• 2 hours ELN Attacks Another Colombian Pipeline As Ceasefire Ceases
  • 7 hours Shell Buys 43.8% Stake In Silicon Ranch Solar
  • 11 hours Saudis To Award Nuclear Power Contracts In December
  • 14 hours Shell Approves Its First North Sea Oil Project In Six Years
  • 15 hours China Unlikely To Maintain Record Oil Product Exports
  • 16 hours Australia Solar Power Additions Hit Record In 2017
  • 17 hours Morocco Prepares $4.6B Gas Project Tender
  • 20 hours Iranian Oil Tanker Sinks After Second Explosion
  • 3 days Russia To Discuss Possible Exit From OPEC Deal
  • 3 days Iranian Oil Tanker Drifts Into Japanese Waters As Fires Rage On
  • 4 days Kenya Cuts Share Of Oil Revenues To Local Communities
  • 4 days IEA: $65-70 Oil Could Cause Surge In U.S. Shale Production
  • 4 days Russia’s Lukoil May Sell 20% In Oil Trader Litasco
  • 4 days Falling Chinese Oil Imports Weigh On Prices
  • 4 days Shell Considers Buying Dutch Green Energy Supplier
  • 4 days Wind And Solar Prices Continue To Fall
  • 4 days Residents Flee After Nigeria Gas Company Pipeline Explodes
  • 5 days Venezuela To Pre-Mine Petro For Release In 6-Weeks
  • 5 days Trump Says U.S. “Could Conceivably” Rejoin Paris Climate Accord
  • 5 days Saudis Shortlist New York, London, Hong Kong For Aramco IPO
  • 5 days Rigid EU Rules Makes ICE Move 245 Oil Futures Contracts To U.S.
  • 5 days Norway Reports Record Gas Sales To Europe In 2017
  • 5 days Trump’s Plan Makes 65 Billion BOE Available For Drilling
  • 5 days PetroChina’s Biggest Refinery Doubles Russian Pipeline Oil Intake
  • 5 days NYC Sues Five Oil Majors For Contributing To Climate Change
  • 6 days Saudi Aramco Looks To Secure $6B In Cheap Loans Before IPO
  • 6 days Shell Sells Stake In Iraqi Oil Field To Japan’s Itochu
  • 6 days Iranian Oil Tanker Explodes, Could Continue To Burn For A Month
  • 6 days Florida Gets An Oil Drilling Pass
  • 7 days Oil Prices Rise After API Reports Staggering Crude Oil Draw
  • 7 days Tesla Begins Mass Production Of Solar Shingles
  • 7 days EIA Boosts World Oil Demand Forecast For 2018 By 100,000 Bpd
  • 7 days Businessman Seeks Sale Of $5.2B Stake In Kazakhstan Oil Field
  • 7 days Exxon Accuses California Of Climate Change Hypocrisy
  • 7 days Norway’s Recovering Oil Industry Resumes Hiring
  • 7 days $2.3 Million Seized Following Singapore Oil Heist
  • 7 days China Nears 2016 Carbon Emissions Target
  • 7 days Oil Companies Respond Slow To New U.S. Lease Plan
  • 7 days Maduro To Issue First 100 Million Petros Despite Skeptics
  • 8 days Iraq Bans Kurdish Firm From Operating Kirkuk Oil Fields
Alt Text

Will Oil And Gold Prices Rise This Year?

Both gold prices and oil…

Alt Text

Don’t Expect Palladium Prices To Plunge

Palladium has recently soared to…

Alt Text

How Long Will The Lithium Rush Last?

As the race to secure…

How China Threw Its Rare Earths Monopoly Away

How China Threw Its Rare Earths Monopoly Away

Rare earth elements (REEs) are a group of seventeen elements with exotic names like neodymium and yttrium that are key ingredients in many high-tech products, many important for national defense. Imagine the consternation of Western officials when they woke up one morning in September 2010 to learn that China held a near-monopoly in the production of these vital materials. In retaliation for the collision of a Chinese fishing boat with a Japanese Coast Guard vessel near a group of disputed islands in the East China Sea, China threatened an embargo. Prices of REEs soared.

How did China become the world’s leading producer of REEs? Did the 97 percent market share it held in 2010 represent a true natural monopoly? At the time, I wrote that its hold on the market was more fragile than it appeared. The erosion of China’s dominance of REEs holds important lessons for all supposed natural monopolies.

The first clue should have been that rare elements are not really rare. All seventeen rare earth elements are more abundant in the earth’s crust than gold, and some of them are as abundant as lead. The thing that makes them hard to mine is the fact that they do not occur in highly concentrated deposits like gold and lead. Even the best REE ores have very low concentrations. On the other hand, such ores exist widely throughout the world. Until the 1960s, India, Brazil, and South Africa were the leading producers. From the 1960s to the 1990s, the Mountain Pass Mine in California was the biggest source. China began to dominate REE production only in the late 1990s. Related: Some Good News From This War-Torn Nation’s Oil Industry

Ownership of natural resources turned out to be only one factor that led to China’s big share of the REE market. Yes, it had good ore deposits, but not uniquely good. It also had low labor costs, which helped China’s REE mines just as they help its toy factories. A further consideration may have been most important of all: Mining of REEs can produce very nasty waste products. For years, Chinese authorities were willing to turn a blind eye to environmental devastation caused by primitive, often illegal, but low-cost small-scale mines. Meanwhile, environmental problems were a major factor leading to the shutdown of the Mountain Pass Mine. Following a big spill of radioactive waste, U.S. authorities demanded new environmental safeguards. Already facing low-cost Chinese competition, the mine closed rather than undertake the needed investments.

Still, even if China never had a true natural monopoly, it did have considerable short-run market power. In the short run, supply of REEs is much less elastic than in the long run. Any short run increase in supply can only come from mines that are already open or, to a very limited extent, come from “urban mining”—that is, recycling of REEs from scrapped computers and the like. Related: 3 Ways Oil Companies Can Survive Low Prices

Short-run demand is also inelastic. Once high-tech production lines are set up to produce hybrid cars or computer hard drives using REE-dependent technologies, it is not possible just to substitute nickel for the neodymium in a magnet and expect it still to do its job.

In the long run, though, elasticity of both supply and demand turned out to be much higher, as Eugene Gholz of the University of Texas notes in a recent report from the Council on Foreign Relations. After the 2010 run-up in REE prices, the U.S. mining company Molycorp quickly obtained a permit to reopen California’s Mountain Pass Mine, using newer, cleaner, and lower-cost technology. By 2013, it was filling market orders. Australia’s Lynas Corporation began developing an operation in Malaysia at about the same time. Other ventures in Kazakstan, South Africa, and Canada soon followed. Related: Who Is The Biggest Player In Energy?

On the demand side, REEs turned out to be not quite as irreplaceable in high-tech products as it seemed at first. At least in many cases, producers use REE-dependent technologies not because they are the only way to do something but because they are a good way to do it given reasonable prices and reliable availability of the raw materials. Japanese, Korean, and U.S. companies soon began to develop alternative technologies like magnets that used only a fraction of the amount of the REE dysprosium as they had used before.

The bottom line: China still has a large market share—around 70 percent, Gholz estimates—but its apparent natural monopoly proved illusory. Its attempts to turn REEs into an economic weapon by exploiting low short-run elasticities only accelerated the development of alternative sources and new technologies.

By Ed Dolan

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News