magnets in electric vehicles and wind turbines. Consequently, the supply restrictions could hamper the transition to low-carbon energy and mobility systems (e.g., ref 1). Using detailed trade data and information about the REE-content of products, we have calculated the worldwide value of products containing REE to be at least 1.5−2 trillion dollars.2 This is nearly 5% of the global Gross National Product. Around 20% of Japan’s exports, measured by value, contain REE (see Table 1). There is a genuine fear that if high-tech companies in OECD countries were to lose access to REE, they would have to relocate to China or face erosion of their competitive edge: the use of alternative materials usually compromises product quality. All in all, there are huge interests at stake. © 2014 American Chemical Society
Received: July 22, 2014 Published: August 13, 2014 9973
dx.doi.org/10.1021/es503548f | Environ. Sci. Technol. 2014, 48, 9973−9974
Environmental Science & Technology
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Table 1. Trade by Country in 2009 in Million US$ (Total and of REE Containing Products), Based on Ref 2 import Netherlands Japan Germany China U.S. other EU other Asia rest of world world total
382.190 551.985 938.363 1.005.555 1.601.896 3.234.389 810.768 2.696.132 11.221.270
export
import REE products
431.502 580.719 1.127.840 1.201.647 1.056.712 2.930.733 888.590 2.787.902 11.005.640
export REE products
44.447 51.624 115.428 103.151 239.027 362.577 83.543 464.651 1.464.448
companies that have only limited financial reserves of their own and have difficulty attracting financial capital. As long as China was able to supply the world cheaply, and there was no evident under-supply, they had no capacity to invest in new mining operations. They could only invest once the supply crisis drove prices through the roof−and that was too late, since it takes years before a new mine is operational.
36.765 127.462 132.413 322.067 111.981 308.816 155.832 269.112 1.464.448
% of import
% of export
11,6% 9,4% 12,3% 10,3% 14,9% 11,2% 10,3% 17,2% 13%
8,5% 21,9% 11,7% 26,8% 10,6% 10,5% 17,5% 9,7% 13%
investigate with industry the possibility of developing business and (public-private) market models that could overcome the market failures that caused the REE crisis in the first place.
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AUTHOR INFORMATION
Corresponding Author
*Phone: + 31 71 527 5632; e-mail
[email protected].
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Notes
The authors declare no competing financial interest.
FORESIGHT IS THE ESSENCE The lesson is a wake-up call for industry. It must be far more aware of how its supply chains fit together and where the vulnerabilities lie. Industry must invest promptly, for instance in “mine to magnet” business models, where large users make long-term supply deals with a number of suppliers. Western governments can also learn from this experience. Due to the long lead times for opening mines, imbalances between supply and demand of minerals and related market failures are a fact of life, particularly in markets where supply is small and new technologies can quickly drive up demand for specific materials. Offshoring primary mining and production and allowing them to be concentrated in a few countries can make them vulnerable. And however unpleasant this may sound to some, since Western governments ignored market failures the free market economies were entirely outmaneuvered by an economy that was guided. As indicated, the current REE crisis could have been prevented with an investment of a few billion Euro. But for the reasons given, the market failed to act. In addition to private capital, a government investment of a few hundred million euro each by the U.S., Japan, and the EU, who have been discussing the problem at regular trilateral conferences since 2011, would probably suffice. That is a fraction of the amount spent by governments during the banking crisis, and in the order of magnitude of the sum these governments currently spend on research into REE substitution and recycling. But this simple solution seems to be a nonstarter for the West, since it would imply embarking on market intervention. The reluctance to do so is a handicap that China does not have. An action that could prove viable and useful, however, would be to establish an International Resource Management Agency (akin to the International Energy Agency set up by OECD countries in response to the energy crisis in the 1970s) to monitor trends in the supply and demand of critical materials. This would create an authoritative “early warning system”, which could help industry and governments to act with more foresight. And if complemented by an International Resource Management Forum (akin to the International Energy Forum), there would be a neutral international platform where countries could discuss solutions for problems regarding resource supply before they arise. In addition, the U.S., Japan, and the EU could
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REFERENCES
(1) Alonso, E.; Sherman, A. M.; Wallington, T. J.; Everson, M. P.; Field, F. R.; Roth, R.; Kirchain, R. E. Evaluating rare earth element availability: A case with revolutionary demand from clean technologies. Environ. Sci. Technol. 2012, 46, 3406−3414. (2) HCSS/TNO. Samenwerken aan Zeldzame Aarden. Een verkenning naar samenwerkingsmogelijkheden met Japan rond zeldzame aardmetalen (Collaboration on Rare Earth Elements. An analysis of potentials for collaboration with Japan on Rare Earths); The Hague Centre for Strategic Studies and TNO: The Hague, Netherlands, 2012. (3) USGS. Minerals Commodity Summaries 2012; USGS: Reston, VA, 2012. (4) Pothen, F. Dynamic Market Power in an Exhaustible Resource Industry. The Case of Rare Earth Elements, Discussion Paper No. 14005; ZEW: Mannheim, Germany, 2013. (5) Haxel, G. B.; Hedrick, J. B.; Greta J. Orris, G. J. Rare Earth ElementsCritical Resources for High Technology, USGS fact sheet; USGS: Reston, VA, 2002.
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dx.doi.org/10.1021/es503548f | Environ. Sci. Technol. 2014, 48, 9973−9974
