Guest Post: China’s Rare Earths Monopoly - Peril or Opportunity?

Tyler Durden's picture

Submitted By John C.K. Daly of

China’s Rare Earths Monopoly - Peril or Opportunity?

The prosperity of China’s “authoritarian capitalism” is increasingly rewriting the ground-rules worldwide on the capitalist principles that have dominated the West’s economy for nearly two centuries.

Nowhere is this shadow war more between the two systems more pronounced than in the global arena of production of rare earths elements (RREs), where China currently holds a de facto monopoly, raising concerns from Washington through London to Tokyo about what China might do with its hand across the throat of high-end western technology.

In the capitalist West, as so convincingly dissected by Karl Marx, such a commanding position is a supreme and unique opportunity to squeeze the markets to maximize profits.

Except China apparently has a different agenda, poking yet another hole in Marx’s ironclad dictums about capitalism and monopolies, further refined by Lenin’s screeds after his Bolsheviks inadvertently acceded to power in 1917 in the debacle of Russia’s disastrous involvement in World War One. Far from squeezing its degenerate capitalist customers for maximum profit (and it’s relevant here to call Lenin’s dictum that if you want to hang a capitalist, he’ll sell you the rope to do it), Beijing has apparently adopted a “soft landing” approach on rare earths production, gradually constricting supplies whilst inveigling Western (and particularly Japanese) high tech companies to relocate production lines to China to ensure continued access to the essential commodities.

REEs are found in everyday products, from laptops to iPods to flat screen televisions and hybrid cars, which use more than 20 pounds of REEs per car.  Other RRE uses include phosphors in television displays, PDAs, lasers, green engine technology, fiber optics, magnets, catalytic converters, fluorescent lamps, rechargeable batteries, magnetic refrigeration, wind turbines, and, of most interest to the Pentagon, strategic military weaponry, including cruise missiles.

Technology transfer is the essential overlooked component in China’s economic rise, and Beijing played Western greed on the subject like a Stradivarius, promising future access to China’s massive market in return, an opium dream that rarely occurred for most companies. You want unimpeded access to Chinese RREs? Fine – relocate a portion on your production lines here, or…

Which brings us back to today’s topic.

Rare earths and investment – where to go?

China is riding a profitable wave, which depending on what figures you read, produces 95-97 percent of current global supply, and unprocessed raw earth earths ores are currently going for more than $100,000 a ton, or $50 a pound, which some of the exotica fetching far more (niobium prices has increase an astounding 1,000 percent over the last year). Rare earth elements like dysprosium, terbium and europium come mainly from southern China.

According to a United States Energy Department report, dysprosium, crucial for clean energy products rose to $132 a pound in 2010 from $6.50 a pound in 2003.

The soaring prices however have also invigorated many countries and producers to begin looking in their own back yards, for both new deposits and former mining sites that were shuttered when production cost made them uneconomic before prices went through the ceiling.

However, a number of unknown factors play into developing alternative sources to current Chinese RRE production. These include first prospecting possible sites, secondly, their purity and third, initial production costs, where modest Chinese labor costs are a clear factor.

The 17 RRE elements on the Periodic Table are actually not rare, with the two least abundant of the group 200 times more abundant than gold. They are, however, hard to find in large enough concentrations to support costs of extraction, and are frequently found in conjunction with radioactive thorium, leading to significant waste problems.

At hearings last week before U.S. House of Representatives Committee on Foreign Affairs Subcommittee on Asia and the Pacific, Molycorp, Inc. President and Chief Executive Officer Mark A. Smith stated that his company was positioned to fulfill American rare earth needs, currently estimated at 15,000-18,000 tons per year, by the end of 2012 if it can ramp up production at its Mountain Pass, California facility.

Which brings us back to foreign producers. A year ago Molycorp announced that it was reopening its former RRE mine in Mountain Pass, Calif., which years ago used to be the world’s main mine for rare earth elements, filing with the SEC for an initial public offering to help raise the nearly $500 million needed to reopen and expand the mine. Low prices caused by Chinese competition caused the Mountain Pass mine to be shuttered in 2002.

Mountain Pass was discovered in 1949 by uranium prospectors who noticed radioactivity and its output dominated rare earth element production through the 1980s; Mountain Pass Europium made the world’s first color televisions possible.

Molycorp plans to increase its capacity to mine and refine neodymium for rare earth magnets, which are extremely lightweight and are used in many high-tech applications and intends to resume production of lower-value rare earth elements like cerium, used in industrial processes like polishing glass and water filtration.

In one of those historic economic ironies, China was able to increase its RRE production in the 1980s by initially hiring American advisers who formerly worked at Mountain Pass.
The record-high RRE prices are also underwriting exploration activities worldwide by more than six dozen other companies in the United States, Canada, South Africa, Malaysia and Central Asia to open new RRE mines, but with each start-up typically raising $10 million to $30 million, not all will succeed. That said, the future is bright, as almost two-thirds of the world’s supply of REEs exists outside of China and accordingly, China’s current monopoly of REE production will not last.

So where do investors look to cash in on the RRE boom?

First, do your homework.

Exhibit A is Moylcorp, which would seem to be in unassailable position as regards U.S. production, but which nevertheless on 20 September after JPMorgan Chase & Co. lowered its rating of the company, citing declines in rare-earth prices, causing its stock to plummet 22 percent in New York Stock Exchange composite trading, despite being the best-performing U.S. IPO in 2010 after beginning trading in July, more than tripling after rare-earth prices soared as China cut export quotas.

Is there money to be made in RREs?

Undoubtedly – but the homework for the canny investor needs to extend beyond spreadsheets to geopolitics, mining lore, chemistry and Wall Street puffery. That said, it seems likely that whatever U.S.-based company can cover the Pentagon’s RRE requirements is likely to see more than a minor boost in its bottom line.

Gentlemen, place your bets – but do your homework first.

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Rainman's picture

Never heard of rare earths until today. Don't know if I should be scared or not.

eureka's picture

Rare Earth Elements - REEs - go into hi-tech batteries and component materials.

With or without REEs - China will tank the US within the next two years.

China doesn't need us - China can decouple - EU is more than twice the US - China will choose EUR and EU markets and rid itself (and the world) of US Empire.


Absalon's picture

China needs the US a lot more than the US needs to China.

sgt_doom's picture

You are framing it completely off kilter, Absalon.

China has the monies and investments for this monopoly as the World Bank (thanks to the global banking cartel) finances the building of dams in China, so that China can create REE monopolies and build dams in Africa and Brazil, circumventing environmental and human rights concerns (which might pose a prob to the World Bankster).

And then, there's all that offshored production assets and capital assets from America to China.

Yup, don't wake me up for the next war to destroy the surplus capacity (those activities the banksters always favor), as I will not be concerned......

chindit13's picture

I can't quite locate all that money that China supposedly has.  I do see lots of printing, in fact, they could teach Ben a thing or two about printing.

Those "reserves" are just revenues from foreign sales.  China might produce for $100 equivalent and sell to Walmart for $90, gaining $90 of FX reserves but losing $10 overall.  Then the PBoC prints new yuan and trades it to the exporter for the dollar revenue.  Most of those reserves then go back to Timmy.

China has spent a lot of money on empty buildings and empty cities.  The ROI on those cannot be too high.  Time and climate tend to render any structure less useful and less valuable.  In essense, such investments are the equivalent of lighting money on fire, or blasting gold off in a rocket and sending it into space.  Also, if empty structures were such a good thing---other than the GDP boost---then we should applaud the housing industry and Angelo Mozilo for doing so much good work up until 2006.

Adjust China's GDP for real inflation, then net out the debt-driven growth, and what is the real GDP?  Is it still positive?

Element's picture

We aussies fill ships with red and black gravel ... send it in to China  ... and they wire us back some digits and mouse clicks ...

it's a pretty sweet deal ...

for them

gmrpeabody's picture

Nice article Tyler, I've made my share of profits from the REE mania. So..., is it REE or RRE.? I was getting a headache with trying to keep up. 

Jumbotron's picture

Absalon says:   China needs the US a lot more than the US needs to China.

Not for long.

eureka's picture

ABSALON, viking warrior - copy & paste the link/address I provided  - read the article - ponder the solid arguments made - then tell us what you think.

Absalon's picture

You googled Absalon - good for you.  He was a Danish warrior and bishop and really came after the Viking era was over.  He fought pirates and brigands, imposed law and order and founded a city that became known as Merchants Harbor as a result of his success (the name has been shorted and corrupted and as a result we know it in English as Copenhagen).  I use that screen name because I believe in the fundamental importance of the rule of law to a well functioning economy.


I have read the article you linked to.  I am still of the view that China needs the US a lot more than the other way around.  My point on that was not limited to rare earth elements.  China buying US treasuries is part of its predatory currency practises and that lending is doing a lot more harm than good in the US.  The best thing that could happen to the US economy would be if China stopped lending money to the US. 

eureka's picture

I agree it would be great if China stops lending to US - US will have to dismantle its military empire - and that would be great for the US economy.

AnAnonymous's picture

You read such things in this US driven world.

How can an extorter depriving oneself from one's tools of extortion be good for the extorter?

The dismantlement of the US military empire is one of the few things that could bring down (understand here: crash, not going down a few points per year) the USD.

Without the US military oppression going around in the world, many commodities providers will be at last free to reject the USD vs commodities deal and wooops, so is gone the world reserve currency status.

Everybodys All American's picture

You my friend are betting on the red Chinese? Good luck with that trade. China has much more fraud that will be exposed. Tank the US. Don't count on it. We have our problems but so does the rest of the world. If not why in the heck is the dollar gaining strength?

eureka's picture

Because Wall Street pretends that ECB will soon pump up US rigged EU banks.

Absalon's picture

China has much more fraud that will be exposed.


I agree.  One of the reasons why China has had to rely on exporting manufactured goods is precisely because China is so corrupt.  If you come in as a Taiwanese company, manufacture goods to a Western design put them in a container and ship them to Los Angelos and get paid by letter of credit you:  do not challenge vested interests in China, have minimal need to rely on the Chinese education or legal systems and do not need to worry about merchandising or distribution.  That's why the biggest employer in China after the government is Foxcon.

LikeClockwork's picture

What's down with Chinese banks today (specifically)?

0939.HK is down 5% and the other big 4 even more. Tyler?

g speed's picture

I haven't looked but if I were to guess I'd say that depositors are pulling out to put money in black market lending because of central planned return on savings does not generate enough to stay with inflation. just an old fashion run on china gov't banks--- just a guess.

AnAnonymous's picture

We have our problems but so does the rest of the world.


The difference is that it is a US world order and that many problems the rest of the world has stems from the US itself.

The reverse is not true. As hard as the US citizens try to propagate it, Zimbabwe is not the root cause of the current world crisis. The US is.

bid the soldiers shoot's picture

You said the same thing about Genghis Khan and the Mongolian Horde. You're starting to sound like a broken record.

eureka's picture

Companies are innovating their way out of paying taxes in the US - and out of manufacturing in the US.

US companies.

Long-John-Silver's picture

You are a rogue agent in the Matrix, what could possibly scare you?

SilverIsKing's picture

That rock you've been living under...yup, Cerium.

Silver Bug's picture

I have been a huge bull for REE's for quite some time, although they like everything else lately have gotten hit hard. REE's more so than some other asset classes. The long term story remains the same here. If you want to make a killing get some good quality REE's into your portfolio.

gmrpeabody's picture

And it's a delicate balance between those with the purist heavies and those that are first to market. Perhaps a balanced blend of the two.

Jumbotron's picture

RAinman says: Never heard of rare earths until today. Don't know if I should be scared or not. 

Do not be scared but be very concerned that quite literally the technology that Arthur C. Clarke states in the third of his laws concerning technology...Any sufficiently advanced technology is indistinguishable from magic...which we all take for granted today is made possible by the Rare Earth elements found mostly in China and in countries such as Africa where China is making huge strides in colonializing for its profit.

What is interesting is the story about Mountain Pass and the discovery of America's motherlode of Rare Earth minierals and elements.  What is not mentioned is a not so rare but still classified as a Rare Earth mineral known as Lanthanum.  I have known about this mineral for years as I use about 8 lenses for my telescope that all have at least one if not two elements made of Lanthanum.  Lanthanum is great for this purpose for it has a very low diffraction rate for light.  In other words, more of the light from a distant star gets through my eyepiece to my retina without loss from diffraction and the color stays more pure for the same reason.  These eyepieces are typically more expensive but are well worth it.

However, you may not know just how important Lanthanum is in fields outside amateur astronomy.  That same low light dispersion and diffraction properties make glass elements infused with Lanthanum great for micoscopes that help scientists see the minute and doctors see things that can hurt or help us biologically.

Lanthanum was used in arc-lights that help light movie sound stages and in the projection lenses at theatres.

Lanthanum is a key element in the production of rechargable batteries.  Go into any Home Depot, Office Depot ( I used to work there and sold these batteries) ect. and you will find Eveready Batteries made of Nickel Metal Hydride.  While not as good as Lithium rechargables, they are cheaper than Lithium and better than Nickel Cadmium because they do not develop as much of a "recharge memory" which shortens their useful life as Ni-Cads do.  Even more interesting is if you drive a Toyota Prius or know someone who does, they are literally sitting on top of a bank of Nickel Metal Hydride batteries....thanks to the rare-earth mineral Lanthanum.

But wait....there's more. 

Want to study gamma rays or need Lanthanum. 

Like those fancy arc-wielders that help us wield together bridges, buildings, cars, everything?  Lanthanum tip ignition elements get the show going. 

Speaking of working with metal...want to make steel more malleable but retain its stength....sprinkle in a little Lanthanum.

Suffering from renal failure....Lanthanum can help flush out harmful phospates from your system so you can quite literally live another day.

You want to see something on the electron level or need Lanthanum to build a tunneling electron microscope.

There are many more things this miracle element can do and we had the motherlode of it at Mountain Pass until we mined it out and shut it down.  Now....where can you find the majority of this miracle element Lantanum?

Africa.....and you guessed it....China.


For in order for the "magic" to continue to flow we must now turn our eyes to Mount Doom, which resides not in Mordor...but in China.

WonderDawg's picture

Eloquent. Poetic. Thanks for teaching me something today.

Dr. Eldon Tyrell's picture

Small correction.  The rare earths are elements on the periodic chart.  Not minerals.  :)

bid the soldiers shoot's picture

"I will take the ring," said Jumbotron, "though I do not know the way."

LikeClockwork's picture

China courtesy of Baotou Steel Group has a motherlode of REE but there is a race on to develop other deposits, its more about getting environmental permits. How this coulumnist deduces that manufacturing will be herded into China for REE products is unsubstantiated horseshit. What durable goods company chooses to place macine orders outside of China. Most of anything I own is made in China. Therefore John Daly's prophecy must have already come true. What an asshat.



Some comparison data:

Dismal Scientist's picture

Then pay attention. Has been a topic here for well over a year.

Racer's picture

Sun Tzu

Bankrupt USA


tmosley's picture

Taking whole, bitchez.

caerus's picture

REEs are found in lots of superfluous products!

ali-ali-al-qomfri's picture

hardly superfluous.

as the winds of change sweep across the plains, why not pull some ac out.


BigDuke6's picture

r u st$ned again boy?

i'll b joining u soon....

Jumbotron's picture

caeris says.....REEs are found in lots of superfluous products! may want to read my post above you.....


Absalon's picture

The choke point in REE production seems to be refining capacity, not mining capacity.


It is apparently very dirty - lots of nasty chemicals and frequently radioactive by products.  Low environmental standards was China's true advantage.


Thorium might have some commercial value if countries start using it as an alternative in nuclear power plants. 


It seems to be of considerable urgency that the West bring refining capacity on stream.   An Australian mining company, Lynas,  is building a refinery in Malaysia.  If I were looking to invest I would look at who is going to be first to have refining capacity.


Prometheus418's picture

Good point.

It's my understanding that Rockefeller didn't make his money wildcatting- he made it in refineries, and then multiplied it when the government broke up Standard Oil (The parts were evidently worth more than the whole.)

Worth looking into, to be sure.

Schmuck Raker's picture

I recently became aware of the possible use of Thorium as a safer(?) fuel for reactors. I hope the potential is real, not just another alt-energy red herring. I suspect there would be more chatter about Japan, Germany and others looking into this if Thorium was that attractive. But, we can hope.

Re your earlier comment on China decoupling: No. Way.

Ever seen two dogs stuck together?

WonderDawg's picture

Thorium nuclear technology has been around since the 1960's. The program at Oak Ridge was defunded in the '70's. There's been some speculation as to why it was defunded, with regard to the anti-nuclear movement. It's probably the best candidate for a sustainable source of energy on a mass scale, yet for some reason it can't get any traction. I'd be interested to know why.

jonjon831983's picture

They say conventional nuke plants were promoted because military needed the by-products... ie Plutonium to make the nukes that help us sleep at night. :) Join the partay

fredquimby's picture

I have had Lynas for a while. It popped up 35% over tuesday night after a week or two of 1% declines.

gmrpeabody's picture

I keep getting this creepy feeling that China has that Malaysia threat well in hand.

LetThemEatRand's picture

REE's and PM's are a big part of the reason we're in Afghanistan.   I'm sure that some well connected crony capitalist companies in the US and Europe will not receive profitable mining rights...

caerus's picture

agreed...i'd rather take the gold, copper, and iron though... mineral riches in afghanistan