Pentagon Loses Control of Bombs to China's Metal Monopoly

Pentagon Loses Control of Bombs to China's Metal Monopoly

By Peter Robison and Gopal Ratnam - Sep 29, 2010 5:49 PM CT Wed Sep 29 22:49:42 GMT 2010

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Workers handle neodymium ingots before they are crushed at Neo Material Technologies Inc.'s Magnequench Tianjin Co. factory in Tianjin, China. Photographer: Doug Kanter/Bloomberg

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Sept. 30 (Bloomberg) -- China has become the world's leading supplier of components crucial to U.S. defense systems, products once supplied by American companies such as Magnequench Inc. and Molycorp Inc. Bloomberg's Kevin Thrash reports. This report also contains comments from Teri Luna, a former employee at Magnequench, and Stan Trout, an adjunct physics professor at Marian University and former Magnequench employee. (Source: Bloomberg)

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April 14 (Bloomberg) -- The U.S. military depends on China for the metals required to build smart bombs, night-vision goggles and naval radar, according to a report from the Government Accountability Office. Bloomberg's Lindsey Arent reports. (Source: Bloomberg)

Chart: In China, No Stone Unturned: Graphic

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"Because export quotas are limited, we basically can choose our clients; we are no longer compelled to sell to just about anybody who comes knocking,” said Bai Baosheng, who handles investor relations for Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co. Photographer: Nelson Ching/Bloomberg

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Annealed neodymium iron boron magnets sit in a barrel prior to being crushed into powder at Neo Material Technologies Inc.'s Magnequench Tianjin Co. factory in Tianjin, China. Photographer: Doug Kanter/Bloomberg

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The research facility at Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co. Photographer: Nelson Ching/Bloomberg

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Samples of various rare earth compounds are displayed in the showroom at Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co. Photographer: Nelson Ching/Bloomberg

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Motors in missiles like the JDAM might be three times as big without advanced magnets. The JDAM has been used extensively in Iraq and Afghanistan. Photographer: Philip A. McDaniel/U.S. Navy via Bloomberg

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An open pit mine in Nevada owned by Molycorp, which plans to mine almost 20,000 tons of rare earths annually by late 2012 but doesn’t yet have the capacity to refine the raw elements into metals. Photographer: Jacob Kepler/Bloomberg

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Kathy DeFries, co-owner of Excel Machine Technologies and owner of Coco's Canine Cabana, attends to dogs in her doggie daycare facility in Valparaiso, Indiana. The facility occupies a portion of an Excel plant that used to make 80 percent of the rare earth magnets in laser-guided U.S. smart bombs. Photographer: John Zich/Bloomberg

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Kathy DeFries, co-owner of Excel Machine Technologies Inc., next to drill presses on Excel's shop floor in Valparaiso, Indiana. Photographer: John Zich/Bloomberg

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A quote by former Chinese Leader Deng Xiaopeng, which reads,"The Middle East has oil, and China has rare earths" on the wall at Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co. in China. Photographer: Nelson Ching/Bloomberg

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Samarium-cobalt magnets of different strengths, left, and a defense component with mounted magnets are arranged for a photo at the Electron Energy Corp. factory in Landisville, Pennsylvania. Photographer: Gopal Ratnam/Bloomberg

A senior manager at a company that churns out metals routinely used in U.S. smart bombs pauses in mid-sentence when his phone rings: a Wall Street stockbroker looking for information. He makes a note to have an assistant call back -- someone who is fluent in English, not just Chinese.

“It’s a seller’s market now,” says Bai Baosheng, 43, puffing a cigarette in his office in Baotou, China, where his company sells bags of powder containing a metallic element known as neodymium, vital in tiny magnets that direct the fins of bombs dropped by U.S. Air Force jets in Afghanistan.

A generation after Chinese leader Deng Xiaoping made mastering neodymium and 16 other elements known as rare earths a priority, China dominates the market, with far-reaching effects ranging from global trade friction to U.S. job losses and threats to national security.

The U.S. handed its main economic rival power to dictate access to these building blocks of modern weapons by ceding control of prices and supply, according to dozens of interviews with industry executives, congressional leaders and policy experts. China in July reduced rare-earth export quotas for the rest of the year by 72 percent, sending prices up more than sixfold for some elements.

Military officials are only now conducting an inventory of where and how U.S. suppliers use the obscure but essential substances -- including those that silence the whoosh of Boeing Co. helicopter blades, direct Raytheon Co. missiles and target guns in General Dynamics Corp. tanks.

Warning Signs

“The Pentagon has been incredibly negligent,” said Peter Leitner, who was a senior strategic trade adviser at the Defense Department from 1986 to 2007. “There are plenty of early warning signs that China will use its leverage over these materials as a weapon.”

China may already be flexing its muscles amid a diplomatic spat with its East Asian neighbor Japan. China last week imposed a “de facto” ban on exports to Japan of the metals used in liquid crystal displays and laptop computers, Japanese Economy Minister Banri Kaieda said Sept.

28. That followed Japan’s detention of a Chinese fishing boat captain whose ship collided with two Japanese Coast Guard vessels. Japan later released the man.

No such ban exists, China’s Ministry of Commerce spokesman Chen Rongkai said.

New Factor

“What it does, clearly, is bring a new factor into the consideration of supply of critical materials,” said Dudley Kingsnorth, director of Industrial Minerals Co. of Australia, a forecaster in Perth.

The U.S. Congress’s investigative arm, the Government Accountability Office, in April warned of “vulnerabilities” for the military because of the lack of domestic rare-earth supplies. The House of Representatives Armed Services Committee will hold a hearing in October, the same month a Pentagon report on how to secure future supplies of the metals is due.

“The department has long recognized that rare-earth elements are important raw material inputs for many defense systems and that many companies in our base have expressed concern regarding the future availability of the refined products of these elements,” Brett Lambert, director of the Pentagon’s Office of Industrial Policy, said.

While two rare-earth projects are scheduled to ramp up production by the end of 2012 -- one owned by Molycorp Inc. in California and another by Lynas Corp. in Australia -- the GAO says it may take 15 years to rebuild a U.S. manufacturing supply chain. China makes virtually all the metals refined from rare earths, the agency says. The elements are also needed for hybrid-electric cars and wind turbines, one reason supply may fall short of demand in 2014 even with the new mines, according to Kingsnorth of Imcoa.

Doggy Day Care

Just how far U.S. manufacturing has waned is apparent at a factory in Valparaiso, Indiana, where dogs skitter across a bare concrete shop floor, their nails clicking. This brick plant on Elm Street once made 80 percent of the rare-earth magnets in laser-guided U.S. smart bombs, according to U.S. Senator Evan Bayh, a Democrat from Indiana. In 2003, the plant’s owner shifted work to China, costing 230 jobs.

Now the plant houses Coco’s Canine Cabana, a doggy day care the current tenants started to supplement sagging income from their machine shop. On most days dogs outnumber the 15 metalworkers, said Kathy DeFries, co-owner of Excel Machine Technologies Inc.

“When things got slow for manufacturing, we had this big empty shop floor,” said DeFries, nuzzling a floppy-eared puppy. “It’s a great stress reliever.”

Expensive to Mine

The rare earths are chemically similar elements, with names such as yttrium and dysprosium. China has the largest share of worldwide reserves, about 36 percent, and the U.S. is second, with 13 percent, the U.S. Geological Survey says. While the elements aren’t rare, they’re less frequently found in profitable concentrations, expensive for Western producers to extract and often laced with radioactive elements.

China produced 120,000 tons, or 97 percent, of the world’s 124,000-ton supply last year, according to the GAO. Half of that came from Baotou, said Kingsnorth. The raw elements have many applications. Neodymium is used by Chinese companies including magnet makers, who sell to U.S. suppliers of defense contractors.

Export Quotas

Export quotas and taxes for overseas buyers that the GAO says can reach 25 percent are pushing up prices of elements even in relatively large supply. For example, the cost of a kilogram of samarium powder, needed for the navigation system of General Dynamics’ M1A2 Abrams tank, jumped to $34 in early September, from $4.50 in June, according to U.K. researcher Metal Pages Ltd.

The U.S. and the European Union consider Chinese restrictions on a range of raw goods part of a strategy to draw in higher-paying manufacturing jobs by making them cheaper to buy inside China. The export taxes violate World Trade Organization rules because China pledged to limit them to 84 product categories when it joined the trade group in 2001, said Terence Stewart, managing partner of Washington law firm Stewart & Stewart. In 2010, China had taxes on 329, he said.
The U.S. and the EU filed a WTO complaint over raw materials including bauxite and coke last year. China’s commerce minister, Chen Deming, said Aug. 28 that the policies comply with WTO rules.

Some manufacturers in China are lobbying the ministry to back off the latest quotas because a dispute will disrupt the market, said Constantine Karayannopoulos, chief executive officer of Toronto-based Neo Material Technologies Inc., which has rare-earth production facilities in China.

Risk of Trade War

“It was very sudden and didn’t give the industry any time to adjust,” he said. “This quota action could risk a trade war.”

For Western companies, China’s policies are creating the real “unobtanium,” the fictional mineral fought over in James Cameron’s 2009 film “Avatar.”

It’s taking as long as 10 weeks to get neodymium magnets, double the previous wait time, said Joe Schrantz, group supply chain manager at Moog Inc. in East Aurora, New York. He said the company buys hundreds of thousands of magnets a year to make motors for cars, trucks and weapons including Raytheon’s AMRAAM -- or Advanced Medium-Range Air-to-Air Missile -- and Boeing’s Joint Direct Attack Munition, a tail fin kit for making precision-guided “smart” bombs out of ordinary weapons.

Rising Prices

Rising neodymium prices are forcing up the price of magnets, which typically cost between $2 and $30 apiece. That’s having a “significant” effect on profit, and suppliers say costs will keep going up, Schrantz said. The company is considering buying blocks of raw material and storing it.

“If everybody does that, then it’s going to get really crazy,” he said.

Neodymium, a silvery metal, is essential in a magnetic alloy developed separately by engineers at General Motors Co. in Detroit and Sumitomo Special Metals Co. in Japan in the 1980s. The magnets are now in millions of stereo speakers, computer disk drives and motors.

In missiles, they replace a hydraulic system of pumps and fluids that was costlier and heavier. Motors in weapons like the JDAM might be three times as big without advanced magnets, said Todd Brewster, senior design engineer at Kollmorgen, a unit of Washington-based Danaher Corp. The JDAM has been used extensively in Iraq and Afghanistan.

Hybrid-Electric Motors

A Chinese supplier makes neodymium magnets for hybrid- electric motors the Navy is developing to cut fuel use of Arleigh Burke-class destroyers, according to the GAO. The agency also says Lockheed Martin Corp.’s SPY-1 radar on Aegis destroyers contains samarium-cobalt magnets that will need to be replaced over 35 years. China is virtually the only supplier of yttrium needed for laser gun sights in the General Dynamics Abrams tank, the U.S. Geological Survey says.

“It’s amazing how this issue seems to have caught the country off guard,” said U.S. Representative Mike Coffman, a Colorado Republican who was a U.S. Marine Corps infantry officer. He noted that China’s capabilities have expanded significantly since 2001, when the U.S. Army canceled plans to buy Chinese-made berets under pressure from Congress. “How ironic is that we were concerned about berets?”

Jon Kasle, a spokesman for Raytheon of Waltham, Massachusetts, said his company hasn’t experienced supply shortages. Spokesmen for Bethesda, Maryland-based Lockheed Martin; General Dynamics, of Falls Church, Virginia; and Chicago-based Boeing declined to comment.

“There is a particular need to focus on rare-earth minerals,” said Alexis Allen, spokeswoman for the Aerospace Industries Association, an Arlington, Virginia-based lobby group for defense contractors. “The Department of Defense should consider many alternatives to reliable access.”

Stockpile

One option is to stockpile the metals with allies. Since 1994 the Pentagon has sold off excess raw materials for $7 billion.

Another is subsidies of U.S. manufacturing. The U.S. House of Representatives approved yesterday a proposal by Representative Kathy Dahlkemper, a Pennsylvania Democrat, that would set up a research and development program at the Department of Energy to help U.S. rare-earth manufacturers such as Molycorp with measures including loan guarantees. To become law the bill, which cleared the House on a 325-98 vote, must have a matching Senate version and be signed by the president. Currently there is no such measure.

While Molycorp plans to mine almost 20,000 tons of rare earths annually by late 2012, it doesn’t yet have the capacity to refine the raw elements into metals.

‘No Substitute’

Complicating matters is that even the Pentagon has been unsure of its own needs. Stephen Luckowski, chief of materials manufacturing and prototype technology at the U.S. Army’s Picatinny Arsenal in New Jersey, told participants at a February conference in Cleveland that it took him a month to learn that rare-earth metals are in the nose of the Excalibur missile, and he still wasn’t certain of the exact supply route. Luckowski, a metallurgist, was sure the Army needed the rare earths. “That may be a case where you have no substitute,” he said.

China’s dominance in the materials comes as it scours the planet for resources to feed its economy, which is expanding more than 10 percent this year while the U.S. struggles with an almost 10 percent unemployment rate.

The country has been snapping up oilfields, buying copper mines and investing in wind power. China is also expanding its military, developing an aircraft carrier, nuclear-powered submarines and ballistic missiles, the Pentagon said in an August report.

Deng’s Quotation

In the lobby of Bai’s company, a unit of state-owned Baotou Iron & Steel Group Co., a now-famous 1992 quotation by Deng is emblazoned in pink marble. It reads: “The Middle East has oil, and China has rare earths.” A May interview with Bai is regularly interrupted by calls from stockbrokers, analysts and fund managers looking to learn more about the company.

“Because export quotas are limited, we basically can choose our clients; we are no longer compelled to sell to just about anybody who comes knocking,” said Bai, who handles investor relations for Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co. The shares have more than doubled in the past year, reaching 72.72 yuan on Sept. 29, giving the company a market value of $8.8 billion.

The company is especially proud of the samarium-cobalt magnets used in the Shenzhou 7 space capsule that lifted Chinese astronauts into space in 2008. They were developed at the nearby Baotou Research Institute of Rare Earths.

Environmental Costs

The export restrictions compensate for the heavy environmental toll, said Zhang Anwen, vice secretary of the Chinese Society of Rare Earths, a group of researchers in Beijing. “It’s unfair for the U.S. to be pointing fingers at China now,” he said. “To undo the damage done to the earth, we need to return the vegetation, increase water flow and treat the ground. It’s an extremely costly repair.”

Deng set China on its path with a 1986 initiative whose goals included acquisition of technology in “exotic materials” such as rare-earth metals, new energy compounds and high- capacity engineering plastics, according to a U.S. House of Representatives committee report.

That year Zhu Weiheng, an electrical engineer at the Chinese Academy of Sciences, wrote a report to Chinese officials suggesting they control exports of rare-earth minerals because of their high value in manufacturing. Zhu had studied at the Massachusetts Institute of Technology in Cambridge, Massachusetts, and in 1965 designed a motor for China’s first satellite, the East is Red. Later he spent part of Chinese leader Mao Zedong’s Cultural Revolution under arrest as a suspected spy.

‘Real Revolution’

By the early 1980s, Zhu was testing samples of neodymium iron boron, the alloy perfected by engineers at GM and Sumitomo. Two Chinese research institutes also developed it, said Zhu, 91. “It was a real revolution,” he said.

In 1990, Zhang Hong, the Chinese academy’s deputy director of technology, visited Magnequench, a GM unit in Indiana that used a spinning wheel to quench, or cool, the molten alloy into flakes to make magnets. Five years later, a group including then state-owned San Huan New Materials and Hightech Inc. agreed to buy Magnequench.

The Committee on Foreign Investment in the United States, a cross-agency board that reviews foreign takeover deals, allowed the purchase partly because the partners agreed to keep open facilities in the U.S.

Shipped to China

The company opened a new plant in Tianjin in 1998 and shut a former GM operation in Anderson, Indiana, four years later. Magnequench also purchased and later closed the factory in Valparaiso, where Kathy DeFries now boards dogs for $5 an hour. That plant’s tools were shipped to three San Huan operations in China, according to Shannon Song, a Beijing-based executive at Magnequench.

“What they were basically doing was replicating the production lines in China,” said Leitner, the former Pentagon official.

Indiana’s Bayh and Hillary Clinton, now U.S. secretary of state, both cited Magnequench as an example of the U.S. losing jobs and expertise to China. In the 1990s a dozen U.S.-based suppliers of magnets employed 6,000 people. Today there are four, employing 500, said Ed Richardson, vice president of Thomas & Skinner Inc. in Indianapolis, one of the survivors.

Business Decision

The plant closures were a business decision after the technology bust in 2000 hurt sales, Song said. Most of the Valparaiso factory’s business came from computer makers; defense was a minor share, she said. In 2001, labor costs in Anderson averaged $7.32 per kilogram of neodymium powder on top of $10.07 in direct production overhead, she estimates. In 2003 in Tianjin, labor costs were 16 cents and overhead $3.20.

“It was a question of letting the ship sink or doing something to cut the operating cost,” she said.

Toronto-based AMR Technologies Inc. bought Magnequench in 2005 and renamed the merged company Neo. The company’s shares rose to C$4.92 yesterday from as little as C$1.05 in early 2009.

San Huan, now known as Beijing Zhong Ke San Huan High-Tech Co., went public in 2000. Sales have risen more than fourfold, from 371 million yuan that year to 1.6 billion yuan in 2009. The stock has almost tripled in the past year, reaching 17.14 yuan on Sept. 29.

God and Magnets

“God created the universe from nothing and organized it with the help of a magnet,” the company declares on its website, in English and Chinese.

Shares of Aluminum Corp. of China Ltd. rose 18 percent over the past two days in Shanghai trading after its parent announced a plan to invest at least 10 billion yuan ($1.5 billion) to build a rare earth production base in Jiangxi province with a local partner.

A group of U.S. investors led by Denver-based private equity firm Resource Capital Funds wants to challenge China’s dominance by restoring the fortunes of Molycorp, the largest supplier of rare earths for much of the last century. Its mine, west of Las Vegas in California’s Mojave Desert, shut eight years ago, under pressure from Chinese competitors and regulatory scrutiny of wastewater spills.

Molycorp, based near Denver, says it needs $511 million to refurbish and expand. It raised $379 million in its July share sale, and has applied for a $280 million loan guarantee under a U.S. Department of Energy program for “innovative technologies.” The shares have almost doubled, closing at $26.73 yesterday from $14 in July.

Joshua Trees

Costs of environmental compliance will be steep, Molycorp warns in a filing that says it spent $3 million last year alone. Beyond a 300-foot-deep open pit, John Benfield, manager of quality assurance, points to a valley sheltering Joshua trees where slurry left after processing ore will be pumped and harden like concrete.

The trees, protected under California law, will be given new homes after their precise positions are measured with compasses. Their bark burns in the desert sun without the right orientation. Even so, only 20 percent of replanted trees survive, Benfield said.

The company will keep processing costs to $1.26 per pound, half the average in China, by recycling more water and using a single acid to separate elements, said Mark Smith, Molycorp’s CEO. Molycorp is also negotiating with potential partners to alloy metals and turn them into neodymium magnets in the U.S., creating as many as 900 jobs.

“It was a very, very strategic move that the Chinese made,” he said. “They created a very, very large number of jobs for the citizens of China.

We ought to be looking at executing that exact same strategy here in this country.”

China to Halt rare metal shipments to the West

By KEITH BRADSHER

Published: October 19, 2010

HONG KONG — China, which has been blocking shipments of crucial minerals to Japan for the last month, has now quietly halted shipments of those materials to the United States and Europe, three industry officials said on Tuesday.

The Chinese action, involving rare earth minerals that are crucial to manufacturing many advanced products, seems certain to further intensify already rising trade and currency tensions with the West. Until recently, China typically sought quick and quiet accommodations on trade issues. But the interruption in rare earth supplies is the latest sign from Beijing that Chinese leaders are willing to use their growing economic muscle.

“The embargo is expanding” beyond Japan, said one of the three rare earth industry officials, all of whom insisted on anonymity for fear of business retaliation by Chinese authorities.

They said Chinese customs officials imposed the broader restrictions on Monday morning, hours after a top Chinese official summoned international news media Sunday night to denounce United States trade actions.

China mines 95 percent of the world’s rare earth elements, which have broad commercial and military applications, and are vital to the manufacture of products as diverse as cellphones, large wind turbines and guided missiles.

Any curtailment of Chinese supplies of rare earths is likely to be greeted with alarm in Western capitals, particularly because Western companies are believed to keep much smaller stockpiles of rare earths than Japanese companies.

China experts said on Tuesday that Beijing’s assertive stance on rare earths might also signal the ascendance of economic nationalists, noting that the Central Committee of the Communist Party convened over the weekend.

Officials at the media relations office of China’s commerce ministry did not respond all day on Tuesday to e-mail or telephone calls seeking confirmation of the expanded embargo.

A few rare earth shipments to the West have been delayed by customs officials in recent weeks, said industry officials in China, Japan and the United States, but new restrictions on exports appear to have been imposed on Monday morning.

Industry executives said there had been no signal from Beijing of how long rare earth shipments intended for the West would be held by Chinese customs officials. Nor is it clear if occasional shipments are still being allowed out of the country, or if all shipments have now been suspended.

Word of the blocked shipments emerged from industry executives on Tuesday after an official China newspaper reported earlier in the day that Beijing planned next year to further reduce its annual export quota for rare earths.

The signals of a tougher Chinese trade stance come after American trade officials announced on Friday that they would investigate whether China was violating World Trade Organization rules by subsidizing its clean energy exports and limiting clean energy imports. The inquiry includes whether China’s steady reductions in rare earth export quotas since 2005, along with steep export taxes on rare earths, are illegal attempts to force multinational companies to produce more of their high-technology goods in China.

Despite a widely confirmed suspension of rare earth shipments from China to Japan, now nearly a month old, Beijing has continued to deny that any embargo exists. Industry executives and analysts have interpreted that official denial as a way to wield an undeclared trade weapon without creating a policy trail that could make it easier for other countries to bring a case against China at the World Trade Organization.
So far, China seems to be taking a similar approach in expanding the embargo to the West.

Wang Baodong, a spokesman for the Chinese Embassy in Washington, said on Tuesday that the Chinese government was putting new restrictions on the mining, processing and export of rare earths to protect the environment. But he said that China was not violating any W.T.O. rules in doing so and that it was not imposing an embargo or trying to use rare earths as a bargaining chip.

“With stricter export mechanism gradually in place, outbound shipments to other countries might understandably begin to feel the effect,” Mr. Wang said in an e-mail. “But I don’t see any link between China’s reasonable rare earth export control policy and the irrational U.S. decision of protectionist nature to investigate China’s clean energy industries.”


Nefeterius Akeli McPherson, a spokeswoman for the Office of the United States Trade Representative in Washington, said that American trade officials were looking into the matter, after a report of the Chinese customs restrictions was published on Tuesday afternoon on the Web site of The New York Times.

“We’ve seen the news report and are seeking more information in keeping with our recent announcement of an investigation into whether China’s actions and policies are consistent with W.T.O. rules.”

Jeremie Waterman, the China director of the United States Chamber of Commerce, said that he was still checking government and industry sources to learn the extent of a suspension of Chinese rare earth shipments. “If it’s true, it’s disturbing news to say the least,” he said.

Mr. Waterman said that rare earths were so important to advanced manufacturing that restrictions on their trade might need to be put on the agenda of the Group of 20 meeting of heads of state, scheduled next month in Seoul, South Korea.

The Chinese government office that oversees rare earth policy, which operated with considerable independence for many years, was moved early last year into the Ministry of Industry and Information Technology.

That ministry, formed only two years ago to draft plans for global leadership in many industries, has emerged as a bastion of economic nationalism.

Despite their name, most rare earths are not particularly rare. But most of the industry has moved to mainland China over the last two decades because of lower costs and steeply rising demand there as clean energy industries have expanded rapidly.

Congress is considering legislation to provide loan guarantees for the re-establishment of rare earth mining and manufacturing in the United States. But new mines are likely to take three to five years to reach full production, according to industry executives, although existing uranium mines may be able to move faster by reprocessing previously mined material, which often contains rare earths.

China reduced in July its export quota for rare earths for the second half of the year by 72 percent. Exporters had only six weeks’ of quotas left when China imposed its unannounced embargo on shipments to Japan.

Gee, didn't see that one coming... :rolleyes:

China Seizes Rare Earth Mine Areas

By KEITH BRADSHER

Published: January 20, 2011

HONG KONG — A Chinese government agency has taken steps to more tightly manage the production and export of rare earth minerals, crucial materials used in a wide range of technologies and products vital to the West.

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Reuters

A worker drove a skip loader while working at the site of a rare earth metals mine at Nancheng county, Jiangxi province, China, in October.

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The agency, the Ministry of Land and Resources, invoked a seldom-used mining law to take direct control of 11 rare earth mining districts in southern China.

The ministry said in a statement, posted on its Web site Wednesday and briefly mentioned Thursday by the state media, that rare earth mining in those districts, all at the southern end of Jiangxi Province, had been placed under its national planning authority.

That step removes administrative oversight of mining from provincial and municipal control; local officials in southern China are widely suspected of collusion with crime syndicates responsible for illegal strip-mining and refining of rare earths.

The ease of digging up and refining some of the most valuable rare earths from the clay hills of southernmost Jiangxi Province and northernmost Guangdong Province, together with soaring prices, has led to a surge in illegal strip-mining that has turned many hillsides into lunar landscapes. Crime syndicates have dumped the mine tailings, including powerful acids and other materials, into local waterways. The fields and water supplies of peasant farmers who live downstream have been contaminated.

The land ministry, which has inspectors, hinted that it planned to place additional districts under the control of the national government. It said repeatedly in the statement that this was the first designation of national rare earth mining areas. A legal notice dated Jan. 4 was posted with the statement and invoked China’s obscure, decades-old planning statute.

American officials had said before the current visit of President Hu Jintao of China to Washington that they wanted some assurance that China would continue to supply rare earths. But Chinese officials have been leery of international commitments on mining output, and the 41-point joint statement issued Wednesday by the United States and China after the meeting of President Obama and Mr. Hu made no mention of rare earths.

China produces 92 percent of the world’s light rare earths like cerium and lanthanum, which are used in applications like glass manufacturing and oil refining, and 99 percent of the world’s heavy rare earths like dysprosium, which are used in trace amounts but are vital for products like smartphones and compact fluorescent bulbs.

Most of the heavy rare earths come from an unusual geological formation that straddles the hilly, sometimes lawless southern border area of Jiangxi Province with Guangdong Province. According to geologists, it is the only known commercial deposit of rare earths in the world that has virtually no contamination from thorium, which is radioactive.

Many companies in the West indirectly depend on illegal mining and smuggling. Industry experts estimate that illegal production accounts for about a seventh of the supply of light rare earths in the world and as much as half of heavy rare earths.

Smuggling is less common for light rare earths, partly because they are less valuable. They sell for about $20 a pound outside China, compared with more than $100 a pound for some of the heavy rare earths.

Most of China’s light rare earths come from a large state-owned iron ore mine in a desert near Baotou, in northern China, where illegal mining and smuggling are more difficult and are becoming harder. Security forces have begun erecting electrified fences to discourage trespassers.

China has repeatedly cut its quotas for exports of rare earth minerals from government-approved mines and refineries in the last two years, while raising taxes on the exports. It separately imposed a two-month, unannounced ban on exports of rare earths to Japan during a territorial dispute last September and carefully checked other countries’ orders for rare earths to discourage trans-shipment to Japan.

The United States Energy Department concluded in a report last month that clean energy industries in America relied heavily on imports of rare earths and would be highly vulnerable to supply disruptions for as long as the next 15 years. Efforts to dig mines elsewhere face many legal and environmental obstacles.

The Obama administration has included China’s export restrictions on rare earths in a broad investigation of whether China has violated World Trade Organization rules to help its clean energy exports; the United Steelworkers union has accused China of limiting exports of rare earths to force manufacturers to move their factories to China, an accusation supported by comments in 2009 by Chinese provincial officials saying exactly that.

W.T.O. rules ban most export quotas and taxes and require countries to provide foreign buyers with the same access to natural resources as the best-connected domestic buyers. But China has recently defended the export quotas and taxes as needed for environmental protection, invoking an exception in W.T.O. rules that allows the conservation of natural resources.

Alan Wolff, a former senior United States trade official and now the chairman of the international trade practice at the law firm Dewey & LeBoeuf, said the crackdown against illegal mining, which has included numerous raids by Provincial police in northern Guangdong Province, could buttress its defense against W.T.O. cases by showing Beijing’s concern for the environment. But Mr. Wolff added that a W.T.O. case against China’s rare earth export restrictions could still be successful.

In addition to seizing control of the rare earth mining districts in southern Jiangxi Province, the Ministry of Land and Resources announced that it was imposing national planning authority on an iron ore mining area in the western Chinese province of Sichuan that has two other scarce and valuable metals, titanium and vanadium. Titanium has many applications in aerospace and other industry sectors, while vanadium is used in the production of sulfuric acid, which is the main material needed to refine rare earth ores.

China nationalizes 11 rare earth mines, prices to go up in global market

By IBTimes Staff Reporter | January 21, 2011 2:16 AM EST

The Ministry of Land and Resources of China Wednesday brought 11 rare earth mines under state control, in order to improve the protection, utilization of the country's strategic resources and drive up prices of the element in global markets.

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China nationalizes 11 rare earth mines, to up prices in global market

These measures came after years of planning. All of the 11 areas for rare earth mining are located in Ganzhou, Jiangxi Province in China's southeast. The two iron areas are in Sichuan Province in China's southwest, a report in People's Daily Online said.

Under the new policy, only companies authorized by the central government can conduct surveying and exploitation in those areas.

"The new policy reflects the great importance attached to strategic resources by the government with the intention of using the resources in a more efficient way, "Lei Xiping, secretary-general of the Metallurgical Mines Association of China told media outlets.

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China mines about 90 percent of the world's rare earth minerals - which is a collection of seventeen chemical elements and is used to various technological devices, cellular phones, high performance batteries, flat screen televisions, green energy technology, and are critical to the future of hybrid and electric cars, high-tech military applications and superconductors and fiber-optic communication systems.

World demand for rare earths in 2010 was about 127,000 tonnes, a figure expected to reach 188,000 tonnes by 2015 as clean technology usage increases.

Earlier, China's Ministry of Commerce issued the first batch of 2011 rare earth export quotas and allotted 14,446 tonnes of quotas to 31 companies, compared to the 16,304 tonnes allocated 22 companies in the first batch a year ago.

China suspended shipments of the mineral to EU and US in October, media reports stated. The suspension came after there were indications that the U.S. would investigate if China was violating World Trade Organization rules by subsidizing clean energy exports and limiting clean energy imports.

China has been reducing export quotas of rare earth minerals for the past few years, citing environmental concerns. However, Wang Caifeng, who is in charge of setting up the China Rare Earth Industry Association, stated that China might slightly raise the production cap and export quota next year.

Last week, China's rare earth exports rose 14.5 per cent in the Jan-Nov period of 2010 as prices more than doubled, with most of the shipments going to Japan, Europe and the United States.

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We have a national security crisis: Let's do nothing

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Can the United States do anything to reverse a dangerous dependence on crucial mineral supplies that put our future military security in the hands of China? We may be about to find out.

The challenge to our future security was outlined in a grim, largely overlooked report from the U.S. Geological Survey. In stark terms, it demonstrated that the U.S. is 100 percent reliant on foreign producers for at least 20 elements and minerals, some of them of strategic importance to our military. The most common source: China.

As Bellwether noted last week, a group of 17 materials, known collectively as rare earths, are produced almost exclusively by China. That’s the country President Trump has labelled a currency manipulator and trade cheat and which he has vowed to bring to heel in future bilateral negotiations.

The USGS report, points out other metal deficiencies, and raises serious questions about how much leverage the U.S. will have over China. Almost all the minerals in question are essential components needed for advanced fighter bombers, satellite guided missiles and catapults that launch planes from the decks of aircraft carriers.

“That 2017 USGS report is not fake news,” says George Byers, a 40-year mining industry veteran and rare earth expert. “You have 29 or 30 studies on critical materials, including rare earths that go back to the early ‘90s. The outcome of each study is to declare ‘we have a crisis, let’s do something about it.’ But all they do about it, is to ask for another study.”

Rep. Duncan Hunter (R-Calif.), plans to introduce legislation this month to require the U.S. military to obtain rare earths that are produced in America, even if it means subsidizing those industries.

“This is of critical importance to our national security and ability to stay ahead of everyone else,” Hunter told me. “Rare earth metals are crucial. We’ve closed down mines in my own state of California, which is the leading edge of stupid.

“We need to have our own rare earths. The big sticking part of the bill is this. You have to put money in to subsidize our own product to create a market, because now there’s no market. We’ve got to put American manufacturing back in competition.”

The problem, these analysts note, is that U.S. production capacity in this area has been allowed to wither to almost nothing, due to plentiful supplies from China that can be produced at a lower price than U.S. made rare earths.

Even more perilous, China’s own rapacious demand for rare earths is outstripping its ability to supply domestic consumers as well as the U.S., meaning it may be unable to ship goods to the U.S. even if it wants to.

In addition to rare earths, which are vital components of high-grade permanent magnets used in military aircraft and missile systems, the United States, according to the USGS report, is now 100 percent reliant on foreign countries for supplies of manganese, which is used to make impact resistant steel, among other things. Though readily available in mines in Arizona, Arkansas and Minnesota, it can be imported more cheaply. The USGS study lists American production of manganese last year as: zero.

Hunter’s legislation aims to put an end to that. The bill would divert funds from military aircraft and missile weapons systems to support domestic production rare earths and other vital materials. It would also provide five-year interest free loans to U.S. producers, giving them time to ramp up abandoned and neglected facilities.

That may be just in time to prevent further foreign encroachment on our manufacturing base. Peg Brickley of The Wall Street Journal reported this week that Vladimir Iorich, a Russian-born billionaire with German nationality, is trying to take control of Mountain Pass mine in California, once the largest domestic source of rare earths.

That mine was once the production facility for Molycorp, the only significant American producer of rare earth metals. Molycorp went bankrupt in 2015, partly due to the Obama administration’s refusal to help bail it out of its $1.4 billion debt.

Instead, the previous administration sank hundreds of millions of dollars in Solyndra, a solar power company that comported with the former president’s advocacy for renewable energy. The problem was, solar energy panels also use rare earth metals. Solyndra, which also went belly-up, ended up importing the solar cells it needed – from China.

Presidential Executive Order on a Federal Strategy to Ensure Secure and Reliable Supplies of Critical Minerals

December 20, 2017

By the authority vested in me as President by the Constitution and the laws of the United States of America, it is hereby ordered as follows:

Section 1. Findings. The United States is heavily reliant on imports of certain mineral commodities that are vital to the Nation’s security and economic prosperity. This dependency of the United States on foreign sources creates a strategic vulnerability for both its economy and military to adverse foreign government action, natural disaster, and other events that can disrupt supply of these key minerals. Despite the presence of significant deposits of some of these minerals across the United States, our miners and producers are currently limited by a lack of comprehensive, machine-readable data concerning topographical, geological, and geophysical surveys; permitting delays; and the potential for protracted litigation regarding permits that are issued. An increase in private‑sector domestic exploration, production, recycling, and reprocessing of critical minerals, and support for efforts to identify more commonly available technological alternatives to these minerals, will reduce our dependence on imports, preserve our leadership in technological innovation, support job creation, improve our national security and balance of trade, and enhance the technological superiority and readiness of our Armed Forces, which are among the Nation’s most significant consumers of critical minerals.

Sec. 2. Definition. (a) A “critical mineral” is a mineral identified by the Secretary of the Interior pursuant to subsection (b) of this section to be (i) a non-fuel mineral or mineral material essential to the economic and national security of the United States, (ii) the supply chain of which is vulnerable to disruption, and (iii) that serves an essential function in the manufacturing of a product, the absence of which would have significant consequences for our economy or our national security.

(b) The Secretary of the Interior, in coordination with the Secretary of Defense and in consultation with the heads of other relevant executive departments and agencies (agencies), shall publish a list of critical minerals in the Federal Register not later than 60 days after the date of this order, and disseminate such list to the appropriate agencies.

Sec. 3. Policy. It shall be the policy of the Federal Government to reduce the Nation’s vulnerability to disruptions in the supply of critical minerals, which constitutes a strategic vulnerability for the security and prosperity of the United States. The United States will further this policy for the benefit of the American people and in a safe and environmentally responsible manner, by:

(a) identifying new sources of critical minerals;

(b) increasing activity at all levels of the supply chain, including exploration, mining, concentration, separation, alloying, recycling, and reprocessing critical minerals;(c) ensuring that our miners and producers have electronic access to the most advanced topographic, geologic, and geophysical data within U.S. territory to the extent permitted by law and subject to appropriate limitations for purposes of privacy and security, including appropriate limitations to protect critical infrastructure data such as those related to national security areas; and

(d) streamlining leasing and permitting processes to expedite exploration, production, processing, reprocessing, recycling, and domestic refining of critical minerals.

Sec. 4. Implementation. (a) Within 180 days of the date that the Secretary of the Interior publishes a list of critical minerals under section 2 of this order, the Secretary of Commerce, in coordination with the Secretaries of Defense, the Interior, Agriculture, and Energy, and the United States Trade Representative, shall submit a report to the President through the Assistant to the President for Economic Policy, the Assistant to the President for National Security Affairs, the Director of the Office of Management and Budget, and the Director of the Office of Science and Technology Policy. The report shall include:

(i) a strategy to reduce the Nation’s reliance on critical minerals;

(ii) an assessment of progress toward developing critical minerals recycling and reprocessing technologies, and technological alternatives to critical minerals;

(iii) options for accessing and developing critical minerals through investment and trade with our allies and partners;

(iv) a plan to improve the topographic, geologic, and geophysical mapping of the United States and make the resulting data and metadata electronically accessible, to the extent permitted by law and subject to appropriate limitations for purposes of privacy and security, to support private sector mineral exploration of critical minerals; and

(v) recommendations to streamline permitting and review processes related to developing leases; enhancing access to critical mineral resources; and increasing discovery, production, and domestic refining of critical minerals.

(b) Agencies shall implement subsection (a) of this section in a manner consistent with, and when possible complementary to, implementation of Executive Order 13771 of January 30, 2017 (Reducing Regulation and Controlling Regulatory Costs), Executive Order 13783 of March 28, 2017 (Promoting Energy Independence and Economic Growth), Executive Order 13807 of August 15, 2017 (Establishing Discipline and Accountability in the Environmental Review and Permitting Process for Infrastructure Projects), and Executive Order 12866 of September 30, 1993 (Regulatory Planning and Review).

Sec. 5. General Provisions. (a) Nothing in this order shall be construed to impair or otherwise affect:

(i) the authority granted by law to an executive department or agency, or the head thereof;

(ii) the functions of the Director of the Office of Management and Budget relating to budgetary, administrative, or legislative proposals; or

(iii) existing treaties or international agreements relating to mineral production, imports, or exports.

(b) This order shall be implemented consistent with applicable law and subject to the availability of appropriations.

(c) This order is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person.

DONALD J. TRUMP

THE WHITE HOUSE,

December 20, 2017.