China: control of rare metals threatens jobs

China is facing increasing criticism for holding down the value of its currency to gain export advantage, and for its cyber-attacks against Google . But another growing concern is its control of rare earth metals critical to high-tech manufacturing.

China's pricing of these metals is so low that it has become unprofitable for mining companies in U.S. and other Western countries to mine and process them.

The U.S. is almost completely dependent on China for these metals. One metal, neodymium, is used in hard-disk drive magnets, and nearly 100% of its production today is in China.

"China appears to view rare earths as one of the incentives they can offer a technology firm scouting for a new plant location," said U.S. Rep. Brad Miller (D-N.C.) of the U.S. House Committee on Science and Technology, in a statement on Tuesday.

"How do we compete in attracting and retaining manufacturing firms that need access to rare earth elements in light of China's current near monopoly, and their willingness to use their monopoly power to our disadvantage?"

Jack Lifton, a Detroit-based independent consultant on rare earth metals, said that the Chinese have managed to keep the price of neodymium very low. "It's not about making a profit," he said, in an interview.

The U.S. has sufficient natural supply of rear earth elements but the cost of mining them is too great because of the price set by China have given it, in effect, a monopoly. "They have priced the stuff so low that they have made it impossible to mine it here," Lifton said.

If the price of rare earth metals was competitive, Lifton said he believes the U.S. could revive some manufacturing industries.

The major source of rare earth deposits in the U.S. was at Mountain Pass, Calif., but mining operations ceased 2002. The new mine owner, Molycorp Minerals LLC, sells existing deposits, but it is working on a plan to resume mining.

But mining is only part of the process. The U.S. has lost its capacity to manufacture rare earth metals, and those capabilities will have to be reintroduced into the U.S.

One of the last U.S. companies manufacturing rare earth magnets was Valparaiso Ind.-based Magnequench Inc., which was acquired by a Chinese company and eventually moved to China about five years ago.

"This deal and subsequent deals around the globe have allowed China to come closer to cornering the market in rare earth minerals," wrote the U.S. China Economic and Security Review Commission in a 2005 report.

"Of equal concern is the transfer of technology, including patents, allowing China to control development of next-generation products using rare earth minerals," the report said.

Mark Smith, CEO of Molycorp Minerals, told the congressional committee this week that "while the U.S. still possesses the technical expertise, we have lost the necessary infrastructure to manufacture the rare earth metals and magnets that fuel next generation technologies."

Along with high-tech uses, rare metals are heavily used by defense and, increasingly, for clean energy.

China has acquired 100% of the associated rare earth metal production. This is causing much concern because, Smith said, "China's national consumption of rare earth resources is growing at an intense pace, consistent with their meteoric GDP growth, and it is leaving the rest of the world with less of these critical materials just as the clean energy economy is beginning to gain momentum."