Of metals and rare earths

There's an obvious need to diversify sources of rare earth minerals but, despite new finds in Sweden, China will remain the go-to supplier for the foreseeable future

The news that Sweden has just discovered a large deposit of rare earth minerals sparked off thoughts about “atmanirbhar”  in this vital area. Rare earths are a class of metals. Their oxides need to be used in small but significant quantities to make electric vehicles, mobile phones and sundry other consumer electronics, besides wind turbines and solar energy units. Renewable energy, therefore, depends on these metals. Assuming there’s no tectonic shift in renewables and electronics designs and technologies, the demand is expected to soar, as the global energy mix shifts away from fossil fuels.

China has a hammerlock on global mining and production of rare earth oxides. It has 44 million tonnes of proven reserves (2021), estimated at one-third of known global reserves. China annually produces 168,000 tonnes of rare earth oxides, which is 60 per cent of the world’s market share. The US has a 15-16 per cent market share and Myanmar (with the help of China) holds around 9.5 per cent. India has around 1 per cent market share.

By all accounts, Chinese mining and refining methods of these are fairly carbon-intensive and there have been reports of severe environmental degradation caused by Chinese mining practices. But nobody is willing to look very closely at this because rare earths are an irreplaceable link in global supply chains.

The US has looked for additional local reserves. Japan has examined the possibility of undersea mining (apparently feasible but prohibitively expensive and likely to have environmental consequences at scale).

China is also the dominant player in many other elements of global energy and electronics supply chains, including solar panels, wind turbines, electric vehicle batteries, electric vehicle drive trains, dynamos, alternators, and semiconductors. However, there is no reason why many or most of these items can’t be produced elsewhere. Indeed, many nations like Thailand, South Korea, Taiwan, Japan and the US have domestic capacity and India aspires to join that club with its multitude of production-linked incentive schemes.

In many of these cases, the barrier is really the cost. Given the scale of the opportunity and enabling policies, supply chains can be diversified. Yes, a desi chip may be more expensive than one Made in China. But it can be made, and if it’s made in sufficient quantities with policy support, it may become globally competitive.

However, if you don’t have domestic rare earths in sufficient quantities, you need to import from China. This has hard-to-model implications for geopolitics. For two centuries and counting, the world has run on fossil fuels, including petroleum, natural gas and coal.

These minerals are abundantly available in different places, which means nations can switch suppliers at need. A recent example would be the shifts triggered by the Ukraine War. Russia used to be a bulk supplier of gas to the EU. Although there have been massive disruptions and price spikes, the EU has found other suppliers. In a more historic context, Israel has never had comfortable relationships with the West Asian exporters but it can buy what it needs from Venezuela, Nigeria and others.

In contrast, rare earths have a single-supplier, and China will remain the go-to supplier for the foreseeable future. If you include its tight relationship with Myanmar, it controls nearly 70 per cent of the market. If China is hit by another pandemic, or there’s a civil war, or a tsunami affecting Chinese coasts, or it has a toxic relationship with some nation, rare earth supplies could be cut off. 

How do you step around this? There’s an obvious need to diversify sources but can it be done? It’s a question that will arise again and again.