Thread by @davidfickling

STOP FREAKING OUT ABOUT RARE EARTHS!

My column today is about why you should go back to not thinking about these weird/scary/exciting metals for another decade. Here's the thread version:
bloomberg.com/amp/opinion/ar…

The reason you most often hear is that they're not really rare.

This is true (cerium, lanthanum and neodymium are somewhere between copper and lead in terms of abundance in the earth's crust) but that's slightly misleading.

Since you can't dig up the entire crust of the earth and Dr Manhattan it into its constituent elements, you need *high-quality* deposits and an efficient processing plant. These are legitimately rare.

In 2010, the last time we had a flap about rare earths, 97% of production of rare earth oxides was happening in China. When Beijing got into a fight with Japan over ownership of some islands east of Taiwan, it cut off supplies.

That was a legitimate worry. Although lots of rare earths are used in humdrum applications like pool cleaner and cigarette-lighter flints, they're also essential for high-strength magnets and a few optical technologies like lasers and phosphors

https://twitter.com/davidfickling/status/1133621193850777600?s=19

Still, there's a well-established playbook for what happens when suppliers start using commodities as tools for geopolitical leverage: Consumers start looking for ways to protect themselves.

We saw that in the 1970s and 1980s, where one of the most long-lasting effects of the 1973 Arab oil embargo was demand destruction and a supply boom.

Western countries started using much less oil per unit of GDP, and capital flowed into developing new basins like the North Sea.

One of the reasons so many soybeans are grown in South America, too, is that the Japanese helped set up the industry after the U.S. tried to use soy as a tool of trade diplomacy.

Since 2010 we've seen the same in rare earths. JOGMEC -- a Japanese state-owned company originally set up to secure oil supplies in the oil-embargo era -- went in with trading house Sojitz to secure alternative supplies.

They provided finance to Australian-Malaysian rare earths company Lynas at waaay below market rates and stood by it for the five years it took to get into production.

As a result, China's share of supply fell from 97% to 71%.
bloomberg.com/opinion/articl…

Things went differently in the U.S. Southwest of Nevada the Mountain Pass mine was historically a big producer but had fallen on hard times. With rare earth prices booming due to China's export ban its owner did an IPO and started work on a $1.7bn upgrade to processing.

That did less well. The U.S. Department of Energy turned them down for a loan guarantee so they had to raise money in the junk bond market at 10% vs. the 3% Lynas was getting from JOGMEC/Sojitz. There were further problems, ending in bankruptcy.

But Mountain Pass is now operating under new ownership, producing semi-processed rare earths which are refined in China and planning to soon move all processing onshore.

And meanwhile rare earths are so abundant that we use them for frivolous things, like making sure your MacBook power cable clips on with a magnetic click. You can buy neodymium oxide for $50/kg to give a lavender tint to pottery glazes, and that's more than you'd find in a Tesla.

It's no surprise China wants to make rare earths a nationalistic rallying cry, but the rest of the world would do well to take a chill pill.

After all, you can't make a rare earths magnet without boron, and about half of the world's supply of that comes from the town of Boron just down the world from Mountain Pass.

I guess Trump could answer Xi's saber-rattling by going on about that.

The better answer, though, is to recognize that our modern lives are built upon trading all sorts of odd and rare substances across borders, and trying to turn them into weapons of geopolitics will almost always backfire. (Ends)