US Military Depending On China For Rare Earths

Critical Metals

China’s monopoly on the rare earth trade is exposing a vulnerability in the US military’s supply chain.

By Robert Sullivan – Exclusive to Rare Earth Investing News

Some see it as a strategic masterstroke by China, others, a shocking oversight by the United States. And while the truth lies somewhere in the middle, the fact remains that the US is now wholly dependent on China for some of the most critical components of its modern military hardware.

The lasers and magnets that drive the weapons systems in the most advanced military in the world are produced using rare earths sourced from China, a trade in which China owns a monopoly.

Neodymium is used to manufacture tiny magnets that are components in the tail fin systems of missiles and smart bombs, satellite systems, as well as for magnets in hybrid electric motors that are being outfitted on navy vessels. Samarium is combined with cobalt to produce magnets that are used in the navigation systems of tanks and Aegis-class navy vessels. Ytterbium, meanwhile, is required for the laser guidance systems of tanks and missiles.

Outsourcing rare earths

That the United States finds itself in a position where a rival power now has a stranglehold on the rare earths it needs for its military is hard to fathom given how proactive the US has traditionally been in ensuring the security of their access to oil.

Even more surprising is that the US has plenty of its own rare earths to mine. Although China owns the largest share of the worldwide reserves of rare earths (36 percent), the US has the second largest known reserves, at 13 percent.

Until the last 10-20 years the US was capable of supplying itself with both the raw materials and finished products for its advanced military systems. Since then, however, the main issue for US producers has been that domestic deposits in concentrations that are commercially viable to exploit have been difficult to come by. This, along with the rising cost of manufacturing rare earth elements into metals and from there into high-tech components, has driven the industry out of the US and into China, who have in turn quietly steered the growth of their own rare earths extraction and refining sectors since 1986 towards the dominating position they find themselves in today.

Reestablishing a US rare earths industry

The export and production quotas that China began imposing in 2006 now finally seemed to have snapped the US government out of its daze. China limited exports to 30,258 tonnes in 2010, and have held them at a similar level this year (30,246 tonnes). In response, the US Congress passed the Rare Earths and Critical Materials Revitalization Act last September, which looks to promote research and development as well as support domestic rare earths manufacturers. Since then, further legislation has been put forward in both the House and the Senate.

It is hoped this new impetus will drive the reestablishment of a competitive US rare earths industry. Molycorp Inc. (NYSE:MCP), which has traditionally been one of the largest suppliers of rare earths in the US, have announced that they expect to be producing close to 20,000 tonnes a year by the end of 2012 from the reopening of their Mountain Pass mine in California, and have applied for a loan from the US Department of Energy.

Long road ahead

This, however, is only the first step in addressing a two-pronged problem. The Government Accountability Office (GAO) of the US Congress has stated that even if the US does reestablish itself as a rare earths producer, it could take upwards of 15 years to put together a supply chain. Furthermore, there would still be little immediate domestic capacity for the refining and manufacturing required to produce the magnets and other components needed for high tech military hardware.

China hasn’t held the US to ransom over rare earths and may well have little interest in doing so, but the implications of this dilemma are nonetheless still beginning to unnerve some. “The Pentagon has been incredibly negligent,” argues Peter Leitner, a former senior strategic trade adviser at the Defense Department. “There are plenty of early warning signs that China will use its leverage over these materials as a weapon.”

 

Disclosure: I, Robert Sullivan, hold no direct investment interest in any company mentioned in this article.

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