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China is looking into curbing the exports of rare earth minerals that are crucial to US defense contractors such as Lockheed Martin for the manufacture of sophisticated weaponry and F-35 fighter jets, the Financial Times reported on Tuesday.
Industry executives said government officials had asked them how badly companies in the US and Europe would be affected if China restricted rare-earth exports during a bilateral dispute, FT reported.
China currently accounts for 70% of global production of rare earths, controlling 90% of the $ 4 billion global market.
“The government wants to know if the US may have trouble making F-35 fighter jets if China imposes an export ban,” the Financial Times reported, quoting a Chinese government adviser.
The specter of export curbs arose in 2019 amid a deepening trade war, when Beijing prepared a plan to restrict shipments as a way to target Washington. While those restrictions never eventuated, it pushed the American government to seek out ways to cut their reliance on a single source of supply.
“The writing has been on the wall for decades, and now we are seeing first-hand why we’ve been raising the alarm that China’s dominance over the rare earth and critical minerals industry is a highly volatile geopolitical concern,” said Pini Althaus, CEO of USA Rare Earth.
“This move, if enacted, would go beyond the Chinese Communist Party’s ‘Made in China by 2025’ and ‘Belt and Road’ initiatives – both of which are tools for China’s continued dominance as a global manufacturer and exporter of finished goods, and be more about weaponizing rare earth exports, as China has done previously,”
Donald Trump last year signed an executive order aimed at expanding domestic output of rare-earth minerals, a year after the Department of Defense was ordered to spur the production of magnets. The US also awarded Lynas Rare Earths, the biggest producer outside China, a contract to boost processing capabilities.
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The facility, expected to produce about 5,000 tonnes of rare earths a year, would help Washington’s push to secure domestic supply of essential minerals used in magnets and motors that power phones, wind turbines, electric vehicles and military devices.
President Joe Biden, in his first conversation as president with Chinese leader Xi Jinping, spoke of his concern about Beijing’s “coercive and unfair economic practices” as well as human rights abuses in the Xinjiang region.
Despite their name, the 17 minerals grouped under the rare earths label are not rare. According to the US Geological Survey (USGS), they are roughly as common as copper. But, because rare earth ores oxidize quickly, extracting them is both difficult and extremely polluting.
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Rare earth elements are a challenging package to deliver because they are mostly in a non-concentrated form (diffuse) and processing is challenging technically and from an environmental safety point of view.
I suspect China will seek leverage in world trade and politics using their essential command over the resource.
At the height of the trade war between the two countries, Chinese President Xi Jinping was on the verge of doing exactly that.
China controls 90% of the global market of rare earth minerals with the bulk of its exports going to the United States.
China expects the Biden administration to de-escalate tension with it thus opening the way for a reciprocal lifting of tariffs and ending the trade war between the two countries.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London