A Journey Down the Rabbit Hole of Rare Earth Markets & Other Mysteries

How & Why China Keeps Winning

A 3-Step Program to Rare Earth Reality

 1.         How China Built Multi-Commodity Monopolies Across the Tech-Spectrum On What It Learned From Its Rare Earth Monopoly

2.         How China Turned Rare Earth (RE) Metals, Alloys & Magnets Into ‘Utility Goods’ For Its Domestic Economy

3.         How China’s Current Monopolistic Strategy Feeds On the ‘Free Market’ Actions of its Adversaries

 4. And A Possible Solution

Actual Headline: “Biden To Stop China From Becoming World’s ‘Leading’ Country”

During his first press conference, President Biden vowed that he would not allow China to become the world’s leading country…

"That’s not going to happen on my watch, because United States is going to continue to grow and expand.”

To unravel this mystery we must ask, are these informed statements ?

What are these large growth markets that Biden sees the U.S. leading in ?

According to this Administration these growth markets are Green-Technologies such as Electric Vehicles (EVs), Wind, Solar and other net-zero carbon technologies.

The problem is that China not only controls many of the critical materials necessary to produce these products but also tends to be the market leader in these industries.

For example, China is by far the largest producer of EVs in the world – clocking in at close to 50%

The U.S. clocks in at about 17%, or about one-third the market share of China.

• Adding insult to injury, nearly half of the EVs in the world are in China, with just over 20% in the U.S.

Regardless, you cannot make an EV without a battery and China makes most of the batteries. 

According to multiple sources, China accounts for 70% of all EV battery production in the world.

China produces more than 60% of the world’s cathodes and 80% of anodes for batteries -- and intends to boost its market share at every point in the value chain.

In fact, of the 143 lithium-ion battery plants in the pipeline to 2029, 107 are based in China.

Follow the progression of resource-control from mine to manufacture

China is the leading battery producer for most of the worlds EV manufacturers, including Ford, GM, Tesla, Volkswagen, Daimler AG, BMW, Volvo, Honda and Toyota.

Things Don’t Look Any Better For Wind

For example, the Chinese company Goldwind is tied with GE as the world’s largest manufacturer of wind turbines but China’s wind turbine industry collectively represents about 50% of global wind turbine production.

And again, you can’t build a wind turbine without rare earth magnets.

China produces over 85% of the magnets that go into its competitors wind turbines.

• As a final insult, China is by far the world’s largest producer of wind energy, at close to 2 times the U.S.

China’s competitors don’t have a product without China’s RE magnets.

The Story Is The Same For Solar

China produces 65% of the worlds polysilicon wafers, 70% of all solar panels and 75% of the worlds solar cells.

In fact, China currently controls or is developing choke-point strategies to control technology materials at the most critical points of the downstream value chain. 

This strategy assures China a leadership position in all of the world’s leading industrial, agricultural and consumer markets: see Made In China 2025.

Conversely, U.S. policy relies on individual actors to challenge China’s multifaceted national industrial and defense strategies with private capital despite the fact that most large U.S. corporations eventually migrate to China in pursuit of larger profits & markets.

This U.S. strategy has only lost ground to China. Continuing this strategy will not change outcomes…

How Did China Become So Dominant ?

China strategically bought-up control over resources (sometimes at record high prices) and then built out global-scale refining and metallurgical facilities.

For example, China controls over 80% percent of mined cobalt  and controls over 85% percent of refined cobalt for EVs and other battery applications.

China has done the same thing with Germanium, Tungsten, Lithium, Nickel, Antimony, Manganese, Indium, Gallium and Graphite. 

In fact, China controls 100% the world’s spherical graphite production, a critical component in EVs and other energy storage application.

Note to Administration: China is the market leader in all targeted growth markets and controls all key resources. This gives them the power to dictate our growth prospects: not the other way around.

China’s National Industrial & Defense policy is designed, organized & managed at the highest levels of government and coordinated and executed at all levels of the economy.

This was partially achieved through advantageous pricing & taxation strategies for Chinese based manufacturers (the carrot) but also by withholding guaranteed access to these materials if product manufacturing was to happen outside of China (the stick).

China’s critical material strategy was never about making money. The strategy is about capturing IP, boosting China’s technology portfolio and relocating manufacturing inside China.

By controlling access to these materials, China forced manufacturing inside China – first with RE dependent components, then entire industries.

China’s Not-So-Secret Secret

China’s actions are based on nationalistic goals, not private profit motives. The ‘free market’ cannot overcome this. Period.

China’s long-term commercial and economic policies and goals were never a secret. They were published, on-line and in English. 

China’s One Belt, One Road program, it’s Made in China 2025 program and String of Pearls strategy make it very clear – they are seeking total geopolitical, economic & technological hegemony. 

Somehow consecutive Administrations, Congress, the Pentagon, American corporations & public have underestimated China, first as cheap labor, then copy-cats and now as IP thieves & WTO violators.

• With 17 different U.S. National Intelligence Agencies, not one of them ever considered that this could all be part of a grand-plan or government directed national strategy..?

A Walk Down Memory-Hole Lane

A quick history on how China’s success in gaining control over rare earths became the model for other critical materials.

Xu Guangxian, a U.S. educated chemist, developed China’s first rare earth processing technology (circa 1972).

Xu eventually helped successive Chinese leaders develop China’s national rare earth policies, culminating in the equivalent of 5 Rare Earth National Laboratories and the restrictive export policies that force foreign IP & manufacturing inside China.

Thanks to unintended consequences resulting from 1980 NRC & IAEA regulatory modifications related to “source materials (actinides)”, all byproduct production of heavy rare earths eventually ended in U.S. & IAEA member states.

Because other nations did not yet see the value of rare earths, as the NdFeB magnet was not invented until 1982, the entire rare earth value chain quickly shifted to China.

Companies like Molycorp, Rhodia and Japanese industries voluntarily transferred all rare earth mining, refining and metallurgical technology to China (circa 1980s).

The goal was to lower their cost for finished materials and transfer the environmental problems away. 

Today political actors want you to believe that these technologies were stolen… Simply, not true.

See chronological history of how the U.S. helped transfer the rare earth industry to China.

Rare earths are so central to the Chinese government’s goals and aspirations that 4 of the last 5 national leaders have personally enacted national rare earth programs.  

More telling, at least 2 of the last 5 Chinese leaders, Deng Xiaoping and Xi Jinping, have (had) considerable family investments in the rare earth refining and metallurgical industry. 

In 1997 Deng’s family acquired Magnequench, the only U.S. producer of NdFeB magnets, and moved it  to China

 Xi’s family held close to $400 million in rare earth   refining and metallurgical companies before he came to power.

How Did it Start: For China to build its monopoly it needed to exploit its cost and scale advantages to displace all other resource producers. 

At the time, over 70% of China’s rare earth production was a no-cost byproduct of a single iron ore mine.

Once it had control over the production of resources it moved up the value chain (with help from the U.S., France and Japan).

Next, China mastered refining, separation, metallurgy, alloys and magnets and displaced all competitors (Japan, the last non-Chinese virgin- metal producer, quit new metal production in 2018).

With China in control over the entire value chain it could focus on the more strategic points in the downstream value chain.

Note 1) ~ 90% of all RE value comes from just 4 elements: Nd, Pr, Dy & Tb. 

Note 2) 95% of all RE value comes from RE metals, alloys and magnets (primarily composed of Nd, Pr, Dy & Tb).

Note 3) The other 13 non-metallic elements collectively comprise 5% of the value (La, Ce, Sm, Gd, & Y have significant to modest negative values).

China determined early on that it could eventually shed mining and eventually refining of rare earths, as these commodities (concentrates and oxides) have no high-value applications. 

Sometime after 2015 China actively began cultivating resource production outside of China. The twin goals were to off-shore the environmental issues and preserve domestic resources

This strategy is wildly successful, with China’s main adversaries directly funding mining and refining projects in the U.S., Canada and Australia that will continue to feed China’s metallurgical monopoly.

China currently provides a net-positive margin environment for non-Chinese resource producers to supply RE concentrates and mixed oxides to China.

China will incrementally support non-Chinese production of refined and separated oxides because this is the most environmentally damaging part of the process.

China uses infrastructure financing, debt relief and capital injections as part of its One Belt, One Road initiative to cultivate long-term resource off-take agreements for concentrates and oxides.

China can safely cultivate new non-Chinese resource producers because these prospective competitors cannot move beyond separated oxides. 

Why? Because China uses opaque subsidies to eliminate any profit potential for competitors. No profit potential, no competitors, China’s metallurgical monopoly remains secure.

China’s Metal Monopoly

The best way to describe the rare earth ‘market’ is that it is the mirage of a market reflected in a hall of mirrors

Some Things You Need To Know

Background: China currently produces +60% of mined rare earth concentrates.

This number is dropping by design. China is outsourcing the filthy dirty parts of the supply chain. 

This strategy also buys China political coverage as its ‘Western’ adversaries celebrate their new-found success in RE production.

However, all of the world’s RE producers eventually feed into China’s refining, separation and/or metal & magnet monopoly

1. China refines 80% of the world’s mixed oxides.

2. China separates +90% of the world’s RE oxides over   95% if you discount La & Ce).

3. China produces +85% of the worlds NdFeB magnets and close to 100% of virgin RE metals.

Metal is The Only Thing That Matters

China is slowly surrendering all other parts of its RE monopoly to further enhance its metallurgical monopoly.

Why ? Because 95% of all value derived from rare earths is in the form of metal, alloys and magnets so that is the only point in the value chain that China needs to maintain.

How does this work? China maintains its monopoly through opaque subsidies that may equate to 100% of operating, capital and conversion costs – by western standards.

For example, the normal markup for finished goods in capitalistic economies is +/- 10%

For specialized or capital-intensive products, it can be hundreds of times greater.

For China, 10% is the typical markup on REs from oxides to metals. That is the all-in markup when adjusting for oxygen reduction. That may not even cover the cost of energy needed to convert oxides to metals…

Putting Things In Perspective

According to the basic rules of capitalism, free markets and efficient market theory, large markets, with multiple sellers, are the most competitive. 

Now Consider The Following: Iron ore is # 2 and Steel is the #3 largest commodity market in the world by tonnage (lots of sellers). Rare earths is one of the smallest. Neodymium (Nd) is by far the most valuable RE metal by volume (few sellers).

                                    Tons Per Year vs Markup

Global Iron Ore production                        3.3 billion tpy

Global Steel Production                               2.3 billion tpy

Conversion Markup: Oxide to Metal         200 to 500%

New Global Nd Oxide Production*            ~ +30,000 tpy

New Global Nd Metal Production*              ~ 25,000 tpy

Conversion Markup: Oxide to Metal             ~ 10%____

The chemical process of converting iron ore to steel and RE oxides to metal is exactly the same. 

Iron to steel tends to be large-batch & mechanized, rare earths are produced in small batches, by hand (literally by hand).

*From virgin ore, estimate does not include recycled materials

The Secret Behind China’s Success

What accounts for this wide pricing disparity?

It cannot be accounted for or overcome by any traditional capitalistic / economic measure – and that is the point. 

It amounts to ‘Utility’ pricing for Chinese / Domestic utilization.

For domestic utilization, China provides metallic conversion subsidies and tax rebates that reflect utility pricing -- like a public road, a power line or municipal drinking water. 

Export reliant end-users face taxation and non-competitive disadvantages that when combined with uncertainty of delivery may reflect or exceed the real cost of RE metal and magnet production. 

Unenlightened U.S. government policy has focused on private (for profit) mining, refining and elemental separation projects to overcome China’s monopoly. 

The unrecognized reality is that there is no profit in RE metals. Betting on for-profit enterprises is a dead-end.

These misguided policies only end up feeding China’s metal monopoly.

All talk of a U.S. “mine to magnets” company or developing a stand-alone RE metal / magnet industry are of three varieties:

1) Delusional

The economics are impossible to match (as Chinese pricing would become a moving target)

2) Diversionary

Lobbyists for MP and other interests successfully campaigned the Pentagon and Armed Services Committees to convince them that the U.S. could never make RE metals for environmental reasons. The message was that China’s RE metal monopoly is a permanent fixture -- so get use to it.

3) Dependent on Subsidies

The historical problem with subsides is that there are no incentives to reduce costs. RE magnet costs would be reminiscent of the price distortions once common in the defense industry.

Multinational technology companies may choose not to participate for pricing reasons, but they also may shy away from what would be perceived as a U.S. defense industry program (sure to result in Chinese reprisals).

What About Recycling ?

Recycling can only be viewed as supplemental based on the following:

1)   Highly subsidized European recycling has proven non- competitive vs Chinese ‘costs’.

2)   Recovery limitations define application opportunities. 

3)   Recycling remains dependent on Chinese virgin ore for advanced applications.

American’s technology future cannot be entirely constructed from yesterday’s trash & waste.

Are There Other Options ?

Yes. There is an alternate solution, based on converting existing mining waste, that is currently considered a liability, into a high value feedstock that typically contains up to 10 times the economic value of what comes out of the Mt. Pass deposit.

These resources are currently disposed of to avoid a 1980 regulatory change that defined the waste as “source material (nuclear fuel)”.

Resources could be acquired below market prices and the actinide liabilities could be profitably stored (Th) or sold (U).

A fully integrated cooperative value chain, with no profit motive, could roll all savings forward into finished metal, alloy and magnet products.

These products would be sold to owner/end-users “at cost”, in exchange for fixed off-take agreements.

Chinese competitive pricing could not be guaranteed, but end-users would have an uninterruptable supply of finished RE metals, alloys, magnets and other value-added materials “at cost”.

Surplus would be sold to non-owner/members on a cost-plus or market basis.

The multi-national cooperative would be open to any RE end-user, per CFIUS clearance, thus greatly enhancing the competitive scale of the operation.

This option is detailed in Senate bill 2093 and House bill 4410, of the last Congress and will be reintroduced in the current Congressional session.

Like most U.S. cooperatives, finished goods would be delivered to owner / members at a “utility” price.

Thank you,

St. Louis, Missouri 63141 | 314.494.1638 | [email protected]