China's unofficial metals embargo of Japan may ignite global REE fire

An unofficial rare earth elements embargo sparked by a small diplomatic incident may finally be the spark that fires up western nations to stop relying on Chinese REE supplies.

Author: Dorothy Kosich
Posted: Tuesday , 05 Oct 2010

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RENO, NV -

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A recent unofficial rare earth elements embargo by China on Japanese manufacturers over a diplomatic squabble may have been the wake-up call forcing western nations to form their own REE strategies.

The incident stemming from an altercation between a Chinese fishing boat being harassed by Japanese patrol boats resulting from a lengthy dispute of ownership of the Senkaky Islands ended up with a Chinese captain being arrested on Sept. 7 and the Chinese government demanding his freedom.

When the Japanese refused to release their captive, they claim that REE shipments to the country from China were unofficially frozen. Japan is the biggest importer of rare earths, depending on China for 90% of its rare earth supplies. Japan's manufacturers account for 65% of China's rare earth exports.

Metals analyst Christopher Ecclestone of Hallgarten & Company suggested the real hostage in the fishing incident was not the fishing captain, but an economic community which now realizes "in various key metals the Chinese have the rest of the world over a barrel."

"Without stockpiles or alternative sources (or even recycling processes) the West is at the mercy of China's mood swings and grandiose machinations," he claims.

"Finally a frisson went through the normally torpid Western industrialists," Ecclestone notes. "Those that hoped that governments would build them a stockpile, so they didn't need to take commercial risks themselves, suddenly realized that the governments may not be able to build a stockpile if for geopolitical reasons the REE supply is withheld."

Whatever China's motives, as a result of last month's fishing incident and subsequent temporary REE embargo, Japan is now seeking to lower its Chinese REE imports to 70%.

Japan's Ministry of Economy, Trade and Industry has released a comprehensive rare earth policy containing five main areas of focus including fast tracking development of rare earth alternatives, turning Japan into a worldwide center for REE recycling, and helping manufacturers install equipment to use REE consumption. The government will also help Japanese companies acquire concession rights to rare earth mines outside of China, as well as study the possibility of stockpiling rare earth reserves.

Major Japanese companies, such as Toyota, are seeking to diversify their REE sources. Toshiba and Sumitomo have launched rare earth joint ventures in Kazakhstan over the past year.

South Korea's Ministry of Knowledge Economy says the government plans to spend $15 million by 2016 as part of a long-term plan that wants to secure 1,200 tonnes in rare earth reserves. South Korea's REE policy plans are expected to be finalized in mid-October.

Mongolia may prove an alternative to loosen China's stranglehold on rare earth elements. The Japanese newspaper Asahi Shimbun reported Monday that Japanese Prime Minister Naoto Kan and visiting Mongolian Prime Minister Sukhbaatar Batbold agreed to begin investigations this month into large REE deposits thought to be in Mongolia.

Their meeting was also attended by senior executives from leading Japanese trading houses. Kan said, "To develop Mongolia's high potential for mineral resources will meet the national interests of both countries.

The government-owned Japan Oil, Gas and Metals National Corp. is expected to provide technology and funds to Mongolia. Satellites will identify sites with particularly high potential for REE mining.

Asahi reported that Japan "is also accelerating research into alternatives to the rare earth elements on which its high-tech industries are most reliant."

Akihiro Ohata, Japan's minister of economy, trade and industry, said the government intends to develop within a year an alternative to the use of cerium as an abrasive for polishing glass hard disks. The government has already been concentrating on developing alternatives to six of the 17 rare earth elements, but will now broaden its research to cover more elements.

Other government initiatives will include rare earth assistance to REE mining projects involving Japanese companies in Kazakhstan, Vietnam and other nations.

Foreign Minister Seiji Maehara recently told reporters, "It is not good to rely on a single country in terms of a strategy to secure a stable supply of natural resources. A multifaceted resource diplomacy would help reduce risks."

Ecclestone says China's REE boycott threats may have forced western nations to draw "a line in the sand."

"As a trump card, cutting off REE supply only goes so far," he concluded. "Trade wars will happen and humble and previously unknown Rare Earths might be the spark to light the fir