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China controls the rare earth elements that U.S. defense relies on for its high-tech equipment, and now the Pentagon is claiming that the balance is shifting.
There is always a risk that China, which monopolizes extraction of rare earth elements, could disrupt supplies diverted for use in US military applications, but a new report by the Pentagon now says that the market is changing and the risk is lessening.
"Global market forces are leading to positive changes in rare earth supply chains, and a sufficient supply of most of these materials likely will be available to the defense industrial base," said the Pentagon report. "Prices for most rare earth oxides and metals have declined approximately 60 percent from their peaks in the summer of 2011."
There are 17 rare earth elements that are used to manufacture not only a wide array of today's electronics, but also defense equipment from cruise missiles to missile guidance systems, smart bombs and night-vision technology.
There are military applications for seven of the rare earths: dysprosium, erbium, europium, gadolinium, neodymium, praseodymium and yttrium.
China controlled 95% of the rare earths market in 2011, and its government was limiting exports and placing restrictive taxes on their sale, causing prices to soar and creating panic that US demand for commercial and military applications would not be met.
The new Pentagon report says supplies from outside China have now increased, and this trend should continue with US Defense Department efforts to come up with a better domestic production strategy for rare earth metals—one that would be "economic and environmentally superior".
Some say it's a long shot, though, because there is no planned investment that could make significant domestic production a reality.
"These conclusions are wishful thinking, not a defense strategy," Jeff Green, president of J.A. Green & Co. in Washington, who represents miners and users of the elements, told Bloomberg via email.
While this may be true for the wider commercial uses of rare earth metals, for military applications, the Pentagon report claims that in 2014 the US will be able to domestically produce six rare earth elements on scale with demand. The seventh element used in military applications—yttrium—is very rare and used in precision lasers and rocket stabilizers, according to the Wall Street Journal.
Last week, the US, the European Union and Japan filed complaints against China's rare earths export restrictions with the World Trade Organization. The move came after Beijing made it clear it would not budge on the issue, insisting the controls it has put in place are legal.
"The policy aims to protect resources and environment, and realize sustainable development," a Ministry of Commerce spokesman, Shen Danyang, told a Beijing news conference on Thursday, according to the state-run Xinhua news agency. "China has no intention of restricting free trade or protecting domestic industries by distorting its foreign trade."
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Written by Charles Kennedy at Oilprice.com.