Precious Holdings

Precious Holdings*

Kiyotaka ISHIKAWA

Rare earths, materials crucial to the production of everything, are hard to identify in those products but have as big stake as oil in our daily lives. For example, our hard disk drives will not work without just a few cents’ worth of neodymium as well as Toyota Prius without a few tens of dollars of dysprosium. Unfortunately, the production of these products have the largest share in Japan’s manufacturing industry, but, what is worse than that is China takes control of almost all rare-earth elements in the global market. While the Chinese government manipulate the prices to get the most from the rare-earth market that is a monopoly of China, Japan have survived over the absolute shortage and price spike of rare earths through 2010 to 2011, which I believe is full of suggestions about Japan’s resource allocation and diplomatic strategy. 

Nature of Rare-Earth Market Controlled by China

The global market of rare earths is not so big. Its scale is only about $2 billion, roughly equal to U.S. chewing-gum sales, but 95% of the global supply is produced by China. The Chinese government know how to maximize the revenue even under the recession after the world financial crisis. Given the decreasing world’s demand and raising cost for labors at mining sites and refineries, the government gradually tightened the amount of rare-earth elements that domestic producers were allowed to export; in 2010, Beijing slashed its export quota by 40%. This triggered a global panic, rising 300% to 1,000% at price depending on the elements, which would be beyond the Chinese authorities have expected. However, they learned China’s position at the rare-earth market can be a diplomatic pressure on Japan; actually, China stopped delivery of rare earths to Japan for two months that is seen as an indirect provocation over the ongoing territorial dispute. 

Japan’s Response Reminds the Oil Shock

Japan, which purchase about two-thirds of China’s rare-earth export, was the country that had the most severe economic impacts from the market’s tight balance. Japan’s economy is heavily reliant on the high-tech manufacturing industry such as the production of electronic-device components and specialized magnets. The government of Japan immediately responded to the global crisis of the rare-earth market by funding $1 billion worth of subsidies to promote this industry to find new sources of rare earths outside China, develop alternative materials and improve recycling. 

The aggressive investment into the development of new suppliers and rare-earth saving technologies seems to be paying off. This response is a speciality of Japan that have a number of achievement in the country’s history; the most remarkable ones are the energy-saving technologies like hybrid cars after the oil shock in which discipline Japan still lead the world. Although the investment is undermining China’s diplomatic superiority to Japan, the rare-earth market is only one of the cards China can play. In order to change the rule of the game, Japan should keep trading with China even if each country has different concerns. Considering refining rare earths is a complex and environmentally hazardous, Japan can provide China with more efficient and green technologies in reward for the stable supply of rear-earth elements. 

*Article from TIME, Feb 18, 2013