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China’s Rare Earth Comparative Advantage

China’s Ace in The Hole – Rare Earth Elements

Rare earth elements get limited exposure in the media.
However, it is a major concern in geopolitical circles and citizens should be made aware of the global situation.

The intent of this article is to disseminate non-technical information regarding the
global dispute over rare earth elements — and instill in the general population
the reality that the U.S. and other nations must support rare earth miners and
vertical integration of the products.

Most citizens are unaware of the crucial importance of a nation’s
ability to ensure access to an uninterrupted supply chain of rare earths.

This grouping of 17 rare earth elements (on the periodic table) is critical to production
in many industries. They are further subdivided into heavy and light rare earths.

The U.S. used to hold the dominant position in rare earth mining and metallurgy to produce the end products.

America lost the industry to China because of inability to compete with China’s low prices.

China now controls approximately 90-95% of the rare earth market.
The rest-of-the-world world (ROW) is reliant on China for production and distribution
of the elements. This gives China a big advantage — a gigantic geopolitical leverage.

The below is a list of “some of the uses/products” that require rare earth elements:
metallurgy & alloys, glass polishing, chemical catalysts, permanent magnets, phosphors,
compounds in batteries that power electric vehicles, cell phones, TV’s, cameras,
rechargeable batteries, night vision goggles, precision-guided weapons, communications
equipment, GPS equipment,batteries for a slew of defense electronics, aerospace components,
mercury-vapor lamps, microwave filters, energy efficient light bulbs, spark plugs, gas mantles,
additive to steel, fluid catalytic cracking catalyst for oil refineries, chemical oxidizing agent,
lasers, enamels, welding goggles, ceramic capacitors, nuclear batteries, neutron capture,
fluorescent lamps, x-ray tubes, computer memories, MRI contrast agent, magnetostrictive alloys,
spectrophotometers, fiber optic technology, vanadium steel, x-ray machines, stainless steel,
nuclear medicine ,microphones, fuel cells, nuclear reactor control rods, shielding in nuclear
reactors, nuclear marine propulsion, high temperature superconductors, integrated circuit manufacturing, cancer treatment drugs …. the list goes on and on and on.

Basically… all high technology items need these elements.
“If” we are unable to obtain them — then in a very short time period the normal
functioning of our society, as we know it, will come to a screeching halt.

It will affect communications, banking, medical, utilities, military and national security operations.

There will be mass confusion and hysteria — our systems in the U.S. will become dysfunctional.
We will rapidly devolve into social disintegration.

The modern world has evolved to such technological heights that it has placed itself in a dilemma.
We have become over-reliant on technology to function on a day-to-day basis.

How would your personal life be without computers, telecommunications or transportation?

Approximately five years ago China announced that it was going to restrict its’ rare earth exports.
This kicked over an anthill and “Heads of States” were sending envoys scampering all over the globe
to secure a non-China supply chain of rare earths. There is not much out there in production.

The realization set in that the rest-of-the-world (ROW) had left itself vulnerable and at the
mercy of China.

The leaders of industrialized nations got caught with their pants down and red faces.
They had traded their national security for China’s cheap labor and lack of environmental
controls to supply them with the critically needed rare earths. They falsely assumed that
this arrangement and supply would be everlasting.

This “crisis” stimulated the investment world and start up non-China rare earth miners
found new financial avenues open to fund their projects. Those that have junior miners
in their investment portfolio (like me) considered this a once in a life time investment opportunity.

The two major rare earth miners/vertical integrators coming online, at that time, were Molycorp
in U.S. and Lynas in Australia. Both corporations eventually got up and running, but for a
variety of reasons ran into unexpected cash burn and share dilution. This resulted in losses
for most of the institutional and retail investors that went for “high risk-high gain”.

These two non-China rare earth miners coming online did not put a dent in China’s
dominance of the industry. There is a global scattering of non-China rare earth miners
attempting to get in the market. However, if they succeed it will be a few years in the future
before they are in full operational mode.

The ROW desperately tried to correct their lack of foresight and in desperation took their
case against China to the World Trade Organization (WTO) for dispute settlement.
The dispute resolutions went against China.

China then started using work-arounds such as the necessity for domestic stockpiling
,consolidation and regulatory constraints on their rare earth miners/processors, environmental
concerns and their attempt to eradicate illegal rare earth miners in China — to justify
imposing  taxes and fees on the exporting of rare earth.

The ROW challenged this as a violation of trade/tariff agreements and complaints
were again filed with the WTO that China was unfairly using export taxes and quotas
to restrict trade in rare earths. So… back to Geneva.

This resulted in more rounds at the WTO dispute resolution table.
Last week the WTO again ruled against China.

The U.S. trade representative was quoted, in Reuters, saying that this is the end of the dispute.

My opinion — the recent results of the China versus the WTO rare earth dispute is a pseudo-win.
If the U.S. Trade Representative actually stated – “this report makes the end of the line for this dispute…..”?

Then I think he is playing to the audience or is living a life of denial.

I am surprised that he did not tear off a piece of cardboard and write on it with a
black marker — “We Love You China” — take a selfie and broadcast it worldwide.
That is the current U.S. administrations idea of a foreign policy strategy.

You can deny reality, but you cannot deny the consequences of reality.

The WTO/ROW is playing a game of checkers with the Chinese and all the while
China is getting its’ “shits and giggles” as the actual game being played is Wei-ch’i.

I have mentioned numerous times, over several years that it does not make any
difference how many laws, regulations, agreements that are put into place —
if they are not complied with then they are useless.

China will find work-arounds and I suspect it will be domestic regulatory programs
that will be passed down the rare earths supply chain as compliance costs.

Anyone who is a rare earth advocate knows that the solution is for individual
nations to support and encourage REE mining and development to protect the
continuity of their industries, military, national security. etc.

The USTR pounding his chest and spewing dialogue suggesting that the WTO decision is
a victory for the U.S.?? — This is no time for hubris — He should be “sounding the alarm”
that it would only take a shift in the winds to create a major geopolitical event resulting
in China shutting off the rare earth spigot.

That could easily be accomplished by China deciding to cancel its’ membership in the WTO.
China is already in the process of setting up bi-lateral trade agreements that trade in the
currencies of the two participating countries.
Thus, bypassing international trade (SWIFT) transactions based in USD.

I anticipate a Chinese strategy that will move more aggressively against the U.S. dollar
being the world’s reserve currency and an attempt to replace the petrodollar.

The Big Hammer and Sickle is in China’s hand.

If this happens, then those rare earth advocates out there trying to drive some sense
into closed minds — will not take any solace in saying “I told you so” — it will
be too late and we will enter the house of pain.

The Global leaders are not learning from their past mistakes.

“Learning is like rowing upstream, not to advance is to drop back” – Chinese Proverb

George Stewart

Nota bene
I recommend the below website .
For more technical analysis and expert commentaries on rare earths and other topics,
such as investment intelligence, then please visit Tracy Weslosky’s
informative website InvestorIntelhttp://investorintel.com/

 

 

 

 

 

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