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Tussle over rare earth elements heating up

An Airman directs an F-35A Lightning II pilot to stop for a hot pit refuel at Hill Air Force Base. The US government awarded contracts for heavy rare earth mineral separation and issued solicitations for the processing of light separation and for neodymium magnets, which are used in F-35 fighter jets. (U.S. Air Force photo by Tech. Sgt. Phil Cowen)

In a move clearly meant to taunt the United States and its allies, China is looking at limiting the export of rare earth elements (REEs) that are crucial to sophisticated weaponry, according to an exclusive report in the Financial Times.

In an ominous development, industry executives said government officials had asked them how badly companies in the US and Europe, including defence contractors, would be affected if China restricted rare earth exports, FT reported.

“The government wants to know if the US may have trouble making advanced F-35 fighter jets if China imposes an export ban,” a Chinese government adviser told FT in confidence.

Industry executives added that Beijing wanted to better understand how quickly the US could secure alternative sources, FT reported.

Fighter jets such as the F-35, a Lockheed Martin state-of-the-art jet fighter, rely heavily on rare earths for critical components. A Congressional Research Service report said that each F-35 required 417kg of rare-earth materials, FT reported.

Beijing made veiled threats last summer over American defense contractor Lockheed Martin’s contract to upgrade air defense missiles in Taiwan.

The US weapons maker is the main contractor for a US$620 million upgrade package for Taiwan’s Patriot surface-to-air missiles, which the US government has approved.

At that time, Chinese foreign ministry spokesman Zhao Lijian called on the US to stop selling weapons to Taiwan to “avoid further harming Sino-U.S. ties and peace and stability in the Taiwan Strait.”

“To safeguard the country’s interests, China has decided to take necessary steps, and put sanctions on the main contractor for this sale, Lockheed Martin,” Zhao said.

REEs are also crucial to the manufacture of products including smartphones, electric vehicles and wind turbines.

Each Apple iPhone, for example, relies on multiple REEs.

Neodymium is used to make tiny, yet powerful, magnets that allow iPhone speakers to function. Europium is used in trace amounts to produce red colors on screens, and cerium is used to polish the phones during the manufacturing process.

The Chinese move follows deteriorating Sino-US relations and a looming technology war, most of it sparked by the Trump administration’s hard-line stance and China’s aggressive moves in the South China Sea.

While Trump tried to make it harder for Chinese companies to import sensitive US technology, such as high-end semiconductors, the Biden administration has signalled that it would also restrict certain exports but would work more closely with allies, FT reported.

The Pentagon has also signed contracts with American and Australian miners to boost their onshore refining capacity and reduce their reliance on Chinese refiners, FT reported, but these sources are years away from ramping up production.

Alarm bells sounded when China announced it will tighten regulations over the rare-earth metals industry, from mining to exports.

Whereas current regulations focus on the production stage — such as mine development, smelting or separation — the draft law of the new regulations seeks to manage the “entire industry chain” of the precious ore, including refining, product transport and all the way up to exports.

The rules state that companies are obligated to follow export control laws and regulations regarding the export and import of REEs.

The draft regulations prohibit the purchase and sale of rare-earth products that are exploited and extracted illegally. An industry official says this is expected to help stabilize the market, as well as protect industrial security and the environment.

A tracking system for rare-earth products will be established, enhancing “closed-loop management” of the industrial chain, the document noted.

At present, China refines approximately 80%-90% of the world’s rare earths, thereby having substantial control over their supply.

Despite their name, most rare earth elements are relatively abundant.

The process of mining rare earths and transforming them into usable materials is, however, expensive and damaging to the environment.

There are deposits all over the world, but it is unusual to find them in a pure form or in concentrated quantities, hence the title “rare.”

Rather, it’s the high costs of both environmental protection and labor that have hurt attempts to revive domestic production of strategic minerals in the US.

Beijing has demonstrated a willingness to leverage its weight in the global rare earth industry in pursuit of its political objectives.

However, China’s influence within the industry is likely to be eroded in the coming years as changing market dynamics empower new actors to compete.

According to the Rare Earth Technology Alliance (RETA), the estimated size of the rare earth sector is between US$10 billion and US$15 billion. About 100,000-110,000 tonnes of rare earth elements are produced annually around the world.

But China’s exports of rare earths have been decreasing in recent years.

The total export of rare earths was down to 35,447.5 tons, or 23.5% year-on-year in 2020, China’s customs authority said, registering the lowest figure since 2015.

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