The Great Chinese Rare Earths Panic Is Over
YOU might recall back a couple of years there was a great panic as China decided to limit the export of the rare earths. These are the weird metals that are essential to much of modern technology, making the magnets for hard drives, earphones and windmills, batteries for electric cars and those new fangled light bulbs that flicker in the dark.
The situation was that China produced 95% of all the world’s production of these metals. Not for any particular reason other than that they were willing to make them cheap and put up with the pollution from doing so. Then they decided, well, we’ve got a bit of a monopoly going here lads. Let’s raise the prices and make huge profits! Hurrah!
What happened next was always obviously going to happen but when you’ve been raised in a communist economy you might not have been able to see it:
A jump in prices for rare earth elements in 2011, 95pc of which came from China, led to Pentagon concerns that the supply of rare earths for defense manufacturing might dry up.
But an annual report sent to Congress stated: “Global market forces are leading to positive change in rare earth supply chains, and a sufficient supply of most of these materials likely will be available to the defense industrial base.”
The report, dated October 2013 but not yet released publicly, said there was a “significant reversal” in the situation with rare earth elements between 2011 and 2012, with one expert projecting a 20pc drop in global demand.
The decline in demand, in part due to increasing use of alternatives, has resulted in a 60pc slide in the prices of most rare earth oxides and metals from their peaks in the summer of 2011, according to the annual industrial capabilities report.
“The private sector’s reaction to market forces has been to increase exploration for rare earth materials and development of downstream processing capabilities,” the report said, adding that one expert said more than 400 rare earth projects were under review globally.
That expert who said that is probably me actually. But what did happen is simply that the junior mining companies (these are the guys that try to find new mines to build) ran off around the world looking for new places to mine rare earths. And two companies that had been struggling to find the money to finish their mines managed to find it: both of those are now in production. And finally, people actually making things had a close look at whether they really, really, needed to be using rare earths. The answer, sometimes, being no.
So, what happened when people tried to raise prices is exactly what everyone who has ever encountered free market economics would expect. Supply rose and demand fell meaning that prices came down off their peaks. And the bigger lesson here is that it’s damn hard to profit from having a monopoly. For as soon as you attempt to do so you find that people come in to compete against your monopoly and you’ve not got one any more.
Photo: GANZHOU, China – This January 2010 photo shows a mountain in Ganzhou in the Chinese province of Jiangxi whose shape has changed due to exploitation as get-rich-quick miners swarmed the area seeking rare earth elements.