EU, US grapple with crunch in rare earth supplies

The World Trade Organization, the EU and the United States said on Tuesday they were pressing for solutions to concerns China may be exploiting its stranglehold on rare earth metals, crucial in the making of everything from portable phones to wind turbines.

Officials and industry executives in Berlin and Washington warned of severe repercussions from a scarcity of the minerals with magnetic, luminescent and other properties which go into products such as hybrid cars, solar panels and windmills.

The dominance of China, which produces 97% of the world's supply of rare earths, has been well-known for years, but came under the international spotlight after reports Beijing halted shipments to Japan over a territorial dispute with Tokyo last month.

A US Department of Energy official said she was not aware of any US renewable energy companies experiencing disruptions in rare earth metal shipments from China, but said companies were worried about shortages developing.

"They're concerned there might be," Diana Bauer, who heads the DOE's Critical Metals Task Force, told reporters at a rare earth metals conference in Washington.

But the head of Molycorp, a US producer of rare earth elements, said that after discussions with Chinese officials he believes Beijing would reduce exports under quota reductions announced in July, but not completely restrict supplies.

"I don't believe that China is going to completely embargo the United States and the European Union as relates to rare earths," Molycorp Inc CEO Mark Smith told the conference.

"I do believe however that we're going to see reductions in the export quotas coming out of China," he added.

Supply crunch coming

Frank Hoffmeister, a top aide of European trade chief Karel De Gucht, was asked at a seminar in Berlin whether the EU planned legal action against China over the issue.

"It is clear we are monitoring the situation quite closely. We need to have clear facts," he answered.

Germany's electronics industry has said the market for rare earths had become "critical" due to reported restrictions on exports from China.

German Economy Minister Rainer Bruederle said his country was "severely affected when it comes to energy resources and ... rare earths which are growing scarce".

"When speculation is rife, you lose the foundation in the economy," he said. "And that is detrimental for the producing industries. Pricing frameworks must remain on our agenda."

Some US consumers of rare earth magnets echoed the German concerns.

"There's going to be a supply crunch, whether it's two years down the road or three years down the road," said Taylor Robinson, an executive of Northern Power Systems, which builds wind mills in Vermont.

Beijing has denied any plans to choke off shipments of the minerals. Chinese state media have criticized foreigners for making "unreasonable" demands on resources China needs for its own economic development.

Washington has called any cutoff in metals, which also have defense and other high-technology applications, a potential threat to the US economy and national security.

US legislation, policy report

US Representative Bart Gordon, chairman of the House of Representatives Committee on Science and Technology, urged industry groups and experts to press their senators to move on a bill passed by the House in September that would support domestic production of rare earth metals.

The proposed legislation, intended to foster a US domestic supply chain for the metals, passed the House last month by a 325-98 margin. But it has not cleared the Senate and could languish for months, he warned.

If there is no movement on the measure, "you're going to lose a few months in the first part of next year trying to get up and going and getting something passed and it would be mid-year probably at best" before something was approved, Gordon told the industry forum.

"We really do need to raise the level of interest on this issue and the importance of it both for economic and national security," Gordon said.

Bauer said the Energy Department is expected to release its strategy in December for boosting global production and diversifying supplies of the metals an important part of the Obama administration's efforts to promote clean energy.

Bauer said the department's plan will look at short-term ways to increase rare earth metal production over the next five years and longer.