China’s Power Over The Rare Earth Market Is A Lot Less Than You Might Think

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The last time China tried to throw its weight around in the rare earths market it all rather backfired. As I predicted it would at the time in fact:

China’s Tried This Before Of Course
Another reason to think they’ll tread carefully is that China has tried this before, back in 2010. And as I pointed out back then – while it was still happening – it wasn’t going to work: If rare earths are so precious, why isn’t the United States working harder to collect them? The main reason is that, for these last 25 years, China has been supplying all we could eat at prices we were more than happy to pay. If Beijing wants to raise its prices and start using supplies as geopolitical bargaining chips, so what? The rest of the world will simply roll up its sleeves and ramp up production, and the monopoly will be broken.

Four years later Marginal Revolution pointing out that I did in fact get that right: Bonus points to Tim Worstall, economist blogger and rare earth dealer, who in 2010 at the height of the crisis pointed out that rare earths were neither rare nor earths and China’s monopoly had been won only by low prices that accrued to our benefit. Well, that’s my ego polished for the day.

A reasonable conclusion therefore would be that China’s not going to try that again.

You know, maybe?

However, if it does all kick off then do understand the truly basic point here. Don’t go and buy rare earths. Last time around a bunch of spivs started selling them fraudulently as suitable retail investments. I’ve been offering expert evidence in a number of trials over the past few years and I’m not aware of one that hasn’t ended in convictions as yet….

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Dodgy Geezer
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Dodgy Geezer

Rare Earths may not be rare, but there still remains the cost of ramping up alternative sources. It would be instructive to know:

1 – how easy it would be for other supply chains to supply the full deficit
2 – what the estimated increased cost would be
3 – what the downstream impact would be on finished goods…

timworstall
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timworstall

Most manufacturing using rare earths is inside China anyway. Outside use is maybe 40,000 tonnes a year. Two big mine’s worth and two processing plants. And we’ve one of each already.

Call it A $ billion to get a second processing pant up and running. Cheaper if government tells the enviros to bugger off and not delay planning.

Assume there’s the political will, downstream effect is nothing.

If we assume actual disaster/war -style reactions, it’s an entirely trivial problem.

Dodgy Geezer
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Dodgy Geezer

Thank you for that informative and rapid response!

Factoring in modern thinking, however, I fear that:

1 – the media will portray this as an economic and environmental disaster
2 – the Greens will make a major effort to stop it
3 – the mining industry will fall in with these demands

and the result will be that we will keep buying from China at vastly increased prices which will fund a complete Chinese monopoly…

timworstall
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timworstall

Well, yes, I take the point. And share the general view. Except in this particular case- because there’s real private money involved – it didn’t work out that way only 9 years ago.

Dodgy Geezer
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Dodgy Geezer

It is probably impossible to fight a social madness. Sometimes I wonder if we should commission a second book in the series following Charlie Mackay’s excellent book on Popular Delusions….

Quentin Vole
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Quentin Vole

Up to a point. No doubt lower environmental standards in China allow them to produce many things more cheaply than would be possible in the West (although it’s probably a rounding error in comparison to labour rates etc.) But if they tried to seriously screw us over on rare earth pricing, I think there’d soon be a reaction that would override the best efforts of the Greens (who can always be told that production in the West would cause less environmental damage, which is almost certainly true).

Dodgy Geezer
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Dodgy Geezer

I have not found that Environmentalists actually follow or support environmental arguments. They follow their leaders, who are after absolute power, and are quite happy to argue that black is white so long as they can get it…

Quentin Vole
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Quentin Vole

SJWs are happy to argue black is white as long as it doesn’t directly affect them personally. Wait until they can’t get earbuds for their iPhones …

Dodgy Geezer
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Dodgy Geezer

I suspect that it never will affect them personally. They don’t seem to have any difficulty with flying everywhere while telling the proles to cut back on their annual holiday to Spain. So I suspect that we will find that special provision will be made for iPhones ‘for environmental purposes’. Do you recall the ‘special shops’ in the Soviet Union for the privileged? “…Normal shops in the Soviet Union had a huge problem of goods supply and the goods presented were strongly uniform. And it was quite common to queue for a long time to buy the most basic things.… Read more »