For Near-Term U.S. Decoupling From China For Rare Earth Elements, Options Are Limited–But They’re Out There

There are a lot of people focused on getting the U.S. in a more tenable situation for our supply of rare earth elements than our current heavy reliance on China, and as quickly as possible. But as a policy aide with the Trump administration commented to me, “There’s a lot of misinformation in this space.”

Rare earths elements (REEs) are a group of seventeen metals, so called because they were originally thought to be scarce. (That later proved not to be the case.) They’re commonly divided into two groups, light REEs and heavy REEs, so categorized by the structure of their atoms. There are eight elements in each category, with one–scandium–belonging to neither group.

They’re an awfully hot topic right now for two reasons. First, they’re increasingly in demand for critical modern technologies, ranging from computer hard drives and cell phones, to new-tech applications such as batteries for EVs and clean power storage, to critical defense items such as jet engines and lasers. Second, supply is currently dominated by China (for mining alone, for example, China has 80% market share). China has cut off supplies to countries before, and just last year threatened to do so again, in retaliation against the trade war with America.

In the last crisis, back in 2010, China, in a dispute with Japan, briefly cut off their REE supply. That saber-rattling spawned lots of projects by Western nations aimed at breaking China’s REE stranglehold. Today only two of those projects remain in market-based economies: Mt. Weld in Western Australia and Mountain Pass in California (more on those later).

Two factors have begun spawning a whole new round of REE projects in the West. First was the previously-mentioned recent threat from China, a not-so-veiled warning last May by Chinese President Xi Jinping that he might ban exports of REEs to the U.S. Second, of course, has been the coronavirus supply chain debacle that has many countries looking to decouple from China, not just for REEs but for a broad swath of manufactured goods.

As happened with the last crisis, however, most of the new projects will prove neither viable nor necessary. Viability of an REE mine depends on the right mix and concentration of REEs, with a much greater market need for light REEs driving the financials of extraction. Critical as well is the absence of complications like radioactive elements mixed in with the ore, which makes extraction environmentally challenging. Necessity, meanwhile, opens up a whole new can of worms: “Mining and concentrate production are not where the problem is,” the administration source explained. “They were notably absent from last July’s Presidential Determinations. The real issues are overall REE extraction from ore minerals, separation of individual REEs, processing into metals, alloys and other compounds, and manufacturing end products.” Our core need, then, is to have domestic or friendly-nation post-extraction processes, right up to the manufacturing of magnets and other critical REE products.

The one currently-existing option for end-to-end decoupling from China is Lynas Corporation, which extracts REEs from the Mt. Weld Central Lanthanide Deposit, one of the largest high-grade REE deposits in the world. Lynas mines and produces REE concentrates onsite at scale at Mt. Weld, then sends them for downstream processing to their Advanced Materials Plant near Kuantan, Malaysia.

Domestically, meanwhile, Mountain Pass mine, located in the Mojave Desert near its eponymous unincorporated California community just west of the Nevada border, is the only existing game in town–but currently only for mining and concentrate production. It first opened in 1952, but closed in 2002 as much of America’s mining needs migrated overseas. It was reopened by an investor-led company called Molycorp Inc. in 2008, but they went bankrupt in 2015. MP Materials purchased the mine and has restarted mining and concentrate production there. The elephant in the room right now, however, is that all the REEs go from there to China for processing and fabrication. Right now there’s no domestic capacity for that.

The assets MP purchased at Mountain Pass included mothballed processing equipment, and the company is currently investing $200 million in re-establishing that capability. “Once MP has that, the front of the light REE supply chain is secure,” the administration source said. “The next challenge is metal and metal alloy production, then magnet fabrication.”

To free ourselves from China’s saber-rattling, though, those next challenges don’t necessarily have to be solved domestically, particularly in the short term. There’s already some capacity for the metal-making processes in the UK and Vietnam. Those sites would need to increase their production, but could conceivably replace China’s capacity.

For magnet production, Japan and Germany are both already qualified to handle critical U.S. defense requirements. Both countries fit within the restrictions of the 2018 John S. McCain Defense Authorization Act’s Specialty Metals Amendment, which prohibits the purchase of military REE magnets from hostile nations, and both are also consistent with the recent Executive Order to source from reliable partners. Emerging capacity in the U.S., using recycled rare earth magnets as feed, could also help ease our supply chain vulnerabilities.

The problems with actually accomplishing the decoupling anytime soon, however, are twofold. The first is simple economics. As with so many different elements of our broader manufacturing supply chains, the one for REE products is a difficult one for domestic producers. The playing field isn’t level; those activities are harder in the developed world, due to elevated labor and production costs that are driven in part by our higher standards for things like worker safety and environmental protection. Meanwhile, China continues to heavily subsidize those industrial areas where it sees strategic benefits in market domination, and that won’t change. So we may have to be willing to accept higher prices to break free from an unreliable business partner.

The second is our commitment to making it happen. We’re in a moment right now where the stars are aligned, and it’s quite possible to get the private investment, government support, and business focus to make get the job done. But that moment will pass much sooner than we think. And we missed the opportunity last time, in 2010.