End in Sight for China's REE Dominance

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"REE market's volatility/risk may also have unintended consequences for China."

China's mining and export quota cutbacks have affected the market so drastically that rare earth elements (REEs) were one of the biggest commodities stories in 2010. Lawmakers scrambled to provide loan guarantees to U.S. REE companies and there were rumors WTO trade disputes and a politically charged showdown between Japan and China.

However, the volatility and risk associated with the REE market may also have unintended consequences for China, mainly the desire of high-tech manufactures looking for alternatives to REEs. When coupled with the increase of upstart mining firms filling in the supply gaps in the future, the era of China's rare earth dominance may have a chink in its armor.

While alternatives to REEs in numerous high-tech products are mainly in the developmental phase, many companies are looking to reduce the use of REEs in their products. Continental AG and Toyota have started developing electric motors for its hybrid vehicles based on ferrous magnets. However, Toyota isn't moving away from rare earths too quickly, as it announced an REE processing plant underway in India.

Wind turbine manufacturer GE has also stated a desire to produce turbines with a highly reduced percentage of rare earths such as neodymium. GE "is working on a project partly funded by the DOE that aims to reduce the amount of rare earths in its electricity-generating wind turbines by up to 80%," reported Reuters. The move away from REEs in electric motors is a huge demand-side reduction that could equalize the supply shortages.

The strategy of enticing manufacturers that use REEs to produce their products in China may also backfire due to its government policies. Not only have many of these manufacturing firms incurred costs in developing current production facilities, but the "lax intellectual-property protections will continue to discourage production in China," stated The Wall Street Journal.

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