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An experiment in scarcity? China and rare earth metals

October 21, 2010

The NY Times reports on China imposing export restrictions on rare earth elements (such as neodynium and scandium and even super-obscure ones like dysprosium and terbium) that are important in computers, communications, and various defense technologies.  LINK

At the moment, China controls much of the reserve market for many of these elements and uncertainty over supply is causing considerable disquiet not only in the private economy but also in the military, as access to such metals is essential in maintaining various technologies key to national defense.

While there is some possibility that mineral resources outside of China will start to become developed in response to price run-ups, the uncertainties themselves make this difficult, given the lag times and the capital investments that are needed to bring any mineral deposit into production.  Why would investors commit major capital to a new rare earth mine if China might just turn around and change its export policies tomorrow?

Given the hyper-concentration of global P reserves in Morocco and China, one can’t help but wonder if political instabilities (local, regional, or global) might lead these countries to someday restrict P exports and thus place global food production under a new and worrisome cloud.  In such a case, the outcome is not a shortage of iPhones and GPS devices but instead a shortage, and price run-up, of key food commodities and thus more hungry people.

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