Published On: Thu, Jul 5th, 2012

Rare earth metals, China and the transfer of power

Rare earth metals are not exactly a typical dinner party topic of conversation.  But perhaps they should be:  they combine high technology and the global balance of power, with an interesting discussion about electron shells thrown in for extra points.

Without neodymium a huge part of the modern world would not be possible: imagine a world without computers, iPods and cordless drills.

Rare earth metals are actually reasonably abundant in the earth’s crust but are really hard to extract, making them expensive.  These elements were discovered late because they are oddities in the periodic table: unlike most elements that fill their electron shells from the inside out, adding further electrons to their shells as they move up in atomic weight, rare earth metals all have the same number of electrons in their outer shell, with odd numbers of electrons in their inner shells.  Since an element’s chemical properties are largely determined by their outer shell and rare earth elements all have the same outer shell differentiating them is quite hard.

But they do have some wonderful characteristics and  one of the most important is neodymium.  Neodymium is added to iron in tiny amounts and then heated to help produce very strong permanent magnets, which are then used for a huge range of electronic goods, including electric motors, hard disc drives and earphones.  Without neodymium a huge part of the modern world would not be possible: imagine a world without computers, iPods and cordless drills.

Rare earth metals used to be mined in South Africa, Brazil, India and California. Now, however, over 90% of all the world’s rare earth metals are mined in western China.  The Chinese cost of production is so low that other potential locations are not economically viable, and so they have given up.

The Chinese cost of production is so low that other potential locations are not economically viable, and so they have given up.

The Chinese government is aware of the strategic importance of rare earth metals in electronics and has decided to restrict the export of these metals.  If you are a Japanese or Korean electronic’s manufacturer and want access to theses metals you will need to build your electronic components in China and then export.   This is clearly great for China as it forces foreign companies to set up businesses bringing high technology to China and bad for competing nations as they are forced to transfer advanced materials technology and jobs to China.

China’s recent announcement that it will start to stockpile rare earth metals is also problematic:  it will start to increase the price of rare earth metals, but the fact that they are stockpiled means that they have the ability to flood the market with rare earth metals at any point.  This means that if you are in Brazil, India or California and are thinking of re-opening a rare earth mine in the expectation of selling rare earth metals at a high price you could be in for a rough ride: just as you get your expensive mine going China could reduce the price of rare earth metals and ruin the economics of your mine.  This will give investors pause for thought.

Just as you get your expensive mine going the Chinese could reduce the price of rare earth metals and ruin the economics of your mine.  This will give investors pause for thought.

Rare earth metals represent a snapshot of a wider issue.  China’s leadership, who are nearly all engineers and scientists by education, are playing a good strategic long game, thinking many years ahead.  Western leadership, made up of lawyers and professional politicians, are in turmoil and are unable to think beyond the next local and national election.

This is a problem.

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To read more click here:

U.S., Europe and Japan Escalate Rare-Earth Dispute With China – NYTimes.com.

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