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US spares rare earths in China trade war

https://www.ft.com/content/a776dd74-bb26-11e8-94b2-17176fbf93f5

Henry Sanderson September 18, 2018

The US has excluded rare earths from its final list of tariffs against $200bn of exports from China, a decision that highlights the country’s reliance on Chinese supply of the niche elements used in smartphones and electric car motors.

China supplies about 75 per cent of US imports of rare earth compounds, which the US trade representative said in July could be hit by tariffs. China is also a large manufacturer of rare earth magnets used in wind turbines and electric car motors, a product that was also removed from the list released on Monday.

The move acknowledges China’s dominant position in supplying rare earths, which Beijing has viewed as a strategic resource since the days of former leader Deng Xiaoping. In 2010 China cut off supply of rare earths to Japan after a Chinese fishing captain was detained in disputed waters in the East China Sea.

“It appears the US has backed down in full, almost certainly at the behest of US consumers that are concerned about their ability to compete with foreign incumbents, and their ability to secure an alternative source of supply in the near-term,” said Ryan Castilloux, managing director at consultancy Adamas Intelligence.

While a number of rare earth mining projects outside China have sprung up since 2010, the country still produces more than 80 per cent of global supply. A Chinese company, Shenghe Resources, also has a stake in one of the US’s only rare earths mines, the Mountain Pass mine in California.

While China could retaliate to the latest tariffs by restricting the supply of rare earths, analysts said that would only push US companies to buy from companies outside the country. In addition China relies on US consumption of certain elements such as lanthanum and cerium, which are used in catalysts by the oil and gas industry.

“Without US buying, China would have a major issue with oversupply,” said Mr Castilloux.

Rare earths are a group of 17 elements that — contrary to what the term suggests — are relatively abundant in the earth’s crust. The US imported more than 17,000 tonnes of rare earth compounds in 2017, according to consultancy Roskill, of which 10,000 tones were lanthanum compounds and 3,600 were cerium compounds sourced from China.
Growth in rare earth demand is expected to come from wind turbines and electric cars, which use neodymium-iron-boron permanent magnets. Rare earth demand is expected to rise by more than 8 per cent this year, according to Roskill.

“When it comes to automotive drivetrains the rare earth permanent magnets are the crème de la crème that allows you to increase your efficiency, so that is what all automakers are using,” said Nils Backeberg, an analyst at Roskill. “China has captured that production capacity and there are just a select few companies outside the country.”