Rare Earth Minerals: China's Monopoly Remains a Threat to Supply Chains

Spotlight:

• Rare earth minerals, and why they're important
• Why were rare earth minerals and China such a hot topic in the spring of 2019?
• Why the discussion dwindled in 2020 (Hint: Coronavirus)
• Reducing dependence on China for rare earth minerals

It was late September of 2020, and former President Donald Trump declared a national emergency in the mining industry.

The executive order signed by former President Trump sought to incentivize "the domestic production of rare earth minerals critical for military technologies while reducing American dependence on China.”

The urgent order served as a bit of a refresher for many. China's surplus of rare earth minerals was quite the hot topic during the spring of 2019, but the discussion soon died down. The relevance of rare earth minerals and China subsided.

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Although rare earth minerals have taken a back seat to other electronic supply chain news, the demand for these precious materials remains as high as ever. To add to that, China's monopoly on rare earth minerals remains to this day. While the term "rare earth minerals" is a bit of a misnomer—the minerals are technically not "rare"—geologists do say that the minerals are precious. The primary issue for rare earth minerals is not abundance, it is accessibility.

Why Rare Earth Minerals Are Important

Rare earths refer to 17 elements used in consumer electronics as well as national defense products. The critical elements were first discovered and used by the United States. Yet the production of the minerals quickly shifted to China due to lower labor costs and less environmental concern.

Soon enough, China accounted for 97% of the global rare earth production, though that number has now fallen to around 70%.

The timeline for the production shift from the U.S. to China is as swift as the following recount:

In 1997, the United States' largest rare earth producer was sold and reopened in China by 2003. In 2015, the final major rare earths producer in the U.S. went under.

In 2010, a Chinese fishing boat rammed two Japanese vessels in the East China sea, and Japan was set to place the Chinese captain on trial. However, China threatened a trade embargo on Japan's rare earths, which would have a great, adverse effect on Japan's auto industry—as Japan relies on rare earth minerals for catalytic converters and other key automotive components.

Combined with the collapse of its own major rare earths producer, the U.S. saw China's monopoly of rare earth minerals extend past consumer uses and find its way into political negotiation. China could use its monopoly as a bargaining chip—and as a powerful one, too.

2019: Peak Rare Earth Mineral Mania

China's gradual takeover of rare earth processing and production, combined with the U.S.-China trade war, sparked a large debate on the importance of the precious minerals. China wasn't so subtle about its intention to inhibit the United States' access to rare earth minerals. The Chinese Communist Party's Central Committee sent a clear message to the U.S. saying, "We advise the U.S. side not to underestimate the Chinese side’s ability to safeguard its development rights and interests. Don’t say we didn’t warn you.”

This message came on the heels of PRC General Secretary Xi Jinping's highly publicized visit to a major rare earths mine in China. With China accounting for nearly 80% of rare earth imports to the United States from 2014-2017, the threat to restrict rare earth minerals created a temporal mania for companies, politicians, and perhaps most of all—supply chain managers.

And this is not an issue to be resolved by time. The world-wide rare earth industry production brought in $8.1 billion in 2018 and is expected to reach $14.4 billion by 2025. As the years swing by, China's iron grip on the industry will only appear stronger and stronger.

2020: A New Concern Named COVID

Despite the burgeoning rare earth concerns of 2019, the onset of the Coronavirus in 2020 created a new standard for concern among supply chains. While trade conflicts and political bickering were the norms for supply chain specialists, the pandemic offered something no one had dealt with before. With COVID-19 now sat in shotgun, rare earths found themselves relegated to the backseat—and rightfully so.

Yet with former President Trump's recent declaration, expect for rare earth concerns to return to the mainstream surface. COVID has become a bit of a norm, at this point, and a new subject is needed for supply chain news outlets to report (yes, I recognize the irony of this statement).

Sourcing Rare Earths Outside of China

With the return of rare earth mineral concerns, global supply chain leaders will begin again and seek alternatives outside of China. A variety of methods are presented in the case to source outside of China. China's drop in global rare earth production from 97% to 70% proves that countries and companies are able to source rare earths elsewhere.

Right now, it's all about motivation. Companies and countries have only begun to source outside of China when they begin to feel threatened. For example, Japan increased its domestic research and development and moved supply chains away from China as a response to the threatened embargo in 2010. Japan's decision to do so was a primary catalyst in China's reduced global rare earth presence.

While a country like Japan could afford to take an ad hoc, reactive approach to China's rare earth monopoly, a company may not have the time or financial resources to not be proactive. Instead, companies must view China now as the China it will be in 2025—a monopoly of a potentially $15 billion dollar industry.

The goal will be to find alternative rare earth sources located in different countries, while also petitioning the government to invest in expanded domestic rare earth mineral R&D. China produces 6 times the amount of rare earth materials than the next leading country, which is the U.S. For less potential trouble in the supply chain, that gap needs to shorten.