THE CURRENT SITUATION
In the last decades, the world witnessed an important dispute about Rare-Earth Elements (REE), which passed quite unnoticed. Although these materials are unknown to many people, they are essential in many fields of the modern economy. Currently, the REE market is ruled by China, which controls the production and distribution of most of the world’s resources and, recently, has furtherly increased its influence. On the other side, this dependence on Beijing is considered a threat for other developed countries. Given the huge importance of this business, many strategies and alliances are being set up since no one wants to lose the train heading towards the future economy.
WHAT ARE RARE-EARTH ELEMENTS AND WHY ARE THEY SO IMPORTANT?
Rare-Earth Elements are a set of 17 metals (Scandium, Yttrium and the fifteen lanthanides) with specific chemical properties granting them a significant stability. Despite their name, these resources are not difficult to find in nature. Nevertheless, their particular concentration in rocks makes the extraction and the research of natural fields difficult. Hence, their extraction results considerably expensive and polluting. In fact, separating these metals from rocks needs a huge amount of water and, in addition, its processing generates toxic and radioactive products.
In the modern economy, Rare-Earth Elements are absolutely crucial, given their application in numerous fields. In fact, REE are used to produce superconductors, microchips, and colour displays necessary for the production of smartphones, computers, and other electronic devices, like DVDs and credit cards. These metals are also essential in the green industry and mobility, mainly for the production of solar panels, magnets for wind turbines, and electric car batteries. Furthermore, Rare-Earth Elements are used in the military sector. In fact, they are utilized in the production of advanced weapon sensors, stealth technology, electromagnetic missiles, and jamming technology. Moreover, these metals are applied also in further fields, such as in oil and gas technologies, and for medical equipment.
Because of the multiple applications, Rare-Earth Elements are crucial for developed countries’ industries. Since the economy is heading towards a fast development of renewable, informatic, and electronic technologies, it is logical to expect a massive increase in demand for REE in the next decades. Despite the strategical importance, the entry of new competitors is discouraged by the huge investments necessary to enter the business and the advantage of the companies already operating in the sector. As a result, a wider opening of the market is complicate, even if it would implicate a greater availability and lower prices for these metals.
REE extraction has nearly tripled in the last 25 years, passing from 80,000 tons in 1995 to 213,000 in 2019, with the expectation of a continuous increase in the future. Until 1985, the USA was the main producer of Rare-Earth Metals with a great advantage over other countries, such as Brazil, India, Russia and China. Subsequently, new antipollution and extraction regulations led to a huge fall of production. Since ‘90s, China increased REE extraction and became the market leader thanks to the huge increase in demand linked with technological innovations. Recently, new natural fields have been found, for example in Canada, Greenland, Myanmar and in some African countries. These discoveries could change the balance of power in the market.
Currently, the Rare-Earth Elements market is mainly controlled by China. Summing up the domestic production, about 60-70% of the global production, with abroad investments, especially in Chile, it is possible to estimate that Beijing controls about 90-95% of the global market. In the short term, Chinese advantage is highly defensible since Beijing applies extremely low prices, which discourage other companies’ massive investments necessary to compete. Furthermore, if someone decided to enter the business, China could easily reduce prices until the competitor fails or leaves the market.
THE CHINESE LEADERSHIP
Deng Xiaoping, China’s leader in the ‘80s, said “Middle East has oil, China has Rare-Earth”. For the last decades, China has been trying to change its economic and geopolitical strategy, passing from a factory country to a technological hub, and REE are an essential tool to reach this ambitious goal. Currently, Beijing is the main player in the Rare Materials market. This advantageous position has been reached through lower prices than competitors, obtained by low labour cost and by disregard about environment protection. Moreover, another element of Chinese strategy consists in the creation of joint ventures with Western companies. Inside these organizations, Chinese firms offer easy access to REE but, at the same time, they acquire control and knowledge over the final product with higher added value.
China has always utilized other nations’ dependence on its natural resources as a weapon to gain advantage in the geopolitical chess. In fact, in complicate international disputes China easily gets a position of advantage by threatening the reduction of Rare Metals export. For instance, in 2010 China and Japan had a territorial dispute about Senkaku Islands and Beijing stopped the exportation of Rare Metals to Tokyo. This choice caused a significant price increase of some metals (almost +1500%) and induced the USA, Europe and Japan to resort to the WTO. Furthermore, in 2019, in order to counter Beijing leadership, USA decided to put a ban on Chinese tech company Huawei. In reply, China threatened to reduce the exportation of various strategical resources, including REE, heading towards the United States. This threat induced Washington to postpone the Huawei ban and to create a dialogue with Chinese government. Moreover, in January 2021, Beijing approved a law which extends government control over the extraction and exportation of the REE, as well as its production. Basically, this measure aims at transforming the Rare Elements into a national asset suitable for winning future geopolitical disputes, since the biggest part of the world depends on China for its supply.
CONCERNS AMONG OTHER NATIONS
A large part of the world is concerned about Chinese dominance in such a strategical business. The main worries reflect the risks for national security linked to the availability of defence systems. Moreover, another concern is that the goals of Green Transition depend on another country’s decisions.
Washington’s geopolitical supremacy is based on military power; thus, the main concern is that the defence system heavily depends on a rival nation. Since China supplies the 80% of US demand, a crucial activity is finding other sources of supply. Pursuing this goal, the Congress approved measures to restart the extraction of strategical materials within national borders. For instance, the Pentagon funded extraction activities in California and Texas. Since the REE embargo in 2010, also Japan is worried about Beijing’s power over Japanese industry given Tokyo imports about 60% of its national demand from China. Rare-Earth Metals are crucial for the Japanese economy based on technological and electronic industries. Nevertheless, a research team has recently found a huge submarine field of REE near Japan’s shores, which could satisfy the global demand for decades. On the other side, given the shortage of natural resources within its territory, the EU is forced to import from other countries. The main EU concern is to reach the targets set for the future by the European Commission: Green and Digital Transition and global competitivity. In order to reach these goals a reliable supply of Rare Metals is necessary. With the purpose of facing this problem, in September 2020, the European Raw Materials Alliance was created, an organization whose main goal is to improve coordination over strategical activities, such as the reliable procurement of REE, needed natural resources, magnets, electric engines, and the industry of batteries for green business.
In conclusion, Rare-Earth Elements will be one of the most important assets in the decades to come. Since they are the basis of the future economy, who controls them will have an advantageous position in the geopolitical chess. Thus, reaching prefixed targets, such as the Green and Digital Transition or the Paris Agreement goals, passes through a secure supply of REE.
In order to improve its power in the market, every nation is pursuing different strategies. On the one hand, some research is conducted by countries within national borders, like in the United States, Russia, Japan and African countries. On the other hand, REE procurement is also pursued through trade agreements between different nations, like the EU and the USA with Greenland, which is a part of Denmark. In fact, with global warming, Greenland’s ice is melting, and many natural resources are emerging. Thus, Washington is interested in acquiring these resources, as well as exploiting its strategical position in the Arctic. Nevertheless, the Chinese dominant position will hardly be undermined in the short term, because of the great investments and law changes Beijing is making to keep the advantage. To conclude, future geopolitical events could surely modify market’s features and balance of power, leading to circumstances which would furtherly complicate the current situation.