Rare Earth Elements: Lucrative but Accompanied by Power Struggles

30th November 2021

 

 

Rare Earth Elements (REEs) are essential for various sectors such as the military, the automotive industry, and the electronics market. However, the production and export of REEs by Asia’s biggest suppliers, China and Myanmar, is shaped by internal and external struggles for power.

REEs are needed for all the things we like: Smartphones, computers, electric vehicles and fighter jets. And the demand will be growing in the coming decades, making it a lucrative market for the mining industry. It has been practical so far to have China as a supplier, since the metals could be extracted at relatively low costs and without the need to pay too much attention to the troublesome matter of environmental protection. That led to China becoming the world’s most important producer with a share of 58% of the global production, followed by the United States with 16% and Myanmar with 12%.

Worldwide Production of REE (Source: US Geological Survey in Statista, 
Distribution of rare earths production worldwide as of 2020, by country, 2021)

China does not only use REEs for domestic production, but also exports them, accounting for 80% of the imports to the USA. Given the political discrepancies between the two powers, it is unsurprising that this dependency eventually backfired. During the trade conflict under the Trump administration, China threatened to terminate exports to the US. Some might have been reminded of the rare earth crisis of 2010, where China was accused of using these metals to put pressure on Japan to solve geopolitical tensions. Luckily, the exports have not been stopped, but given the past tensions, the US is looking for alternative supply chains. Last year, then-president Donald Trump signed a pandemic aid package that included $800 million to fund rare earth research. The Republicans and Democrats seem to be on the same page here as the Biden administration also wants to review the supply chain in order to protect US interests. The European Union is on the same track and founded ERMA (European Raw Material Alliance) to figure out ways to be less dependent on China. Given the relevance of REEs, we should have a look at other Asian countries and the possible challenges of establishing alternative supply chains.

As of 2020, Myanmar was the world’s third biggest producer of rare earths – not bad for a comparatively small country in South East Asia. It even exported rare earth compounds to China, where they are processed. Also, there have been no major trade conflicts with Myanmar to date. That sounds great, but of course there is always a catch.

China’s rare earth imports by country (2020) Source: Reuters, Explainer: Possible impact of Myanmar coup on China's metal and rare earth supply, 2021.

In this case it’s the internal struggle for power, recently peaking with a military coup. The armed forces violently took over the country, established a stratocracy and declared a state of emergency, negatively impacting political and economic relations. To highlight the seriousness of the situation, Myanmar is part of ASEAN (Association of South East Asian Nations), an organisation with ten member states founded to further economic integration in South East Asia, and ASEAN usually follows a strict doctrine of political non-interference. In this case, however, they excluded the new military leaders from the October meeting of 2021. How international partners deal with the new regime in the coming months will shape Myanmar’s geopolitical and economic position.

Political tensions in the country and the region naturally also affect the mining sector. As any government is keen on a good source of income, it is no surprise that illegal mining has surged in Kachin State, the northernmost state of Myanmar, which borders China and is controlled by a junta-sponsored militia. According to environmental activists, products cross the border easily despite tighter border controls due to the Corona pandemic. From an economic standpoint that makes sense, since Myanmar is China’s most critical supplier of REEs and the manufacturing powerhouse is dependent on a reliable stream of raw materials. The origin of the materials probably became secondary when official imports of REE compounds dropped by more than 90% during the summer of 2021. The pandemic and political turmoil hindering trade controls is unfortunate, but luckily there are more countries with REE resources.

Lynas, an Australian listed company, is active in Malaysia and operates the biggest REE processing plant outside of China. They are not affected by international conflicts or military coups, but instead by environmental activists. Since 2011, there have been protests against Lynas’s advanced materials plant in Gebeng because of fears of a negative impact from radioactive WLP residue. WLP stands for Water Leached Purification residue and is a by-product of the treatment of the lanthanide concentrate. It is an iron phosphate material containing low level Naturally Occurring Radioactive Material (NORM) with an activity concentration of 6 Bq/g. The company deems the residue safe, but is nevertheless relocating it to Western Australia in accordance with their growth plan. This relocation needs to be completed within four years to meet Malaysia’s new licensing requirements.

Reacting to environmental concerns is crucial, but expensive. Companies located in China have the advantage of looser regulations, meaning that they can produce at lower costs and are more competitive. If countries like Malaysia intend to gain more market share and to establish a profitable supply chain, they will need to find a way to reconcile environmental concerns and industry needs. If not, they will continue to be out-competed by China.

As it stands, the countries above are the main exporters of REEs. But there is a country that shares a border with China and does not really export these elements, despite having the potential to do so. Sadly, when this country pops up in the news, it’s mostly not about minerals but about conflicts: Afghanistan. Afghanistan’s deposits have an estimated worth of $1-$3 trillion, but now the Taliban now rules the country.

Resources in Afghanistan (Source: USGS in Deutsche Welle, 
Afghanistan: Taliban to reap $1 trillion mineral wealth, 2021)

Although they are universally seen as an extremist group, it seems that China intends to develop friendly relations with the Taliban, who have given assurances that they will welcome investment and infrastructure projects. This is not surprising given that Afghanistan lacks the infrastructure, knowledge and financial resources to exploit its deposits at any significant scale. Currently, the country is prone to the so-called resource curse. In an unstable system, minerals can amplify corruption, environmental destruction and even violence. Afghanistan does not have the means to protect itself from these problems and foreign investors will more than likely exploit its reserves. Without a stable political order, local communities might suffer from ecological impacts while the profits might only benefit the Taliban and investors.

As you can see, Asian countries have the potential to thrive in this booming market. However, mining is not easy when political disagreements enter the stage.