Night Vision Rare Earths

Photo credit: Flickr/U.S. Army.

More than 95% of the world's rare earth elements are produced in China. That probably doesn't bother most Americans. Few of us have even heard of, nor can we pronounce, the 17 rare earth elements critical to our country's future.

Names like dysprosium, erbium, europium, gadolinium, neodymium, praseodymium, and yttrium are foreign to us. However, we might want to get to know these rare earths, as the seven I just cited are important components of our nation's defense. Rare earths are used in Raytheon's (NYSE:RTN) Tomahawk cruise missiles, as well as in making smart bombs, missile guidance systems, and even night-vision technology. That's in addition to being important components for cell phones, wind turbines, and a host of other tech systems.

Are we in denial?
The U.S. military has played down our reliance on China for rare earths. It has said that military use of rare earths are only a "small fraction" of U.S. demand. Furthermore, the Department of Defense believes that military needs can largely be met by domestic production.

Congress in 2011 tasked the Pentagon to study the use of rare earth elements in defense applications to ensure we had adequate long-term availability if non-U.S. supplies were halted. The Defense Department was also to secure a source of these materials by 2015. One congressman  went so far as to suggest that the U.S. should begin stockpiling rare earths to ensure we have a sufficient supply to meet our future needs.

There is hope
According to its latest report,  the Defense Department sees "positive changes in rare earth supply chains." The report forecasts lower consumption of rare earths worldwide, suggesting that we'll have more than enough supply to meet the demand of our nation's military. In addition, domestic production of six of the seven key rare earths is expected to increase this year.

China leads the way with 55 million tons of extractable reserves, and it produced 95,000 tons of rare earth elements in 2012, America has about 13 million tons of reserves, though production was just 7,000 tons in 2012. That should change as U.S.-based Molycorp (NYSE:MCP) reaches full production capacity at its long dormant mine in Mountain Pass, Calif., this year. The company sees full capacity reaching 19,000 tons a year. That project will go a long way to satisfying the U.S. military's demand.

One more worry?
Unfortunately, there is still one rare earth to worry about. Production of yttrium isn't expected to keep pace with U.S. military demand in the coming years, as it's a particularly scarce element. The "heavy" element is used in precision lasers and rocket stabilizers. At the current rate, the U.S. won't be able to meet its yttrium demand until about 2019. Overall, the good news in all of this is that America is waking up to the fact that we can't rely on China to supply our nation with these important elements. We are taking steps forward to secure our supply. In doing so, we'll ensure the security of our nation as well.

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Fool contributor Matt DiLallo has no position in any stocks mentioned. The Motley Fool owns shares of Raytheon Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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