Rare Earth Minerals Discovered in Japan — Should China Worry?

More than 16 million tonnes of mineral-rich mud have been discovered near Minami-Tori-Shima, about 2,000 km off the coast of Japan. The discovery was first made in 2013; however, the potential size and economic viability of the deposits was successfully checked and confirmed at the beginning of 2018. Based on the current global annual demand, this rare earth metals (REM) trove is estimated to yield and supply Yttrium, Europium, Terbium and Dysprosium for the next 780, 620, 420 and 730 years respectively. Two-thirds of the global demand stems from technology-hungry automobile and electronics manufacturers based out of Japan and China. North America and Europe account for the remaining demand for these rare earths. Currently, almost 95 percent of the global demand for REM is catered to by the Republic of China’s ~100,000 metric tonnes annual production. The remaining production is carried out significantly in Australia, Russia and Brazil. This Chinese monopoly in the REM market stands to be upended by the recent discovery in Japan, providing importing nations with copious amounts of some of the world’s most technology-vital raw materials — a market that was largely dominated in terms of pricing and volumes by the Republic of China.

Implications for China

Ironically, REM oxides are not actually "rare." Although these metals are available in abundance, the extraction and refining process is significantly tedious, pollutive and economically expensive. China’s dominance in this industry was largely because of its unique, high technical prowess in cost-effectively extracting these REMs, and capping their exports to constrain global supply and consequently drive up demand and prices. In March 2012, Japan, the U.S. and the EU jointly filed a dispute settlement case against China over its limits on rare earth exports at the World Trade Organization. The subsequent loss of the Asian producer not only released the stranglehold on rare earth exports, but also led major manufacturers to scour for alternative rare earth markets as well as substitute minerals.

Thus, the mineral deposit discovery has been grabbing plenty of eyeballs and is crucial for countries importing REM from China, especially Japan, as it accounts for about 50 percent of the world's REM demand. The well-developed (or rather advanced) manufacturing sector has been driving the demand for REM. The ongoing boom in the production of hybrid and electric vehicles for the North American and Asian markets accounts for ~40 percent of the global demand for magnetic rare earths such as Terbium and Dysprosium. These rare earths are also deployed in the manufacture of wind turbines in developing economies such as India, Malaysia, Brazil and Vietnam. With the initiation of mining activity to retrieve the recently discovered rare earths, Japan could fill in the supply void in the industry left by China’s expensive stockpile and constrained exports to the U.S. and Europe.

Assuming the mining operations start on a positive note, the major change in the industry would come in the form of a removal of China’s stranglehold on the REM market. Having said that, it is also important to understand the potential threat:

• The deep ocean mining technology required for mining a seafloor is not yet developed. Thus, the commercial and financial equation is going to be tough. Miners would have to invest billions of dollars for scraping, blasting and cutting the seafloor, hauling the valuable bits up to the surface, and mitigating related environmental impacts.
• Another important fact is that it is just the discovery of mineral. A lot of uncertainty revolves around the time for the actual supply to hit the market. It is expected to take a long time, as this is still at a nascent phase.
• Moreover, it is also being observed that China is working toward strengthening their hold on the REM market. As part of the strategy, the state-backed Chinese companies are working to win mining rights outside the country, especially in Africa and South America. Experts predict China will follow the same approach of producing minerals at a long loss to clean out the competitors.

On the global scale, with the U.S. operating just a single rare earth mine, the influx of rare earths in the market through Japan could cater to the mega economy’s growing demands for the production of metallurgical catalysts, electronic appliances and electric vehicles.

Rare earth metal extraction is a lengthy and costly process. Although the discovery of this trove holds huge significance in the near future, it will take some years for Japan to fully capitalize on this find. 

Sources:

• http://www.alphr.com/environment/1009105/japanese-island-rare-earth-minerals
• https://www.nature.com/articles/s41598-018-23948-5.pdf
• https://www.vice.com/en_us/article/8gvpmp/how-deep-sea-mud-found-off-a-tiny-japanese-island-may-change-the-gadget-economy
• https://www.theverge.com/2018/4/17/17246444/rare-earth-metals-discovery-japan-china-monopoly
• https://www.japantimes.co.jp/opinion/2018/04/13/editorials/undersea-trove-upend-rare-earths-market/#.Wwz8cUiFPIU