The world is facing a supply crunch of rare earths. A family of 17 minerals with such exotic names as scandium, neodymium and (the irresistibly suggestive) europium, they play a vital role in the making of hi-tech products like mobile phones, laptops, i-Pods, wind turbines and hybrid cars (though not unified currencies). Although the world has abundant reserves of rare earths, their rarity is ascribed to the fact that they are found in very few places. And China, which controls 97 per cent of their global supply, has started restricting their exports. Thus the crunch.
“China’s restriction on rare earth exports is [primarily] to conserve its reserves and protect the environment from mindless mining,” says Season Wei, an analyst with Shanghai Metal Market. If their prices are seen to have risen, he adds, it’s because of “rising costs” that now include higher taxes on mining.
But prices haven’t risen, they’ve shot up, with demand far in excess of supply, and global users of rare earths are fretful. Last month, the World Trade Organization (WTO) announced that China has violated its rules by imposing export clamps on industrial minerals like zinc. Though the WTO made no reference to rare earths, users hope that the same principle would apply. Meanwhile, they must contend with the current scarcity. Would this mean hi-tech gadgets get costlier for consumers? “No, rare earths-related input costs are usually very small,” says Anjani Agrawal, a metal expert at Ernst & Young, comparing it to salt in food, “… and since there are no substitutes for rare earths, their supply disruption is of greater concern.”
But, with prices so high, why doesn’t China maximise its earnings via exports? “The issue is not of making money. Restricting rare earth exports is a strategic more than an economic decision,” explains Anjani, adding that China is looking to become a hi-tech industry leader, not a market opportunist. And with the State in charge of rare earths, it can enforce its strategy.
The rest of the world is mulling its response. America has prodded its rare earth miner Molycorp back into action; it had shut down in 2002 after being priced out of the market by far-cheaper Chinese supplies. Australia’s Lynas is also making efforts to up its output. Japan’s rare earth-starved firms are sniffing around for deposits in Kazakhstan, Vietnam and India. But since the crunch is not likely to end anytime soon, users will do their utmost to pressure China at the WTO, arguing that export quotas are an unfair trade practice.