China has control of 97 percent of the world’s rare earth production. Now why would this mind-boggling figure be significant? It just so happens that rare earth elements, a class of 17 elements in the Periodic Table, are key ingredients of a lot of electronic gadgets of today and probably of tomorrow.
This one is a monopoly that’s not even there for any of the oil producing sheikhdoms. The 120,000 tons of annual production goes into everything from Apple iPhones to hybrid cars. For instance, hybrid cars developed by Warren Buffet-backed Chinese automaker BYD, is one of the biggest parties on the order sheet. So is wind turbine maker Xinjiang Goldwind Science & Technology.
Yuanta Securities analyst Min Li sums it up perfectly,
“Rare earth for China is like oil to the Middle East.”
As China sits on top of rare earth reservoirs, it can dictate the course of supply and demand. Right now, demand is swelling up. Unless new resources are unearthed, meeting global demands will be a huge problem. Global demand is predicted to exceed supply by 30,000 to 50,000 tons by 2012. The situation is starting to look precarious as China is introducing measures that give priority to its own domestic demands.
CIMB analyst Keith Li said that Chinese green companies would have priority over international peers. Their proximity to sources of the minerals ensures quicker and cheaper long-term supply. This would automatically give them a huge cost benefit when it boils down to competing with the rest of the world on price.
But the situation is not so blatantly one sided as it appears. As technology evolves, newer products could emerge that do not need components made from rare earth elements. Western countries could pressure China to keep supply channels open. China’s own technologies need to evolve fast if it wants to exploit the advantage.
Overseas companies are strategizing in the event of a global supply crisis over rare earth minerals. Toyota, which makes the top-selling hybrid car Prius, and Nissan, maker of electric car Leaf, will be affected if a crunch comes. A leading authority on rare earth elements explained that a car like the Prius requires 1 kilogram (2.2 lb) of neodymium. And each Prius battery uses 10 to 15 kg (22-33 lb) of another rare earth, lanthanum. Companies like Toyota are looking to other supply sources for supplementing their needs.
Meanwhile, amidst concerns over supply, big Chinese companies like BYD are getting into the actual process of making rare earth products.
Image: Wikimedia Commons