In a land once almost a synonym for poverty, the Jiangxi Province in southern China used to be a place of extreme misery. When then General Secretary of the Communist Party Hu Yaobang visited Jiangxi in the 1980s, he was deeply affected by the poverty of the local people, even though they were living on top of what he saw as “a golden floor.”
Jiangxi is rich in minerals – tungsten, copper, silver, gold and rare earths – so it should have been a prosperous place. To enable locals to take advantage of the bounty, Hu overturned a ban preventing mining from being undertaken by anyone other than state entities, inspiring a boom whose reverberations are still felt today. “I can’t bear that people are sent to war but are left to beg for food,” commented Hu.
The mining of rare earths
Since China allowed non-state entities to mine rare earths, the industry as a whole has been booming. © Panos Pictures
ELEMENTS GAINING DEMAND
Rare earths are 17 elements buried deep in the middle of the periodic table. Most people had never heard of them until they became a bargaining chip in a dispute with Japan over a detained Chinese fishing trawler in 2010.
The prices of rare earths spiked high at this time, but have since fallen dramatically as the global economic downturn hit demand (see ‘
Our rare earth’), yet China’s stringent control over the resources using caps on production and export quotas still riles many of China’s trading partners. And undoubtedly rare earths will again become an issue as worldwide demand for at least some is soon set to outstrip supply.
Rare earths are used in hundreds of modern products because their electrical, optical and thermal properties enhance final results. These elements are found throughout China’s provinces. They were first extracted in the 1950s at the Bayan Obo iron and steel mines in Inner Mongolia. Jiangxi is particularly rich in rare earths. Some 2.89 million tons of proven reserves of ion-absorbed-type rare earth elements – 40% of the nation’s total – are found near the city of Ganzhou.
The decision by General Secretary Hu inspired a flurry of activity as small family and collective companies began mining. At its peak, Ganzhou alone had 1,035 companies with rare-earth-mining licenses.
Cheap labor costs provided a significant competitive advantage for China, and its rare earths flooded the market in the 1990s, causing prices worldwide to plunge. Competitors such as Molycorp, whose Californian Mountain Pass mine had dominated rare-earth production since the 1940s, either reduced production or were driven entirely out of business. In 1992, during a visit to Bayan Obo, former leader Deng Xiaoping outlined China’s strategy: “There is oil in the Middle East; there is rare earth in China.”
DOMINATING THE MARKET – AT A COST
Although China has only 36% of the world’s known reserves of rare earths, it currently supplies more than 90% of the global supply, according to the Chinese Ministry of Commerce. But China’s monopoly grew at the expense of the environment. Extracting rare earths is complex and involves acids and solvents during separation.
Not as common as dirt
Rare earths (lanthanides – elements 57 to 71 in the periodic table – plus yttrium and scandium) are more common than the name implies. Worldwide reserves are considered sufficient to last 800 years at current consumption rates, but the challenge is finding concentrated deposits suitable for extraction and separation.
Rare earths are divided into light and heavy elements. While light rare earths are abundant, a critical shortfall in heavy rare earths is emerging, particularly in dysprosium and terbium because of their use in the growing green-energy field. China mines more than 99% of the world’s supply of these elements, with production taking place in northern Guangdong and Jiangxi Province.
Violent criminal gangs have taken to illegal mining – which can be more lucrative than drug smuggling. Smugglers mix rare earths with steel and then export the steel composites. The processes are reversed overseas and the elements recovered.
According to statistics, the amount of rare earths smuggled out of China in 2011 was 1.2 times the amount legally exported, Ma Rongzhang, secretary-general of the Association of China Rare Earth Industry, told the China Daily newspaper. This means nearly 22,320 tons of rare earths were smuggled out of China that year.
When mining standards are lax, chemicals can enter rivers and water tables. The water then poisons farmlands and fish farms. In addition, slurry tailings from rare earth ores can be mildly radioactive due to the presence of thorium and uranium.
The environmental havoc caused in China can be seen in Beitou, a town in southeast Jiangxi. As reported in the
People’s Daily (‘China’s rare earth campaign targets environmental protection,’ 16 September 2010), mining started there 22 years ago, quickly turning a tranquil rural environment into a moonscape of holes and toxic chemicals. Liu Shengyuan, a 45-year-old farmer, was quoted: “We used to drink water from the rivers, but now even fish and shrimp cannot survive in the water.”
Professor Li Lemin, director of the academic association of the State Key Laboratory of Rare Earth Materials Chemistry and Applications, believes that environmental costs will inevitably be factored into rare-earth costs, which could drive prices higher in the long term. “It is not easy to balance the needs of commercial mining with environmental issues, but that is what we are trying to do. Since most of the current smelting-separation factories don’t qualify under environmental protection standards, improving environmental issues will be one of the key points related with rare-earth exploitation,” says Li. “The pollution caused by mining rare earths is different from other industries like, say, a paper mill, because it is chemical pollution plus radioactive pollution and the situation is more severe.”
THE MEANS TO A MORE PROSPEROUS END
A situation emerged where, as a means of raising citizens from poverty, China had been selling rare earth dirt cheap. The West benefited from the arrangement; with China doing the dirty, toxic, radioactive work, Western consumers enjoyed inexpensive high-tech products.
But as China transforms from a low-cost manufacturing hub and producer of raw material to a supplier of quality finished products, it was inevitable that attention turned to rare earths. To gain greater value from rare earths and address the ecological damage of unregulated mining, Beijing has taken action against heavily polluting producers, hiked export taxes from 15% to 25%, introduced OPEC-style production caps and launched a crackdown on smugglers. The government is also encouraging mergers and acquisitions so the number of rare-earth firms reduces from 90 to 20 by 2015. These actions saw prices climb significantly. For example, the price of neodymium oxide, used in magnets in BlackBerrys, surged from $30 to $125 per kilogram in 2010.
But it was an incident late in 2010 that pushed rare earths into the headlines and saw prices rocket. A Chinese fishing captain, whose boat collided with Japanese patrol boats near disputed islands in the South China Sea, was detained by Japan. This resulted in a major diplomatic dispute with China launching an unofficial embargo of rare earths on Japan until the captain was released.
All through 2011, rare-earth prices fluctuated wildly, rising strongly in the middle of the year after the government tried to consolidate the sector, but then falling back sharply on the back of weaker demand. By the end of the year, China had only exported 14,750 tons of rare earths, or 49% of the full-year official limit. Whether triggered by the South China Sea incident or not, rare earths were always destined to become an issue. Not only is China the biggest producer of rare earths, it is also the largest consumer, using up some 51% of the world’s annual production.
Clean technology is one factor driving worldwide demand for rare earths. Two tons of neodymium is needed for each wind turbine. Lanthanum is a major ingredient for hybrid car batteries, and terbium is vital for low-energy light bulbs. Given China’s vow to switch to green technology, it is clear that the country could struggle to meet its own requirements, let alone fulfill global needs. Of particular concern are medium and heavy rare earths.
The Chinese Ministry of Commerce has said Chinese supplies of critical elements like europium and terbium might only last another 15-20 years. Overseas firms are shipping rare earths to offset China’s stranglehold on the market, so supplies from companies like American firm Molycorp and Australia’s Lynas Corporation may put further pressure on prices. However, this could be counterbalanced by China’s decision last year to set tough emission limits on 15 pollutants for all industry players, including miners and smelters of rare-earth alloys. The rules are due to take effect from October for new projects, and existing players have until the beginning of 2014 to comply with new standards.
Wang Caifeng, a member of a government body aimed at guiding the domestic rare-earths industry, told the
21st Century Business Herald: “For sure this will influence the rare-earth producers and smelting separation companies, but I think there will be a transition period. It cannot be that once the standard is brought out, everyone stops producing. And I think it’s better to give those companies two or three years to change,” said Wang.
Yet, Japan and the US still see China as unfairly restricting exports. The matter could end up being fought out in the World Trade Organization, but regardless of the outcome, it will not change the fact that supplies of some rare-earth elements will be increasingly scarce in years to come. If China and the world are serious about converting to a low-carbon environment, then addressing these shortages by finding and better deploying alternative supplies will be critical to the development of a new generation of green-energy technologies.