Chinese Monopoly in Rare Earth Elements: Supply–Demand and Industrial Applications

Abstract

The concentration of rare earth elements (REEs) production in China raises the vital issue of supply susceptibility. Until recently, the global dependency on China for rare earths was a well-kept secret. But word started to spread fast after Beijing cut export quotas by 70 per cent for the second half of 2010, sending prices of some oxides—the purified form of rare earth elements sky-rocketing. This article seeks to evaluate what rare earth elements are and explores China’s role in the global supply-demand equations. It also explores the history of rare earth elements and China’s current monopoly over the industry, including possible repercussions if rare earth elements supply were to be disrupted.

Full text

Chinese Monopoly in Rare Earth Elements 449
China Report 48, 4 (2012): 449–468
CHINA REPORT 48 : 4 (2012): 449–468
SAGE Publications Los Angeles/London/New Delhi/Singapore/Washington DC
DOI: 10.1177/0009445512466621
Chinese Monopoly in Rare Earth Elements:
Supply–Demand and Industrial Applications
Nabeel A. Mancheri
National Institute of Advanced Studies (NIAS), Bangalore
The concentration of rare earth elements (REEs) production in China raises the vital issue of supply
susceptibility. Until recently, the global dependency on China for rare earths was a well-kept secret. But
word started to spread fast after Beijing cut export quotas by 70 per cent for the second half of 2010,
sending prices of some oxides—the purified form of rare earth elements sky-rocketing. This article seeks to
evaluate what rare earth elements are and explores China’s role in the global supply-demand equations. It
also explores the history of rare earth elements and China’s current monopoly over the industry, including
possible repercussions if rare earth elements supply were to be disrupted.
Keywords: Rare earth elements, demand, supply, industrial application
INTRODUCTION
The concentration of rare earth elements (REEs) production in China raises the vital
issue of supply susceptibility. Rare earths are a critical component of many high tech-
nology goods such as mobile telephones, computers, televisions, energy efficient lights,
wind energy turbines and solar panels. Rare earth elements are important ingredients
in lasers, superconducting magnets and batteries for hybrid automobiles.
REEs were first discovered in 1787 by Lieutenant Carl Axel Arrhenius, a Swedish
army officer. Since then there has been a great deal of interest in their chemical prop-
erties and potential uses. From about the 1940s to the 1990s, REEs attracted great
interest in both the US and China’s academic and scientific communities. Today,
however, there are only a small handful of scientists who truly focus on REEs in the
US; China, on the other hand, could be setting itself up to become a superpower in
technological innovation through its near monopoly and its vast efforts in research
and development of REEs (Hurst 2010).

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Despite their name, rare earth elements (with the exception of the highly unstable
promethium) are relatively plentiful in the Earth’s crust, with cerium being the twenty-
fifth most abundant element at 68 parts per million (similar to copper). However,
because of their geochemical properties, rare earth elements are not often found in
concentrated and economically exploitable forms or ores. It was the very scarcity of
these minerals (previously called ‘earths’) that led to the term ‘rare earth’. The first
such mineral discovered was gadolinite, a compound of cerium, yttrium, iron, silicon
and other elements. Cerium, for example, ranks number 26 in abundance among the
elements and is five times as common as lead. And even the scarcest of rare earths,
Thulium, is more abundant than gold or platinum. Because the elements share similar
chemical properties, most REEs deposits contain a large number of all 17 elements
in varying—albeit small—concentrations. In addition, rare earths are often of low
quality, which has made the material uneconomical to mine, and also because the
elements are usually found within a cocktail of rare earths that need to be separated
in a laborious process.
China’s dominance in the RE supply chain is directly related to Beijing’s consist-
ent and long-term planning, which dates back to as early as the 1950s. However,
the Chinese RE industry greatly advanced when Xu Guangxian (also known as ‘The
Father of Chinese Rare Earths Chemistry’) developed the Theory of Countercurrent
Extraction—which is applicable for the separation of a mixture with more than 10
components such as rare earths—in the 1970s. Since then, China’s Rare Earth Oxide
(REO) output has increased rapidly from slightly over 1,000 tonnes in 1978 to 11,860
tonnes in 1986, when a production spike at the giant Bayan-obo mine first propelled
China past the United States as the world’s leading producer of REO. Meanwhile,
Beijing has continuously invested heavily in technological innovations through key
national R&D programmes, such as the 863 and 973 projects, in order to gain a deci-
sive advantage in the rare earth supply chain including mining, separation, refining,
forming and manufacturing (Hurst 2010: 6).
According to China’s Ministry of Science and Technology, the objective of these
programmes was to ‘advance in key technological fields that concern the national
economy and national security; and to achieve “leapfrog” development in key high-
tech fields and take strategic positions in order to provide high-tech support to fulfil
strategic objectives in China’s modernization process’. In 1992 the late Chinese patriarch
Deng Xiaoping famously stated, ‘the Middle East has oil, and China has rare earths’;
since then, China has not only remained the world’s largest REO producer, but has
also successfully moved its manufacturers up the supply chain (Hurst 2010). Since
1990, domestic consumption of REO for high value-added product manufacturing
in China has increased at 13 per cent annually, reaching 73,000 tonnes in 2009 (Song
and Hong 2010).
State-run labs in China have consistently been involved in research and develop-
ment of REEs for over 50 years. The Rare Earth Materials Chemistry and Applications
which is affiliated with Peking University and the lab based at Changchun Institute

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of Applied Chemistry focus on rare earth separation techniques. Additional labs
concentrating on rare earth elements include the Baotou Research Institute of Rare
Earths, the largest rare earth research institution in the world, established in 1963,
and the General Research Institute for Nonferrous Metals established in 1952 (Hurst
2010: 9). This long-term outlook and investment has yielded significant results for
China’s rare earth industry.
Even with a threefold increase in REE demand over the past 10 years, demand is
expected to increase even further over the next five years (Kientz 2010). While REEs
have been produced for almost a century, the companies supplying them have changed.
In the mid-twentieth century, almost all rare earth mining was done at Mountain Pass,
California. Today, more than 97 per cent of mining and refinement is done in China
(see Figure 1). In fact, there are very few companies outside China producing rare
earths. Inner Mongolia Baotou Steel Rare Earth Hi-Tech Co. is China’s single largest
producer. Controlling 97 per cent of the global supplies, China is the largest producer
in the world, with a virtual monopoly over rare earths, which it is seeking to expand
further (Hedrick 2010). China, which once focused on exporting rare earths in their
raw forms, has used forward integration to its benefit. In the 1970s, China was just
exporting rare earth mineral concentrates. By the 1990s, it began producing magnets,
phosphors and polishing powders. Now, it is making finished products like electric
motors, batteries, LCDs, mobile phones and so on.
The significant cost advantage for Chinese producers, which has crushed almost all
overseas competitors, is not only driven by low labour costs, but also unintentionally
reinforced by Beijing’s policy failures in regulating the resource extraction sector, as
a whole, and the RE industry in particular. To keep pace with its booming economy,
Bastnasite-carbonatite Era
Market Tr ansition
Bayan-Obo Mine etc.
(China)
China
United States
Mountain Pass Mine
(United States)
Monazite Placer Era
(South Africa, Brazil,
Australia, India)
Output (kt of REO)
140
120
100
80
60
40
20
0
1949 1959 1969 1979 1989 1999 2009
Other Countries
Figure 1
Chinese Rare Earth Industry in the International Context
Source: Centre for Strategic and International Studies, 2010.

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Beijing promulgated the so-called ‘Let Water Flow Rapidly’ (You Shui Kuai Liu)
policy, in 1981, to stimulate a rapid spike in resource demand without appropriate
considerations of environmental protection, safety and sector consolidation. This lack
of entrance standards and patent enforcement, led to a proliferation of small-scale
and technologically backward mines and separation plants. By 2008, more than 100
enterprises held 123 RE mining permits in China (Tu Jianjun 2010).
CHINESE PRODUCTION AND SUPPLY OF RARE EARTH ELEMENTS
The supply of a material is a function of resources, reserves and production. ‘Resources’
include identified and undiscovered resources. Production generally occurs in countries
with large resources and reserves, but exceptions exist. In some cases, small reserve
holders may also produce the material, while countries with no reserves, could be
major refiners of imported raw materials (see Table 1).
Media reports have often pegged China’s rare earth cost advantage on poor envi-
ronmental standards, which is a problem in the chaotic mining operations in Southern
China (Tu 2010). But the truth, according to experts, is that China’s largest source
of rare earths does not even come from a rare earth mine. Rather, it comes out of the
tailings (or waste material) from the giant Baotou iron ore mine, in the province of
Inner Mongolia, in Northern China. Southern China is also home to low-grade rare
earth clay deposits. A cheap processing method is used to convert them into high-purity
products. As production from these sources continued to ramp up in the 1990s, there
Table 1
The Worldwide Reserves of Rare Earth Elements as of 2009
Country
Reserves (Million
Metric Tonnes) % of total
Reserve Base* (Million
Metric Tonnes) % of total
United States 13.0 13 14 9.3
China 36 36 89 59.3
Russia & CIS 19 19 21 14
Australia 5.4 5 5.8 3.9
India 3.1 3 1.3 1
Brazil Small
Malaysia Small
Others 22.0 22 23 12.5
Total 99.0 154.0
Source: Marc Humphries, 2010.
Note: *Reserve Base is defined by USGS to include reserves (both economic and marginally economic)
plus some subeconomic resources (with potential for becoming economic reserves).

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was a massive overcapacity in China, and prices collapsed. In less than one decade,
the permanent magnet market experienced a complete shift in leadership. Whereas in
1998, 90 per cent of the world’s magnet production was in the United States, Europe,
and Japan, today, rare earth magnets are sold almost exclusively by China, or by using
Chinese rare earth oxides. China is now facing the possibility that reserves of medium
and heavy rare earths might run dry within the next 15 to 20 years, if the current rate
of production is maintained.
Table 2 reveals that the production in Bayan Obo remains the largest in the REE
industry in China, contributing to almost half of the total production. The produc-
tion has been constant between the periods 2006 and 2008, ranging between 125
and 140 thousand tonnes p.a. China had reduced the production of REE to 110–130
thousand tonnes, by the end of 2010, and also restricted the exports through vari-
ous quota systems. The table also provides the estimated level of REE production in
China for the year 2014. Production will be increased by 80–100 thousand tonnes
in Bayan Obo and there will be a total production of 160–170 thousand tonnes, as
predicted by the GRIREM.
The surplus production of REE reached other markets and there was no talk of
a shortage in the sector until the past couple of years, when growing global demand
for rare earths highlighted the fact that China had put everyone else out of business.
Comments from Chinese government officials started to suggest that they view the
industry as more strategic than ever before, and were intent on securing more supply
for domestic use. They started taking measures to consolidate domestic supply and
reducing smuggling. Analysts are of the opinion that by 2012, the rest of the world
could face a major supply crisis, because of China’s reduced or zero supply to other
manufacturers (Anthony 2010).
Most of the rare earth enterprises are located around the large rare earth mines, such
as, Baotou city, Sichuan province and Ganzhou city. There are about 24 enterprises for
rare earth concentrate production, and 100 rare earth enterprises for smelting separation
Table 2
Chinese Production of Rare Earth Chemical Concentrates 2004–14
Year
Bayan Obo
Bastnasite
Sichuan
Bastnasite
Ion Adsorption
Clays Monazite Total
2004 42–48,000 20–24,000 28–32,000 – 9–100,000
2006 45–55,000 22–26,000 40–50,000 8–12,000 125–140,000
2008 60–70,000 10–15,000 45–55,000 8–12,000 125–140,000
2010 55–65,000 10–15,000 35–45,000 4–8,000 110–130,000
2014 80–100,000 20–40,000 40–50,000 8–12,000 160–170,000
Source: IMCOA, CREIC, Baogang Rare Earth Hi-Tech, Sichuan RE Association, GRIREM.
Note: Illegal or uncontrolled mining and processing is not included. It has amounted to 10–20,000
tonnes p.a. REO over the last 3–5 years.

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production in China. Table 2 reveals that, in 2010, most of the REE supply originated
from the Baotou plant, which amounted to about 55,000t and the total supply from
China was about 103,300t. The global supply increased to 15,000t in 2010 compared
to the 2005 level of 10,500t; this helped to meet the increasing demand from the
automotive and technology sectors (see also Humphries (2010)).
Table 3 reveals a number of developments in production and supply of rare earths
by 2014. By 2014, it shows a 10 per cent increase in production at Baotou plant from
the 2010 levels, and full production quota to be utilised at Sichuan with production
of 20,000t. The supply from Iconic clay regions will be reduced to 30,000t by 2014,
with a little increase in supply from recycling in China. Chinese restrictions on supply
in 2010 have triggered many countries to look for alternative sources and by 2014 a
number of countries will be in a position to supply some amount of rare earth, as data
shows that the Mount Weld Mine in Australia is expected to supply about 22,000t
and Mountain Pass in California is expected to supply 20,000t, along with other
supplies from Russia, CIS countries and India. Since the supply issue is much more
critical for High REEs than Light REEs and at this point, nowhere in the world has a
good supply of heavies that could be a definite future source. Mountain Pass’ heavies
are virtually nonexistent. China does not have a good supply of heavies either. Never
has there been a dedicated, operational HREE mine anywhere in the world, with
the exception of the government-controlled South China Clays property in China.
Monazite is the principal ore in India, although xenotime holds out some prospect
for the future. India is the second-largest source of yttrium, which is derived from its
monazite production. Though monazite deposits in Australia, Brazil, India, Malaysia,
South Africa, Sri Lanka, Thailand and the United States constitute the second largest
segment of REE concentration, this would not be adequate to compensate fully the
reduced demand from China.
Table 3 also shows that the supply from recycling in China will increase marginally
from 3,300t in 2010 to 4,000t in 2014 and from 1,500t to 1,800t in global supply.
The reuse and recycling capacity currently limited as recovery of manufacturing waste
and measurable recovery from aftermarket products are yet to develop. Also, recycling
them is often difficult and expensive, because they are often mixed with other materi-
als when products are made. And there is little economic incentive to recycle, since
rare earth elements are available raw on the world market at comparatively low prices.
However, improved designs for recycling coupled with larger streams of materials could
eventually allow for the economical recycling and reuse of magnetic materials.
Disruptions in the supply chain in China became a contentious international issue
in 2010 and according to the Chinese government these were due to the restructuring
of the industry and because strict environmental regulations were applied based on
global trade rules. In June 2009, the issue of dwindling supply of minerals and export
restrictions came to the fore when the United States and the European Union (later
joined by Mexico, India, Brazil, Japan and Korea as third parties) lodged a complaint
against China to the World Trade Organization (WTO), claiming that export restraints

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Table 3
Chinese REE Supply Compared to Other Countries in 2010 and 2014 (forecast)
Chinese Supply
Sources QTY2010 QTY2014.est Non Chinese Supply QTY2010 QTY2014.est
Baotou
• By product of iron
ore mine
• Moving to higher
grade iron, with
lower impurities
and Rare Earths
• Tailing facilities
near capacity
55,000t 60,000t India
• Subsidiary of
Indian AEA
• Toyota Tsusho
bought trading
firm with Japanese
Distribution
3,000t
12,000t
Russia & CIS
• Limited expansion
capacity
• By product of Mg
production
4,000t
Sichuan
• Target to increase
value added
• Capacity expected
to increase
10,000t 20,000t Australia, Mount
Weld
22,000t
Iconic clay regions
• Reportedly 14 yrs
of resources
• Large amount of
illegal mining
• Government
action taking effect
35,000t 30,000t US-Mountain pass
• Reprocessing
stockpiles
• Requires approx.
US$ 530 million
rebuild
3,000t 20,000t
Recycling 3,300t 4,000t Recycling
• Magnet swarf
• Batteries–future
potential
1,500t 1,800t
Total 103,300t 114,000t Total 11,500t 55,800t
Source: Lynas Corp, 2010.
(including quotas and export taxes) imposed by China on a number of raw materials
violate WTO rules. There is no GATT/WTO article dealing exclusively with export
restrictions although, Article XI of the GATT 1994 is the key provision regarding
export restrictions. It prohibits the use of quantitative restrictions regarding both
imports and exports. Export duties are in principle not subject to Article XI and thus
not prohibited under this article, while quantitative restrictions are.
China announced that it would further tighten its rare earths export quotas even
after a WTO panel ruled in July 2011 that China violated international trade rules by
restricting the exportation of raw materials, refuting Beijing’s claim that these restric-
tions were based on environmental grounds. However, China rejected the WTO ruling

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as unfair and subjective, exposing the insufficient representation of developing countries
in the WTO, and other international economic organizations, especially because it
is difficult for such organizations to understand developing nations’ problems. The
panel’s decision was welcomed as a great victory by the EU, the US and other trad-
ing partners that have found themselves increasingly dependent on Chinese natural
resources and face growing competition in the manufacturing sector.
The development of increased stockpiling of REE in China has gained momentum
in recent years, with assertion of government authority increasing over mining regions.
The Chinese stockpiling, under the direction of the Ministry of Land and Resources,
began with a pilot project in early 2010 in China’s primary mining region of Baotou
in Inner Mongolia. At least 10 storage facilities are being built and managed by the
world’s largest producer of rare-earth metals, government-controlled Baotou Steel
Rare-Earth (Group) Hi-Tech Co. Chinese state media reports say stockpiles may
eventually top 100,000 metric tonnes (Areddy 2011). The move to build reserves
comes as China’s supply of rare earth metals to the rest of the world already is shrink-
ing despite growing demand for the elements. In response to Chinese restrictions on
supply, the high-tech-focused nations—the US, the European Union, Japan and South
Korea—all of which are dependent on China for rare-earth supplies, have highlighted
stockpiling strategies.
DEMAND AND INDUSTRIAL APPLICATIONS OF RARE EARTH ELEMENTS
The two major drivers of demand for mineral commodities are the rate of overall
economic growth (stable or declining), and the state of development for principal
material applications (for example, clean energy technologies). Demand for key
materials in clean energy technologies compete for available supply with demand for
the same materials in other applications. With 1.3 billion people and being the fastest
growing economy in the world, China is faced with the challenging task of ensuring
it has adequate natural resources to sustain economic growth. There is also a growing
school of thought that China is not actually able, at present, to use all of the materials
allocated for domestic use only. ‘Out of a production level of perhaps 100,000 tonnes
of total rare earth oxides in past years’, the bulk of that material has ended up being
purchased by end-users in first-world nations (Hatch 2010).
The most rapid growth has been in demand from new materials, that include mag-
nets, phosphors, catalysts and batteries, which now account for over 60 per cent of the
Chinese demand. This demand has no doubt been and will continue to be fuelled by
heavy investments in clean energy. High-technology and environmental applications
of the rare earth elements have grown dramatically in diversity and importance over
the past four decades. Many of these applications are highly specific and substitutes
for REEs are inferior or unknown. REEs have acquired a level of technological

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significance, much greater than expected from their relative obscurity. These uses range
from mundane (lighter flints, glass polishing) to high-tech (phosphors, lasers, magnets,
batteries, magnetic refrigeration), to futuristic (high-temperature superconductivity,
safe storage and transport of hydrogen for a post-hydrocarbon economy). The rare
earth elements are essential for a diverse and expanding array of high-technology
applications (Quantum Rare Earth Development Corp. 2010).
Table 4 depicts the REE products and their applications. Dysprosium and terbium
are alloyed into rare earths magnets to make them capable of operating at elevated
temperatures. At current alloying levels, dysprosium and terbium make up about
5 per cent of the metal used in car battery magnets. The majority of applications
depend on the rare earth magnets.
The growing number of applications for rare earths, coupled with the burgeon-
ing demand for clean energy, and the latest consumer technologies has raised the
threat of an acute shortage in rare earths, as production has struggled to keep up.
Many of the world’s experts foresee a supply deficit of REO, by 2014, as demand
is expected to exceed the industry’s ability to produce, as commercial stocks are
depleted. While new or reopened mines outside of China are expected to increase
Table 4
Major Products and Applications of Rare Earth Products
Rare Earths Products Industrial Applications
Nd, Pr, Sm, Tb, Dy Magnets Demand for large magnets for permanent magnet
motors in HEVs, EVs, and Maglev trains, also
increased demand for HDDs and ODDs, mobile
phones, MP3 players, cameras, VCMs
La, Ce, Pr, Nd Battery alloy Rising demand for HEVs
Eu, Y, Tb, La, Dy, Ce,
Pr, Gd
Phosphors Increased use of energy efficient fluorescent lights, also
growing demand for LCDs, PDPs
La, Ce, Pr, Nd Fluid cracking
catalysts
Increased use of catalysts in processing heavy crude and
tar sands
Ce, La, Nd Auto catalysts Tighter NOx and Sox standards—offset to some extent
by increased use of zirconia in the wash coat
Ce, La, Nd Polishing powders Increased demand for mechano-chemical polishing of
electronic components and some types of LCD screens
La, Ce, Pr, Nd, Y Ceramics Growth in use of multi layer ceramic capacitors, use of
PSZ in advanced applications
Source: Stewart et al. 2011.
Notes: HEV = Hybrid Electric Vehicle, EV = Electric Vehicle.
HDD = Hard Disc Drive, ODD = Optical Disc Drive.
VCM = Voice Coil Motor.
LCD = Liquid Crystal Display, CRT = Cathode Ray Tube.
PSZ = Partially Stabilised Zirconia.

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global production, resulting in an overall surplus, shortfalls are expected in certain
elements, particularly in neodymium and europium, and the heavy rare earths ter-
bium, dysprosium and yttrium. Analysts say demand for rare-earth metals is likely
to increase between 10 and 20 per cent, each year, owing to growing demand for
elements like neodymium, which is used in making hybrid electric vehicles, and
generators for wind turbines.
World demand for rare earth elements is estimated at 134,000 tonnes per year,
with global production around 124,000 tonnes annually. The difference is covered
by above-ground stocks or inventories. World demand is projected to rise to 180,000
tonnes annually by 2012, while it is unlikely that new mine output will close the
gap in the short term. By 2014, global demand for rare earth elements may exceed
200,000 tonnes per year. China’s output may reach 160,000 tonnes per year (up
from 130,000 tonnes in 2008) in 2014 (Humphries 2010). New production from
the rest of the world could meet increased demand up to 2014, but will the ‘balance’
be right? This brings the spotlight on the absolute necessity for other countries to get
into full-scale rare earth production, sufficient enough to meet global demands, and
to deploy a complete mining-to-magnets manufacturing supply chain that will reduce
dependency on China.
Just as worldwide demand for REO is growing, so too is China’s own demand.
The data from the Chinese Society of Rare Earths (CSRE) show that the country’s
consumption has grown rapidly since 2004 and reached over 70,000 tonnes in 2008.
Growth in demand from China will continue to outpace the rest of the world. By the
year 2015, it is estimated that the global demand of rare earths is expected to reach
210 thousand tonnes; China’s domestic demand will be 138,000 tonnes. By 2020,
China’s domestic demand is expected to reach 190,000 tonnes, including 130,000
tonnes consumed in high-tech fields, accounting for 68 per cent of the total global
consumption. It can be concluded that Rare Earth Materials have become a major
growth point of China’s rare earth industry (Chen 2010). China, Japan and the US
are the largest consumers of rare earth metals. With the growing demand for ‘green’
products, the demand for rare earth metals is only expected to increase.
China supplies approximately 95 per cent of global demand and consumes about
60 per cent of the global supply, but its reserves of rare earths are finite. The Chinese
government has indicated that if the exploitation of these resources is not controlled,
they could be exhausted in the next 20–30 years. These valuable resource endowments
are not evenly distributed in China. About 83 per cent of these resources are found
in Baiyunebo (Baotou, Inner Mongolia), 8 per cent in Shandong province and 3 per
cent in Sichuan province (light rare earth deposits of La, Ce, Pr, Nd, Sm and Eu).
Three per cent of the deposits located in Jiangxi province are middle and heavy rare
earth deposits (Middle: Gd, Tb, Dy and Ho; Heavy: Er, Tm, Yb, Lu, Sc and Y) (Chen
2010). Since heavy REs are considered more strategically valuable, significant efforts
have been made by Beijing in recent years to crack down on rampant illegal mining
in Southern China.

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Table 5
Global Rare Earths Demand in 2008 in Tonnes and by Value
Application China Japan & NE Asia U.S. Others Total Volume % Total value %
Catalysts 9,000 3,000 9,500 3,500 25,000 20% 5%
Glass 7,500 2,000 1,000 1,500 12,000 10% 2%
Polishing 8,000 4,500 1,000 1,500 15,000 12% 4%
Metal Alloys 15,500 4,500 1,250 1,000 22,500 18% 14%
Magnets 21,000 3,500 750 1,000 26,250 21% 37%
Phosphors 5,500 2,500 500 500 9,000 7% 31%
Ceramics 2,500 2,500 1,250 750 7,000 6% 4%
Other 5,000 2,000 250 250 7,500 6% 3%
Total 74,000 24,500 15,500 10,000 124,000 100% US$ 6.75b
Source: Chegwidden J., 2010 and IMCOA, 2010.
Table 5 reveals a number of features of the rare earth demand in 2008. The Chinese
demand constitutes about 67 per cent of global demand, followed by Japan, North
East Asian countries and the United States. Magnets, metal alloys and catalysts were in
high demand compared to other applications, and these are highly used in industrial
applications of hybrid vehicles, electronic vehicles, hard disc drives, optical disc drives,
voice coil motors, liquid crystal displays, cathode ray tubes and petroleum refining
industries. The demand for magnets was 21 per cent, followed by 20 per cent demand
for catalysts and about 18 per cent demand for metal alloys. Magnets, phosphors and
metal alloys are the largest end uses of rare earths.
Recently, REE consumption has seen large regional growth mainly due to the
growth of advanced technology and clean energy technology sectors. In China and
globally, REEs have experienced fast growth in advanced technology sectors including
luminescent (phosphors), magnetic, catalytic and hydrogen storage technologies. The
demand by clean energy technology sectors is largely a result of the ramp-up of clean
energy technology manufacturing and use by the United States, the Organization for
Economic Co-operation and Development (OECD) nations and China. Magnets
dominated REE usage by weight in 2008, with catalysts claiming the second-highest
usage, and metal alloys accounting for the third highest (Kingsnorth and Chegwidden
2010).
REE consumption has grown most rapidly in China. China’s 2005 REO demand
exceeded half of the global demand for the first time and more than tripled in absolute
terms between 2000 and 2008. From 1990 to 2008, China’s annual consumption
has increased from 10,000 tonnes to 72,600 tonnes. The consumption was 67.68
thousand tonnes in 2008, a slight decrease compared with that in 2007. The main
reason for this tremendous growth is because of the ever-increasing production of
manufacturing items such as wind mills, solar panels and electronic commodities.

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The rare earths market represented approximately US$ 1.25 billion in 2008. Over the
past decade, market growth has been in the range of 8–11 per cent per year, with
the exception of the correction in 2001–2 due to the fall in technology markets and
the global economic crisis. While the global financial and economic crisis in 2009
reduced consumption of REE, the industry growth returned to 8–11 per cent in late
2010 (Kingsnorth 2010).
In China, rare earths were mainly consumed in traditional areas of metallurgy,
machinery, the petroleum industry, the chemical industry, the lighting industry, the
textile industry, agriculture and in new materials like magnets, phosphors, hydrogen
storage, catalysts for automobile exhaust and polishing powder (see Figure 2). There
was a dramatic change in the consumption structure, the consumption of rare earths
in new materials increased very fast since 2004. In 1988, the consumption of rare
earths in new materials was only 1 per cent, but in 2007 it was 53 per cent. In 2008,
it was claimed that about 60 per cent of rare earths was consumed in new materials
in China. China’s consumption of rare earth elements is also expected to increase
dramatically as more and more foreign companies move their production sites to
China, to take advantage of the lower cost of rare earths and therefore reduce their
overall production costs. This is part of China’s larger strategy to maintain a tight
hold on the industry.
In 2009, China produced about 7,200 tonnes of rare earth fluorescent powder,
ranking as the world’s highest producer. The three-band fluorescent lamp industry
consumed 75 per cent of rare earth luminescent materials, as the major application
area of luminescent materials. The three-band fluorescent lamp, with the advantages
of energy saving and long lifespan, will gradually replace the incandescent lamp. In
2009, China produced over 3 billion three-band fluorescent lamps. If 80 per cent of
the incandescent lamps are replaced, 3 billion three-band fluorescent lamps will be
needed every year. Hence, the annual demand for fluorescent powder is about 10,000
tonnes. By 2015, the total demand for three-band fluorescent powder will be about
60,000 tonnes.
In 2008, the consumption of rare earth polishing powder in the world was 20,000
tonnes, including 8,000 tonnes for LCD. In recent years, with the booming of the
LCD industry, high-performance polishing powder has achieved high consumption
value. Presently, the production capacity of rare earth polishing powder in China
exceeds 150 million tonnes. It is forecast that China’s annual production capacity
of rare earth polishing powder will reach 20,000 tonnes in 2010. In 2009, the rare
earth consumed in Chinese petrochemical catalytic cracking sector was about 7,500
tonnes. It is forecast that China’s crude oil processing volume will maintain over
500 million tonnes in 2015–20. The rare earth for FCC catalysts will exceed 10,000
tonnes. Besides, with the considerable growth of the demand for rare earth catalytic
materials in the fields of fuel cell, water pollution control, air purification etc., China’s
total demand for rare earth catalytic materials will exceed 17,000 tonnes in 2015–20
(China Research and Intelligence 2010).

Chinese Monopoly in Rare Earth Elements 461
China Report 48, 4 (2012): 449–468
Figure 2
China: Consumption Structure of Rare Earths from 1988 to 2008
New Materials (Magnetic, Iuminescent,
catalytic, hydrogen storage etc.)
Agriculture/Light & Textile Industry
Glass & Ceramics
Petroleum & chemical Industry
Metallurgy & Machinery
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Year
Proportion(%)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Source: Chen 2010: Figure 9.

462 Nabeel A. Mancheri
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Because of their ability to readily give up and accept electrons, the rare earth ele-
ments have become uniquely indispensable in many electronic, optical, magnetic and
catalytic applications. From iPods to catalytic converters, from wind power genera-
tors to computer disc drives and hybrid electric vehicles—rare earth applications are
ubiquitous and critical for the overall economic well being of any country. China is
most interested in supplying its domestic needs first. Because there is such a wide
range of products that use rare earth elements, its domestic REE-product industry is
growing rapidly. China is doing everything it can to bring new investment into the
country, and to develop new industries to use this material. For example, it will sell
REEs to local industries at a much cheaper price than it sells the same material to
sources outside of China. In that sense, it is trying to do everything it can to increase
the country’s internal need.
The data released by Lynas Corp shows that the largest growth rate will be in
demand for magnets and battery alloys which would be 12 per cent and 15 per cent
respectively, by 2014. The total demand for the group of elements, used in products
such as industrial magnets, flat-screen TVs and military weapons systems, is likely to
grow to 190,100 metric tonnes in 2014, from 136,100 tonnes in 2010. For example,
permanent magnet demand is expected to grow by 10–16 per cent per year through
2014. Demand for rare earths in auto catalysts and petroleum cracking catalysts is
expected to increase between 6 per cent and 8 per cent each year, over the same period.
Demand increases are also expected for rare earths in flat panel displays, hybrid vehicle
engines and defence and medical applications. The global demand in value terms will
grow from US$ 7.8 billion in 2010 to 11.2 billion in 2014.
INDUSTRIAL APPLICATIONS
The rare earth elements as a group have magnetic, chemical and spectroscopic prop-
erties that have led to their application in a wide range of end-uses. These metals are
utilised in a broad range of manufacturing areas that include materials, machinery
and electronics. These are the raw materials for high value added products. Although,
often needed only in small quantities, these metals are increasingly essential to the
development of technologically sophisticated products. They play a critical role in the
development of innovative ‘environmental technologies’, to boost energy efficiency and
reduce greenhouse gas emissions. Demand for rare earths, often referred to as ‘indus-
trial vitamins’, will only increase. Several clean energy technologies—including wind
turbines, electric vehicles, photovoltaic cells and fluorescent lighting—use materials
that are at the risk of supply disruptions in the short-term. Those risks will generally
decrease in the medium- and long-term largely because of increased supply from other
countries and technological change may happen in the longer term as happened in
the semiconductor industry. Clean energy technologies currently constitute about

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20 per cent of global consumption of critical materials. As clean energy technologies
are deployed more widely in the decades ahead, their share of global consumption
of critical materials will likely grow. Green energy technology is expected to become
the largest consumer of rare earth elements in the future. In 2009, China was the
world’s top investor in clean energy technology at over US$ 34 billion. Since 2005,
the country’s wind generation capacity has increased by more than 100 per cent a
year. The government’s renewable energy policy aims to procure 15 per cent of the
country’s energy from non-carbon sources by 2020, twice the proportion of 2005. In
2009, China became the largest manufacturer of wind turbines in the world, with 17
of its 40 turbine manufacturers being state-owned, 12 private Chinese firms and 11
joint ventures or foreign owned (Smith 2010).
China has doubled its installed wind power capacity every year since 2006, and
is now the world’s largest producer of wind turbine. By 2020, China is expected to
boost its wind power capacity to 100 Giga watts (GW) or more, up from 12 GW in
2008. The annual growth rate will be about 20 per cent (China Daily 2009). Similarly,
the Global Wind Energy Council (GWEC) forecasts that the global installed wind
capacity in 2011 will climb to 409 GW, up from 158.5 GW, at the end of 2009. The
additional 250.5 GW will require 167,000 tonnes of REMs. China has announced that
in the next 10 years it will ‘construct some 133 giga watts of wind turbine generated
electricity’. Each wind turbine may contain several hundred kilograms of neodymium
and NdFeB magnets are a critical component for some models of the new generation
wind-powered turbines.
Hydrogen-fuel based cars, for example, require platinum-based catalysts; electric-
hybrid cars need lithium batteries; and rhenium super alloys are an indispensable input
for modern aircraft production. In 2009, China produced 19,000 tonnes of rare earth
hydrogen storage materials. They consumed 7,900 tonnes of rare earth, accounting
for 11 per cent of the total rare earth consumption. Since November 2009, China has
become the largest auto market in the world. China’s automobile industry has been in
rapid development since the early 1990s. In 2009, China produced 13.79 million units
of automobiles. The Chinese are also investing big in electric cars, hybrid cars and the
underlying industry. The Chinese are already one of the largest producers of lithium–ion
batteries and their main application is in car batteries, therefore, lithium–ion demand
is growing fast. Rare earth hydrogen storage materials are major raw materials for the
production of nickel–hydrogen batteries. As the nickel–hydrogen battery shows positive
development prospects in the electric tool and electric vehicle sectors, it is forecast that
China’s hybrid electric vehicle market will acquire explosive growth after 2010, and the
annual growth rate will reach 12 per cent (China Research and Intelligence 2010).
According to Reuters, global sales of hybrid electric cars are forecast to reach three
million units in 2015, with a total REM requirement of 33,000 tonnes. One of the
largest growth areas is expected to be the production of hybrid vehicles, such as the
Toyota Prius (see Table 6). Each hybrid car contains 16 kg of rare earths, predomi-
nantly in its batteries and electric motors. It is estimated that the motor in the average

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Prius hybrid uses about 193 grams or about 7 ounces of neodymium and 24 grams of
dysprosium, while the fully electric Nissan Leaf uses about 421 grams of neodymium
and 56 grams of dysprosium.
The Chinese government is determined to become a world leader in green technol-
ogy, and plans to invest billions of dollars over the next few years to develop electric
and hybrid vehicles. A group of 16 big state-owned companies had already agreed to
form an alliance to do research and development, and create standards for electric and
hybrid vehicles. They aim to put more than a million electric and hybrid vehicles on
the road over the next few years in China, which is already the world’s biggest and
fastest growing auto market. The announcement, analysts say, is another example of
how China seeks to marshal resources to tackle industries and new markets. The plan
also underlines what China describes as its growing commitment to combat pollution
and reducing carbon emissions.
The Chinese government announced it will spend US$ 14.7 billion through
2020 on alternative drive train vehicles, with the bulk of the money going towards
all-electric vehicles. Pike Research (2010) projects that between 2010 and 2015,
China will have 1.85 million hybrids and EVs sold, with one million EVs on the
road. In the US, more than 2.3 million hybrids will be sold during that time, and
840,000 plug-in and all-electric vehicles. At the 2010 Beijing Motor Show, more
Table 6
Annual Sales of Toyota Prius Worldwide and by Region (in thousands)
Year World Japan North America US Europe Other
1997 0.3 0.3
1998 17.7 17.7
1999 15.2 15.2
2000 19.0 12.5 5.8 5.6 0.7 0.01
2001 29.5 11.0 16.0 15.6 2.3 0.2
2002 28.1 6.7 20.3 20.1 0.8 0.2
2003 43.2 17.0 24.9 24.6 0.9 0.4
2004 125.7 59.8 55.9 54.0 8.1 1.9
2005 175.2 43.7 109.9 107.9 18.8 2.9
2006 185.6 48.6 109.0 107.0 22.8 5.3
2007 281.3 58.3 183.8 181.2 32.2 7.0
2008 285.7 73.1 163.3 158.6 41.5 7.7
2009 404.2 208.9 144.3 139.7 42.6 8.4
Jan–Sept 2010 401.3 254.2 105.9 103.3 35.5 5.8
Total 2011 826.9 939.1 917.5 206.1 39.7
Source: Toyota, 2010.

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China Report 48, 4 (2012): 449–468
than 20 EVs were on display, most of which came from native automakers. As of May
2010, at least 10 all-electric models have been reported to be on track for volume
production. The first mass produced plug-in hybrid car (BYD F3DM), all-electric
minivan (Luxgen 7 MPV EV) and all-electric long-range bus (500 km range Zonda
Bus) are Chinese.
Many of the rare earth metals are used in other sectors, such as semiconductors.
The semiconductor industry is dominated by China, Taipei, South Korea, the US and
Japan. The semiconductor industry is widely recognised as a key driver for economic
growth throughout the electronics value chain. The semiconductor market represented
US$ 213 billion in 2004 and the industry was one enabling factor in the generation
of US$ 1,200 billion in electronic systems business and US$ 5,000 billion in services,
representing close to 10 per cent of world GDP that year. The semiconductor industry
is also a high-growth industry, experiencing 13 per cent growth on average per annum
over the last 20 years (Korinek and Kim 2010).
There are numerous examples that point to China’s anticipated increase in rare
earth consumption. For example, at the end of July 2008, China had 600 million
cell phone users. Less than one year later, by the end of March 2009, China had 670
million cell phone users (Xinhua 2009). China’s mobile phone industry has a high
growth rate, raising its share on the global mobile phone market. During 2007, 600
million mobile phones were made in China which accounted for over 50 per cent of
the global production. The domestic sales of cell phones made a breakthrough of 100
million in China in 2006. In 2007, the domestic sales of cell phone in China were
190 million, increased by 74 per cent, as compared with 2006. In 2007, sales volume
had reached up to about US$ 23 billion, an increase of 17 per cent as compared with
2006 sales. The export volume of China’s cell phones added up to a record high of
385 million in 2006, increased by 69.3 per cent as compared with 2005. In 2007, this
figure reached 483 million, increased by 125.45 per cent as compared with 2006. As
far as 2006, the export volume had reached US$ 31.214 billion, increased by 52.47
per cent as compared with 2005. The export volume of 2007 was US$ 35.6 billion,
increased by 114.01 per cent as compared with 2006 (Pr-inside 2008).
The rare earth metals are critical for the production of smart bombs, laser targeting
systems in tanks and silent technology used in helicopter blades. The rare earth metals
of most concern to the military are neodymium, samarium and yttrium. Neodymium
is an essential metal in a magnetic alloy which was developed separately by General
Motors in Detroit and Sumitomo Special Metals Co. in Japan in the 1980s. Now it is
used in speaker magnets, disk drives, motors and more importantly in missile weapons
systems, like the Joint Direct Attack Munition (JDAM). Neodymium is also used in
magnets for hybrid-electric motors, being developed to cut fuel use in the United
States Navy destroyers. Samarium is needed for magnets, being used by Lockheed
Martin Corp.’s SPY-1 radar systems in Aegis destroyers. China is the only supplier in
the world for yttrium which is needed for the laser gun sights in the General Dynamics
Abrams tank (Czarnecki 2010).

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The DDG-51 Hybrid Electric Drive Ship Program uses neodymium iron boron
magnets, which help power the guided destroyers. The Aegis Spy-1 Radar uses the
samarium cobalt magnet to withstand stresses as it has the highest temperature rating
of any rare earth magnet. Even with a threefold increase in REE demand over the past
10 years, demand is expected to increase even further, by anywhere from 8 to 790 per
cent over the next five years (Kientz 2010).
CONCLUSION
There are a few basic features of Chinese supply that we can derive from the literature.
The facts include: China still holds more than 25 million tonnes of rare earth oxide
reserves, excessive secondary processing capacity, easy availability of cheap processing
chemicals and heavy investment in research and technology. Moreover, the supply
of Chinese heavy rare earths are finite, with 15–20 years of mine life therefore, the
Chinese are rigorously regulating the mines. Strategic considerations and implications
of recycling on upstream RE resources to gain access to advanced techniques and
encourage high value-added downstream operations has long been a national policy
in China that dates back to as early as the 1970s. After China gained decisive advan-
tage in the RE supply chain, Beijing’s restrictions on REO production and exports in
recent years have been primarily motivated by the strong political desire for resource
conservation.
While China says its deposits of rare earth minerals account for only about a third
of the global total, the country mines most of the world’s marketed supply, which has
raised concerns that China could deplete the supply, too quickly. The move to build
reserves comes as China’s supply of rare earth metals to the rest of the world already
is shrinking, despite growing demand for the elements.
High technology and environmental applications of the rare earth elements have
grown dramatically in diversity and importance over the past four decades. Many of
these applications are highly specific, and substitutes for REEs are inferior or unknown.
REEs have acquired a level of technological significance, much greater than expected
from their relative anonymity. The growing economy of China is creating a worldwide
risk to supply, as China’s growing consumption limits its exports of rare earths. China
insists that it requires the high supplies to meet the demands of its clean energy and
high-tech sectors.
Rare earth elements are needed for China’s expansion of its own military needs
(aircraft carriers, nuclear-powered submarines and ballistic missiles). Home-grown
production needs will further cut exports, which is already reduced to crippling levels.
Not surprisingly, these measures have raised real concerns outside of China, regard-
ing the future availability of the refined products created from REMs. The rare earth
supply chain for the sleep paralyzed Western defence industries is now being held

Chinese Monopoly in Rare Earth Elements 467
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hostage by the Chinese, who want to keep the rare earth metals for their own rapidly
expanding markets.
In the short-term, the rare earth elements provide China with the ability to cause
a minor irritant to the major consuming countries. Preliminary analysis suggests that
China does not always operate in top–down mode. For the politburo to take a stand
on rare earth elements and recognize its importance to the western world there has to
be information exchange from bottom to the top and across disciplines of economics,
engineering, sciences and technologists and political scientists. Obviously such a group
should exist among the decision makers which are very useful for a country.
If new supplies of rare earths do not come online within the next 10 years, a global
shortage is likely to affect new energy industry, such as wind turbine, solar panels,
electric vehicle and electronics production. According to the United States government
report, the issue even carries national security implications because of the rare earth
content in many advanced military weapons, the economic threat of depending on
a single country and getting new sources of supply into production is not that easy.
Rare earth elements are needed for China’s expansion of its own military needs (aircraft
carriers, nuclear-powered submarines and ballistic missiles). Home-grown production
needs will further cut exports, already reduced to crippling levels. Not surprisingly,
these measures have raised real concerns outside of China regarding the future avail-
ability of the refined products created from REMs.
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