Demand for rare earths exacerbates political disputes and environmental pressures

It seems that the trade war between the United States and China has calmed down, even for a while. The recent meeting between US President Donald Trump and Chinese President Xi Jinping in South Korea was an important turning point.

China’s announcement weeks ago of rare earth export controls raised familiar concerns in the United States, Europe and elsewhere about supply chain vulnerabilities, technological dependencies, and geopolitical risks.

The seeds of this crisis were planted decades ago, when the production and processing of rare earths moved to China due to cheaper costs and fewer environmental restrictions.

By outsourcing the environmental burden of rare earth production to cheap materials, foreign buyers created a structural dependency that has since become fraught with economic and geopolitical risks.

Many countries have benefited from falling prices, while building their high-tech military technologies, and now their green industries, on very unstable foundations.

To address these geopolitical risks and diversify rare earth supply chains, the United States and Australia signed a new $8.5 billion agreement last October 20, after several months of negotiations.

Commenting on the deal, Trump said, “About a year from now, we will have an abundance of essential metals and rare metals, to the point that we will not know what to do with them,” noting that “its value will be two dollars.”

Sufficient supplies

These estimates seem far from realistic, as it would take years, even a decade, to provide adequate supplies. In fact, instead of rare earths becoming cheaper, they are getting more expensive as countries seek to diversify their supply chains.

Building new mines, refineries and processing plants in regions such as Australia, the United States and Europe comes with much higher costs, stricter environmental regulations, and more costly labor and energy measures.

Rare earth extraction projects that were previously unviable due to low prices are now gaining attention, but they depend heavily on government support, guaranteed offtake contracts, or defense-related demand.

The result is prices that are rising, not falling. This means that diversification adds security and flexibility, but does not reduce costs.

There are already clear indications of rising prices and a willingness to pay high costs to secure supplies. For example, the US War Department took an exceptional step in July by signing a 10-year purchase agreement with the US company MT Materials, guaranteeing a minimum price of $110 per kilogram for “neodymium-praseodymium oxide,” a basic material for manufacturing magnets. This price was almost double the Chinese market price, which amounted to about $60 per kilogram at the time.

Also, the future price expected from Trump, which is only two dollars, will represent a major problem from the perspective of both investors and governments that finance new mining contracts with hundreds of millions of US dollars, and this will make it impossible for investors to recover the investments necessary to develop and operate new mining and refining projects, which effectively undermines the financial viability of any non-Chinese supply chain.

Supply rights

In 2023, the Japanese government, through the Japan Minerals and Energy Security Organization, will take a 65% share of Australia’s production volume.

It invested about $131 million in the Lynas Rare Metals Company, in order to support production growth projects. The agreement gives Japan priority supply rights until 2038.

The Japan Minerals and Energy Security Organization played a pivotal role after China imposed its restrictions on the export of rare earths in 2010, which helped finance “Lenas Rare Earths” in Australia and Malaysia.

The move helped Japan diversify its supply of rare earths away from China, but it came at a higher cost.

As governments and industrial buyers become increasingly willing to pay extra, future rare earth prices will have to take into account the cost of reliable, transparent and environmentally responsible production.

Until now the true costs of environmental pollution and health impacts have been borne only locally, rather than priced into REE materials or products, and stringent environmental and labor standards in OECD countries have created an environmental cost gap, which has been a major deterrent to Western investment in REE supplies over the past decade.

China’s rare earth mining and processing industry mainly served global markets until recent export restrictions, with up to three-quarters of its production destined for export.

In 2015, researchers estimated the annual environmental cost associated with these exports at about $5.4 billion, reflecting the significant pollution and environmental damage that China bears domestically in places like Bayan Obo, a mining area located 150 kilometers north of Baotao in Inner Mongolia province, or Jiangxi Province, an industrial center for smelting ionic rare earth elements.

Environmental burden

Recognizing the environmental burden of the rare earth industry, China has in recent years tightened environmental regulations and moved some highly polluting rare earth mining and processing operations to war-torn Myanmar, with severe impacts on the environment and water resources there.

If buyers are looking for the cheapest rare earths, Myanmar has become the go-to destination at the expense of human rights, environmental protection and regional stability.

Efforts to diversify and re-export production will inevitably mean accepting some environmental impacts at home, but this must be done in accordance with the highest environmental and safety standards, which are essential to minimize damage.

However, these standards will raise operating costs, demonstrating that a resilient and responsible rare earths supply chain comes at a higher but necessary cost. New rare earth mining and processing contracts must explicitly include environmental compliance and sustainability commitments. Rare metal processing often produces radioactive and hazardous waste as a byproduct of enrichment processes. About “Foreign Policy”

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Secondary materials and waste

Trace metals are found in a wide range of secondary materials and wastes, and are also found in coal combustion residues, such as fly ash.

A study conducted by researchers from the University of Texas, the first comprehensive national assessment, indicates that coal ash in the United States contains up to 11 million tons of available rare earth elements, nearly eight times the country’s domestic reserves. This secondary resource could represent about $8.4 billion worth of rare earths.

• China’s rare earth mining and processing industry served global markets with three-quarters of its production allocated to export.