China’s status as the leading producer and refiner of rare earths has allowed it to control the market, which is thrown into a tailspin every time the Asian nation reduces output or threatens embargoes.
Rare earths have been a staple of the recent news cycle, ever since speculation surfaced in late May that China — the leading producer of the critical metals — may limit rare earth exports, a threat the country has made good on in the past.
A memorandum from the US secretary of defense, released on Monday (July 22), notes that the president has determined that “the domestic production capability for rare earth metals and alloys is essential to the national defense.”
The White House release goes on to read: “Without Presidential action under section 303 of the Act, United States industry cannot reasonably be expected to provide the production capability for Rare Earth Metals and Alloys adequately and in a timely manner.”
China’s status as the leading producer and refiner of rare earths has allowed the nation to control the market, which is thrown into a tailspin every time the country reduces output or threatens embargoes.
The recent announcement from Trump comes almost two weeks after Florida Senator Marco Rubio introduced the RE-Coop 21st Century Manufacturing Act to combat China’s rare earths monopoly and boost US advanced manufacturing.
The senator’s ambitious proposal would see the establishment of a privately funded, operated and managed rare earths refinery cooperative. The new private agency would be tasked with building and coordinating the establishment of a fully integrated domestic rare earths value chain to serve the robust needs of the US.
In addition to national security, Rubio believes the formation of the collective group would restore American competitiveness in critical advanced manufacturing industries.
“As the Chinese government and Communist Party aggressively subsidize and invest in their own economy at our expense, we must shift our policies to restore the competitiveness of critical American industries for the 21st century,” Rubio wrote in a press release.
“The RE-Coop 21st Century Manufacturing Act is a crucial ingredient for the resurgence of America’s advanced manufacturing sector by allowing domestic industries to regain competitiveness and break China’s control over the global rare earth value chain.”
While the president and the senator try to tackle the issue of Chinese supremacy in the rare earths sector, it’s worth noting that production cannot just happen overnight, despite the best laid plans.
Currently, the US has only one domestic rare earths mine, Mountain Pass in California. However, Mountain Pass was offline between 2015 and 2018 and can hardly produce enough to satiate US appetite for the critical metals.
As Luisa Moreno, managing director of Tahuti Global, told the Investing News Network in late May, the US will be hard pressed to get its production to the levels it needs quickly.
“The US will not be able to produce refined REEs at home in the short term. Surely not to replace the imported volumes from China, (which were) about 13,000 tonnes in 2018,” said Moreno. “Can it source the REEs from somewhere else? Yes, but again, considering the volumes, not immediately. Unless it gets it indirectly via Japan and Europe.”
When Japan faced rare earths sourcing issues in 2010, the country went on to invest in Lynas (ASX:LYC,OTC Pink:LYSCF), an Australian rare earths miner with a processing plant in Malaysia. It is the only significant rare earths producer outside of China.
The move by Japan helped impede the Chinese monopoly, dropping China’s market share from 97 percent to roughly 80 percent.
In mid-May, Lynas signed a memorandum of understanding with Blue Line, a Texas corporation, to jointly develop rare earths separation capacity in the United States. The move is expected to be advantageous for Lynas, which has been dealing with regulatory issues in Malaysia as well as the US.
Both companies said their motivation is to close a supply chain gap in the rare earths sector while providing the US with a secure source of rare earths.
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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.