Tucked into the sixth row of the periodic table, often represented by a single square expanded like a footnote at the bottom of the table, are the 15 lanthanides. When combined with yttrium and scandium, these materials are better known as the rare earth elements. Though they are used in very small amounts, their significance to the U.S. defense sector and to emerging and potentially disruptive technologies, combined with China’s control over the majority of the market, has given the rare earth elements outsized geopolitical relevance.
The rare earth elements are already critical to the U.S. defense sector, but rare earth mining, processing and fabrication capabilities will even more strongly influence geopolitical dynamics in the coming years as the world undergoes its nascent energy transition and transportation evolution. In the near term, China will benefit from its near-monopoly, but ultimately its own growing domestic demand will limit the duration of its control over the sector and eventually force production diversification.
Though they are often discussed as a group, rare earth elements have individual qualities that funnel them into specific use cases and markets. From lighting and optics to electronic displays to permanent magnets and guidance systems, each use requires a different element or different combination of elements. Additionally, not all rare earth elements are found in the same types of deposits; they occur in different places and in different concentrations. These different types of minerals are typically categorized into two subgroups based on weight: light rare earth elements (LREE) and heavy rare earth elements (HREE). China’s policy adds an additional subgroup, medium rare earth elements (MREE).
King of Rare Earths
China contains roughly a third of the world’s reserves of rare earth elements, and it has only come to dominate the sector recently. After China discovered new reserves in the 1960s, it took until the early 1990s for it to overtake the United States as the world’s premier rare earth elements producer. China’s production of rare earth elements is both geographically divided by type and highly concentrated in a handful of mines. Inner Mongolia accounts for nearly 70 percent of China’s LREE production, with a single mine — Baotou Bayan Obo Mine — producing more than 50 percent of all Chinese rare earth elements. Southern China, where HREEs were first discovered in the 1960s, accounts for most of the country’s HREE production. Jiangxi province alone produces roughly 50 percent of China’s MREE and HREE, and Ganzhou city accounts for the majority of that production.
Even though China has ample resources and large mines, it has only gained its near monopoly on the global supply of rare earth elements by controlling the processing steps that remove the elements from the rest of the rock in which they are found. This control has presented a global supply risk, which became painfully evident in 2010 when China abruptly halted the export of rare earth ores, salts and metals to Japan, a primary consumer. The United States, which imports many of the final products that Japan produces with rare earth elements, felt a secondary impact. Though the ban was temporary, it sent shockwaves through the global community and prompted countries and producers to scramble to try and find, develop or reopen alternative rare earth element sources.
The United States, in part due to wariness of its defense technology relying so heavily on China, launched and won a World Trade Organization case against China, and in 2015 Beijing removed export quotas on rare earth elements. But in the years since the export ban on Japan, the rest of the world has had only marginal success in seeking sources outside of China. Australia was able to increase its production of LREEs with a new, environmentally controversial processing facility in Malaysia. And the United States’ Molycorp mining company reopened Mountain Pass mine in California in 2012, only to declare bankruptcy and shutter the location just three years later. China still controls the vast majority of all rare earth production, and for some key medium and heavy rare earth elements such as dysprosium and terbium, which are necessary to produce permanent magnets in electric vehicles and wind turbines, China’s control is virtually complete, with more than 98 percent of global supply.
After all, prices for many of the rare earth elements have remained relatively stable since 2015 (changes in China’s policy toward rare earth production perpetuated a small spike in 2017), meaning new projects are rarely economically feasible or attractive. Moreover, the refining process produces environmentally damaging byproducts that are extremely costly to contain and can draw criticism from environmental groups and local populations.
As part of China’s broader efforts to curb the environmental damage and consolidate inefficient industries, Beijing has tightened the reigns on the rare earth refining sector. For example, it has cracked down on illegal mining in the country; illegal production of dysprosium oxide decreased by 34 percent from 2013 to 2017, according to Adamas Intelligence. And as part of consolidation efforts associated with its 12th Five Year Plan, Beijing intends to cap production of all rare earth elements at 140,000 metric tons no later than 2020. This would still represent a 20,000 metric ton increase from current levels. 2018’s final quota was 120,000 metric tons, and the first half of 2019 is already showing a production increase. A key moment in China’s continued efforts to combat illegal mining will come in May when Beijing decides whether to continue allowing rare earth element imports from Myanmar, a location long suspected of being along a laundering route for minerals such as dysprosium, terbium and gadolinium that have been illegally mined within China’s borders.