Rare Earth Mania: When China Squeezed the World's Tech Supply
Your phone has rare earths in it. Your laptop has them. If you drive a hybrid or electric car, it is full of them. Wind turbines need them. Flat screens need them. Pretty much every piece of modern technology needs a tiny bit of these 17 metals that most people have never heard of. Chapter 39 of Torsten Dennin’s “From Tulips to Bitcoins” (ISBN: 978-1-63299-227-7) tells the story of what happened when one country controlled almost all of the supply and decided to squeeze.
What Are Rare Earths?
The name is misleading. Rare earths are not actually rare. The rarest one is still about 200 times more common than gold. There are 17 of them: scandium, yttrium, and 15 elements from the lanthanide group. Names like neodymium, dysprosium, lanthanum, cerium. They sound like spells from a fantasy novel.
But they are real, and they are everywhere in modern technology. Neodymium is used to make permanent magnets. These magnets are in every hard drive, every pair of earbuds, every electric motor. Each megawatt of wind power requires 600 to 1,000 kilograms of iron-boron-neodymium magnets. A Toyota Prius needs about 1 kilogram of neodymium plus 15 kilograms of lanthanum just for its batteries.
If you want green energy and electric cars, you need rare earths. There is no way around it.
China Has Rare Earths
In 1992, Deng Xiaoping said something that did not get much attention at the time: “The Middle East has oil. China has rare earths.”
He was not wrong. By 2011, China was producing roughly 97% of the world’s rare earth supply. About 120,000 tons per year. That is a near-total monopoly.
The interesting part is that China does not have a near-total monopoly on the reserves. They hold about 40% of the world’s known deposits. Russia, the United States, Australia, and India all have significant reserves too. But China had been mining and processing them for decades while everyone else stopped bothering.
This did not happen by accident. China built up its rare earth industry slowly and strategically. They were willing to deal with the environmental costs. They were willing to sell cheap. And as Chinese prices dropped, mines in other countries closed because they could not compete.
The Mountain Pass Story
The United States used to be a major rare earth producer. Mountain Pass Mine in the Mojave Desert, California, supplied most of the world’s demand from the mid-1960s through the late 1990s. Dennin calls this the “Mountain Pass era.”
Then China entered the market with lower prices, and the environmental regulations in California made the mine expensive to operate. Mountain Pass closed in 2002. America went from self-sufficient to completely dependent on Chinese imports in about a decade.
That is the kind of strategic shift that nobody notices until it is too late.
The Squeeze
China had been manipulating rare earth exports for years, similar to how OPEC manages oil. In 2005, they were exporting about 65,000 metric tons per year. Then they started shrinking the quotas. Year after year, the export limits got tighter.
In the first half of 2011, China announced export quotas of just 14,500 metric tons. That is less than a quarter of what they had been exporting six years earlier.
The price reaction was brutal. Neodymium cost about $40 per kilogram in mid-2010. By May 2011, it was around $300 per kilogram. On average, rare earth prices went up 10x between 2009 and 2011.
Then in September 2010, things got political. A Chinese fishing boat captain was detained by Japan near disputed islands. China’s response was to ban all rare earth exports to Japan. Just cut them off. Japan is one of the world’s biggest consumers of rare earths because of its electronics and automotive industries. Imagine being Toyota and being told that the materials you need for every Prius battery are simply not available anymore.
The message was clear. Rare earths were not just a commodity. They were a weapon.
The Environmental Irony
Here is the part that is hard to swallow. Rare earths are essential for clean energy. Wind turbines, electric cars, solar panels. All the technologies we need to fight climate change depend on these metals.
But producing rare earths is one of the dirtiest mining operations on the planet.
Bayan Obo in Inner Mongolia is one of the world’s largest open-air mines. It holds an estimated 35 million metric tons of rare earths and accounts for about half of China’s total production. The mining process generates poisonous residues, thorium, uranium, and heavy metals. Dennin describes how what was once a drinking water reservoir near the mine turned into a toxic waste dump.
So the metals we need for clean energy come from some of the most polluted places on Earth. That is an irony that nobody has a good answer for.
The Gold Rush
When prices went 10x, everyone wanted in. Around 300 companies worldwide started exploring for rare earths. It was a full-blown mania.
In 2013, geologist Don Bubar bought 4,000 hectares of land in Canada for less than $500,000, hoping the deposit underneath would be worth billions. The math was simple. If China was choking supply and prices were through the roof, anyone who could find and mine rare earths outside of China would make a fortune.
Molycorp was the biggest bet. The company went public in 2010 with a plan to reactivate the old Mountain Pass Mine in California. The idea made sense on paper. America had a proven rare earth deposit. China was restricting supply. Prices were skyrocketing. Just open the mine back up and print money.
It did not work out that way. Molycorp filed for bankruptcy in 2015. The company later reorganized as Neo Performance Materials. Turns out reopening a mine that closed for economic and environmental reasons is harder than writing a business plan about it.
Then there was Lynas, an Australian company that started mining at Mount Weld in Australia with refining operations in Kuantan, Malaysia. Their first shipment went out in November 2012. For a while, Lynas looked like it might become the first serious non-Chinese rare earth producer. But in September 2018, an environmental review in Malaysia sent Lynas shares tumbling. The same environmental problems that closed Mountain Pass in California were showing up in Malaysia.
The pattern keeps repeating. Rare earths are dirty to produce. Someone else’s backyard is always the preferred location. And when that backyard pushes back, the project is in trouble.
Made in China 2025
Dennin mentions the “Made in China 2025” plan, a strategic initiative by Premier Li Keqiang. The plan laid out China’s ambitions to dominate high-tech manufacturing. Rare earths were a central piece of that strategy. China was not just selling raw materials. They wanted to move up the value chain and make the finished products too.
Control the raw materials. Control the processing. Control the manufacturing. That is the playbook. And with 97% of global rare earth production, China had the starting position to execute it.
What Stays With Me
This chapter feels different from the classic commodity manias in the book. Tulip mania was about speculation. The Hunt brothers trying to corner silver was about greed. Rare earths are about something more structural.
China did not corner the market through some clever trade. They built it up over decades while everyone else walked away. When the US shut down Mountain Pass because of environmental costs and cheap Chinese imports, nobody raised an alarm. When European and Japanese companies became 100% dependent on Chinese supply, nobody had a backup plan. And when China finally tightened the tap, everybody panicked.
The 10x price spike in 2011 was dramatic. The diplomatic freeze with Japan was scary. But the real lesson is simpler than that. If one country controls 97% of something you need for every phone, every wind turbine, and every electric car, you have a problem. And that problem does not go away when prices come back down.
Deng Xiaoping knew what he had. The rest of the world took about 20 years to figure it out.
Based on Chapter 39 of “From Tulips to Bitcoins” by Torsten Dennin (ISBN: 978-1-63299-227-7, River Grove Books, 2019).
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