China's dominance of rare earths spurs need for actionーNHK WORLD-JAPAN NEWS

Key Concepts

• Critical Minerals: Elements essential for modern technologies (e.g., smartphones, EVs) with vulnerable supply chains. Specifically, rare earth elements are highlighted.
• Supply Chain Diversification: Reducing reliance on a single supplier (currently China) for critical minerals.
• Dual-Use Goods: Items with both civilian and military applications, subject to export controls.
• Rare Earth Refining Spillovers: The significant environmental and safety challenges associated with processing rare earth minerals, including radioactive waste.
• Price Elasticity of Supply: The principle that higher prices incentivize increased production from alternative sources and technological innovation.
• Stockpiling: Accumulating reserves of critical minerals as a short-term risk mitigation strategy.

Global Concerns Over Critical Mineral Supply Chains

Governments worldwide are increasingly prioritizing the security of critical mineral supply chains, particularly rare earth elements. This heightened focus stems from a significant global dependence on a single country – China – for both the mining and, crucially, the refining of these materials, vital for a wide range of technologies including smartphones and electric vehicles. Recent actions by China, specifically the imposition of new restrictions on exports of dual-use goods with potential military applications, have amplified these concerns.

G7 Response and Concerns Regarding China’s Export Controls

Finance ministers from the G7 nations and other countries recently convened in Washington D.C. and reached a consensus on the need for rapid diversification of their supply chains. Japan’s Finance Minister, Masatski Kataya, specifically highlighted the new export restrictions imposed by China on Japan, triggering widespread anxiety that rare earths could be included in future controls. A shared sentiment emerged among participating nations – even those previously unconcerned – that they too could face similar restrictions. This reflects a growing recognition of the vulnerability inherent in concentrated supply chains.

China’s Dominance in Rare Earths: Current and Projected Status

China currently dominates the rare earth supply chain, controlling the largest share of both mining and refining capacity. The International Energy Agency (IEA) warns that this reliance on a limited number of suppliers creates significant vulnerability to shocks and disruptions. Despite efforts to diversify, experts, including Yuji at the Japan Research Institute, predict that China’s dominance will persist. The IEA forecasts that China will maintain approximately 50% of global rare earth production and 70% of global refining capacity by 2040. Yuji stated, “I think China’s domination of rare earths will weaken a little from now. But I don’t think the situation where China uses rare earths as a political weapon and puts pressure on countries will change much.”

Japan’s Efforts to Diversify: Deep-Sea Mining Initiative

Japan is actively pursuing supply chain diversification, exemplified by the recent launch of the scientific drilling ship Chu. This project, directly overseen by the Cabinet Office, aims to mine rare earths from the seabed at extreme depths. However, Muda cautions that bringing any new supply to market will be a lengthy and expensive process. He notes that even land-based rare earth mines typically require 10-15 years from discovery to production, and deep-sea mining will likely take considerably longer. Furthermore, the cost of deep-sea mining and refining is expected to be significantly higher than land-based operations. A critical challenge remains: even if Japan successfully mines rare earths from the seabed, it must address the complex issue of refining, given the substantial negative environmental spillovers associated with the process, including the potential production of radioactive materials.

The Limits of China’s Control: Price Signals and Smuggling

Muda argues that China does not hold an absolute monopoly on rare earths. While export restrictions may initially disrupt supply, they are unlikely to be sustainable in the long term. Rising prices, resulting from export controls, will incentivize other countries to develop their own mining operations. Furthermore, it will encourage the development of technologies that either reduce the amount of rare earth materials required or utilize alternative materials altogether. Muda emphasized, “China’s dominance is based on the fact the country can supply at a low price. If the price rises, China’s dominance weakens.” He also points to the potential for smuggling, illustrated by recent restrictions on antimony exports to the US. US imports of antimony from Thailand and Mexico – countries with no domestic production – increased sharply, suggesting Chinese companies were rerouting exports through these nations.

Short-Term and Long-Term Strategies for Reducing Dependence

Muda recommends a two-pronged approach to managing dependence on China. In the short term, countries should increase their stockpiles of critical minerals. In the long term, they should prioritize the development of technologies that require less of these materials or utilize alternative materials. This strategy aims to mitigate immediate risks while fostering a more resilient and diversified supply chain for the future.