Rare Earth Elements: The Global Supply Chain (CRS)

[Magda Hassan]

CRS Report for Congress
Prepared for Members and Committees of Congress
Rare Earth Elements: The Global Supply
Chain
Marc Humphries
Analyst in Energy Policy
July 28, 2010
Congressional Research Service
7-5700
http://www.crs.gov
R41347
Rare Earth Elements: The Global Supply Chain
Congressional Research Service
Summary
The concentration of production of rare earth elements (REEs) outside the United States raises the
important issue of supply vulnerability. REEs are used for new energy technologies and national
security applications. Is the United States vulnerable to supply disruptions of REEs? Are these
elements essential to U.S. national security and economic well-being?
There are 17 rare earth elements (REEs), 15 within the chemical group called lanthanides, plus
yttrium and scandium. The lanthanides consist of the following: lanthanum, cerium,
praseodymium, neodymium, promethium, samarium, europium, gadolinium, terbium,
dysprosium, holmium, erbium, thulium, ytterbium, and lutetium. Rare earths are moderately
abundant in the earth’s crust, some even more abundant than copper, lead, gold, and platinum.
While more abundant than many other minerals, REE are not concentrated enough to make them
easily exploitable economically. The United States was once self-reliant in domestically produced
REEs, but over the past 15 years has become 100% reliant on imports, primarily from China,
because of lower-cost operations.
There is no rare earth mine production in the United States. U.S.-based Molycorp operates a
separation plant at Mountain Pass, CA, and sells the rare earth concentrates and refined products
from previously mined above-ground stocks. Neodymium, praseodymium, and lanthanum oxides
are produced for further processing but these materials are not turned into rare earth metal in the
United States.
Some of the major end uses for rare earth elements include use in automotive catalytic converters,
fluid cracking catalysts in petroleum refining, phosphors in color television and flat panel
displays (cell phones, portable DVDs, and laptops), permanent magnets and rechargeable
batteries for hybrid and electric vehicles, and generators for wind turbines, and numerous medical
devices. There are important defense applications, such as jet fighter engines, missile guidance
systems, antimissile defense, and space-based satellites and communication systems.
World demand for rare earth elements is estimated at 134,000 tons per year, with global
production around 124,000 tons annually. The difference is covered by previously mined aboveground
stocks. World demand is projected to rise to 180,000 tons annually by 2012, while it is
unlikely that new mine output will close the gap in the short term. New mining projects could
easily take 10 years to reach production. In the long run, however, the USGS expects that global
reserves and undiscovered resources are large enough to meet demand.
Legislative proposals H.R. 4866 (Coffman) and S. 3521(Murkowski) have been introduced to
support domestic production of REEs, because of congressional concerns over access to rare earth
raw materials and downstream products used in many national security applications and clean
energy technologies.
Rare Earth Elements: The Global Supply Chain
Congressional Research Service
Contents
Introduction ...............................................................................................................................1
What Are Rare Earth Elements? ..................................................................................................1
Major End Uses and Applications................................................................................................2
Demand for Rare Earth Elements ..........................................................................................3
The Application of Rare Earth Metals in National Defense ....................................................3
Rare Earth Resources and Production Potential ...........................................................................5
Supply Chain Issues ..............................................................................................................8
Role of China........................................................................................................................9
Rare Earth Legislation in the 111th Congress..............................................................................10
H.R. 4866, the Rare Earths Supply-Chain Technology and Resources Transformation
Act of 2010......................................................................................................................10
S. 3521, Rare Earths Supply Technology and Resources Transformation Act of 2010 .......... 11
H.R. 5136, the Fiscal Year 2011 National Defense Authorization Act................................... 11
P.L. 111-84, the Fiscal Year 2010 National Defense Authorization Act................................. 11
Possible Policy Options.............................................................................................................12
Authorize and Appropriate Funding for a USGS Assessment ...............................................12
Support and Encourage Greater Exploration for REE ..........................................................12
Challenge China on Its Export Policy..................................................................................13
Establish a Stockpile ...........................................................................................................13
Tables
Table 1. Rare Earth Elements (Lanthanides): Selected End Uses..................................................2
Table 2. Rare Earth Elements: World Production and Reserves—2009.........................................6
Contacts
Author Contact Information ......................................................................................................14
Rare Earth Elements: The Global Supply Chain
Congressional Research Service 1
Introduction
The concentration of production of rare earth elements (REEs) raises the important issue of
supply vulnerability. REEs are used for new energy technologies and national security
applications. Is the U.S. vulnerable to supply disruptions? Are these elements essential to U.S.
national security and economic well-being?
The examination of REEs for new energy technologies reveals a concentrated and complex global
supply chain and numerous end-use applications. Placing the REE supply chain in the global
context is unavoidable. U.S. mineral policy emphasizes developing domestic supplies of critical
materials and the domestic private sector to produce and process those materials. 1 But some raw
materials do not exist in economic quantities in the United States, while processing,
manufacturing, and other downstream ventures in the United States may not be competitive with
facilities in other regions of the world. However, there may be public policies enacted or
executive branch measures taken to offset the U.S. disadvantage of its potentially higher cost
operations. The current goal of U.S. mineral policy is to promote an adequate, stable, and reliable
supply of materials for U.S. national security, economic well-being, and industrial production.
Aside from a small amount of recycling, the United States is 100% reliant on imports of REEs
and highly dependent on many other minerals that support its economy. For example, the United
States is more than 90% import-reliant for manganese (100%), bauxite (100%), platinum (94%),
and uranium (90%). While import reliance may be a cause for concern, high import reliance is not
necessarily the best measure, or even a good measure, of supply risk. The supply risk for bauxite,
for example, may not be the same as that for REEs. However, in the case of REEs, the dominance
of China as a single or dominant supplier of the raw material, downstream oxides, associated
metals and alloys, is a cause for concern because of China’s growing internal demand for its
REEs.
This report provides a discussion on the major issues and concerns of the global supply chain for
rare earth elements, their major end uses, and legislative and other policy proposals that Congress
may consider to improve the U.S. rare earth position.
What Are Rare Earth Elements?
There are 17 rare earth elements (REEs), 15 within the chemical group called lanthanides, plus
yttrium and scandium. The lanthanides consist of the following: lanthanum, cerium,
praseodymium, neodymium, promethium, samarium, europium, gadolinium, terbium,
dysprosium, holmium, erbium, thulium, ytterbium, and lutetium. Rare earths are moderately
abundant in the earth’s crust, some even more abundant than copper, lead, gold, and platinum.
1 U.S. mineral policies provide a framework for the development of domestic metal mineral resources and for securing
supplies from foreign sources. Specifically, the Mining and Minerals Policy Act of 1970 (30 U.S.C. §21a) declared that
it is in the national interest of the United States to foster the development of the domestic mining industry “... including
the use of recycling and scrap.” The National Materials and Minerals Policy, Research and Development Act of 1980
(30 U.S.C. 1601), among other things, declares that it is the continuing policy of the United States to promote an
adequate and stable supply of materials necessary to maintain national security, economic well-being and industrial
production, with appropriate attention to a long-term balance between resource production, energy use, a healthy
environment, natural resources conservation, and social needs.
Rare Earth Elements: The Global Supply Chain
Congressional Research Service 2
While some are more abundant than many other minerals, most REEs are not concentrated
enough to make them easily exploitable economically.2 The United States was once self-reliant in
domestically produced REEs, but over the past 15 years has become 100% reliant on imports,
primarily from China, because of lower-cost operations.3
Major End Uses and Applications
Currently, the dominant end use for rare earth elements in the U.S. are for auto catalysts and
petroleum refining catalysts. Some other major end uses for rare earth elements include use in
phosphors in color television and flat panel displays (cell phones, portable DVDs, and laptops),
permanent magnets and rechargeable batteries for hybrid and electric vehicles, and numerous
medical devices. There are important defense applications such as jet fighter engines, missile
guidance systems, antimissile defense, and space-based satellites and communication systems.
Permanent magnets containing neodymium, gadolinium, dysprosium, and terbium are used in
numerous electrical and electronic components and generators for wind turbines. See Table 1
below for selected end uses of rare earth elements.
Table 1. Rare Earth Elements (Lanthanides): Selected End Uses
Light Rare Earths
(more abundant) Major End Use
Heavy Rare Earth
(less abundant) Major End Use
Lanthanum hybrid engines, metal
alloys
Terbium phosphors, permanent
magnets
Cerium auto catalyst, petroleum
refining, metal alloys
Dysprosium permanent magnets,
hybrid engines
Praseodymium magnets Erbium phosphors
Neodymium auto catalyst, petroleum
refining, hard drives in
laptops, headphones,
hybrid engines
Yttrium red color, fluorescent
lamps, ceramics, metal
alloy agent
Samarium magnets Holmium glass coloring, lasers
Europium red color for television
and computer screens
Thulium medical x-ray units
Gadolinium magnets Lutetium catalysts in petroleum
refining
Ytterbium lasers, steel alloys
Source: DOI, U.S. Geological Survey, Circular 930-N.
2 U.S. Department of the Interior (DOI), Geological Survey (USGS), Minerals Yearbook, Volume 1, 2007, Rare Earths
(Advance Release).
3 DOI/USGS, Rare Earth Elements—Critical Resources for High Technology, Fact Sheet 087-02.
Rare Earth Elements: The Global Supply Chain
Congressional Research Service 3
Demand for Rare Earth Elements
World demand for rare earth elements is estimated at 134,000 tons per year, with global
production around 124,000 tons annually. The difference is covered by above-ground stocks or
inventories. World demand is projected to rise to 180,000 tons annually by 2012, while it is
unlikely that new mine output will close the gap in the short term.4 By 2014, global demand for
rare earth elements may exceed 200,000 tons per year. China’s output may reach 160,000 tons per
year (up from 130,000 tons in 2008) in 2014. An additional capacity shortfall of 40,000 tons per
year may occur. This potential shortfall has raised concerns in the U.S. Congress. New mining
projects could easily take 10 years for development. In the long run, however, the USGS expects
that reserves and undiscovered resources are large enough to meet demand.
While world demand continues to climb, U.S. demand for rare earths is also projected to rise,
according to the USGS Commodity Specialist Jim Hedrick.5 For example, permanent magnet
demand is expected to grow by 10%-16% per year through 2012. Demand for rare earths in auto
catalysts and petroleum cracking catalysts is expected to increase between 6% and 8% each year
over the same period. Demand increases are also expected for rare earths in flat panel displays,
hybrid vehicle engines, and defense and medical applications.
The Application of Rare Earth Metals in National Defense6
Current government policies pertaining to the acquisition of certain minerals for defense purposes
are addressed, in part, in several different legislative initiatives, including the Defense Production
Act (P.L. 81-774), National Defense Stockpile [Title 50 United States Code (U.S.C.) 98-h-2(a)],7
Buy American Act (41 U.S.C. 10-10d), Berry Amendment (10 U.S.C. 2533a), and the Specialty
Metal provision (10 U.S.C. 2533b). However, these policies do not present a unified opinion on
whether every mineral is considered “critical,” “strategic,” or necessary for national security
purposes, and there is a certain lack of cohesion to the application of these policies. As an
example, rare earth elements (and rare earth metals) fall outside of the scope of the Berry
Amendment and the Specialty Metal provision.8
4 Rare Earth Minerals: The Indispensable Resource for Clean Energy Technologies, presented at Minerals for a Green
Society Conference, Washington, DC, by Mark A. Smith, CEO, Molycorp Minerals, February 4, 2010.
5 DOI/USGS Minerals Yearbook, Volume 1, 2007.
6 This section was prepared by Valerie Grasso, CRS Foreign Affairs, Defense, and Trade Division.
7 The following information was accessed on March 10, 2010, from the Defense National Stockpile Center website, at
https://www.dnsc.dla.mil/inside.asp., and GlobalSecurity.org, at http://www.globalsecurity.org/military/agency/dod/
dnsc.htm. “The National Stockpile operates under authority of the Strategic and Critical Materials Stockpiling Act (50
U.S.C. 98-h-2(a)). This act provides that strategic and critical materials are stockpiled in the interest of national defense
to preclude a dangerous and costly dependence upon foreign sources of supply in times of national emergency. The
Defense National Stockpile Center administers the storage, management, and disposal of the Nation’s inventory of
strategic and critical materials essential to the military and industrial requirements of the United States in times of
national emergency. The Congress of the United States has authorized the Defense National Stockpile Center to sell
commodities that are excess to Department of Defense needs. Since 1993, DNSC sales have totaled approximately $6.6
billion.”
8 For further discussion on the Berry Amendment and the Specialty Metals provision, see CRS Report RL31236, The
Berry Amendment: Requiring Defense Procurement to Come from Domestic Sources, and CRS Report RL33751, The
Specialty Metal Provision and the Berry Amendment: Issues for Congress, both by Valerie Bailey Grasso.
Rare Earth Elements: The Global Supply Chain
Congressional Research Service 4
The primary defense application of rare earth materials is their use in four types of permanent
magnet materials commercially available: Alnico, Ferrites, Samarium Cobalt, and Neodymium
Iron Boron. With the exception of Neodymium Iron Boron, all of the materials are domestically
produced. The United States has no production capabilities for Neodymium Iron Boron. Neo
magnets, the product derived from Neodymium Iron Boron, and Samarium Cobalt, are considered
important to many defense products. They are considered one of the world’s strongest permanent
magnets and an essential element to many military weapons systems, as described in the
following examples.
• Jet fighter engines and other aircraft components, including samarium-cobalt magnets
used in generators that produce electricity for aircraft electrical systems;
• Missile guidance systems, including precision guidance munitions, lasers, and smart
bombs;9
• Electronic countermeasures systems;
• Underwater mine detection systems;
• Antimissile defense systems;
• Range finders, including lasers; and
• Satellite power and communication systems, including traveling wave tubes (TWT) rare
earth speakers, defense system control panels, radar systems, electronic counter
measures, and optical equipment.10
Many scientific organizations have concluded that certain rare earth metals are critical to U.S.
national security and becoming increasingly more important in defense applications.11 Some
industry analysts are concerned with an increasing dependence on foreign sources for rare earth
metals; a dwindling source of domestic supply for certain rare earth metals; and the emergence of
a manufacturing supply chain that has largely migrated outside of the United States. In July 2010,
the China Ministry of Commerce announced that China would cut its export quota for rare earth
minerals by 72%, raising concerns because of estimates that China controls approximately 97%
of the global production of rare earth minerals.12 It is also estimated that by 2012 China’s
domestic consumption will outpace China’s domestic production of rare earth minerals.
9 For further discussion on precision-guided munitions, see CRS Report RL33539, Intelligence Issues for Congress, by
Richard A. Best Jr., and CRS Report RL30727, Airborne Intelligence, Surveillance, and Reconnaissance (ISR): The U-
2 Aircraft and Global Hawk UAV Programs, by Richard A. Best Jr. and Christopher Bolkcom.
10 Haxel, Gordon B, Hendricks, James B., and Oris, Greta J. Rare Earth Elements: Critical Resources for High
Technology. U.S. Geological Survey, Fact Sheet 087-82, accessed online on March 10, 2010, at http://pubs.usgs.gov/fs/
2002/fs087-02/.
11 Green Jeffrey A. Defense, Energy Markets Should Brace for Shortages of Key Materials. National Defense
Industrial Association, October 2009; U.S. Lacks Data on Supply of Minerals Critical to Economy, National Security;
Defense Stockpile is Ineffective. National Academy of Sciences, October 5, 2007, accessed online at
http://www8.nationalacademies.org/onpine...D=10052007.
12 Chang, Gordon G. Why Does China Want BP? Forbes.com, July 14, 2010. http://www.forbes.com/2010/07/14/bpchina-
oil-opinions-columnists-gordon-g-chang.html
Rare Earth Elements: The Global Supply Chain
Congressional Research Service 5
Some experts are concerned that DOD is not doing enough to mitigate the possible risk posed by
a scarcity of domestic suppliers. As an example, the United States Magnet Materials Association
(USMMA), a coalition of companies representing aerospace, medical, and electronic materials,
has recently expanded its focus to include rare earth metals and the rare earth magnet supply
chain. In February 2010, USMMA unveiled a six-point plan to address what they describe as the
“impending rare earth crisis” which they assert poses a significant threat to the economy and
national security of the United States.13 However, it appears that DOD’s position assumes that
there are a sufficient number of supplier countries worldwide to mitigate the potential for
shortages.
Rare Earth Resources and Production Potential
Rare earth elements often occur with other elements, such as copper, gold, uranium, phosphates,
and iron, and have often been produced as a byproduct. The lighter elements such as lathananum,
cerium, praseodymium, and neodymium are more abundant and concentrated and usually make
up about 80%-99% of a total deposit. The heavier elements—gadolinium through lutetium and
yttrium—are scarcer but very “desirable,” according to USGS commodity analysts.14
Most rare earth elements throughout the world are located in deposits of the minerals
bastnaesite15 and monazite.16 Bastnaesite deposits in the United States and China account for the
largest concentrations of REEs, while monazite deposits in Australia, South Africa, China, Brazil,
Malaysia, and India account for the second largest concentrations of REEs. Bastnaesite occurs as
a primary mineral, while monazite is found in primary deposits of other ores and typically
recovered as a byproduct. Over 90% of the world’s economically recoverable rare earth elements
are found in primary mineral deposits (i.e., in bastnaesite ores).17
Concerns over radioactive hazards associated with monazites (because it contains thorium) has
nearly eliminated it as a REE source in the United States. Bastnaesite, a low-thorium mineral
(dominated by lanthanum, cerium, and neodymium) is shipped from stocks in Mountain Pass,
CA. The more desirable heavy rare earth elements account for only 0.4% of the total stock.
Monazites have been produced as a minor byproduct of uranium and niobium processing. Rare
earth element reserves and resources are found in Colorado, Idaho, Montana, Missouri, Utah, and
Wyoming. Heavy rare earth elements (HREEs) dominate in the Quebec-Labrador (Strange Lake)
and Northwest Territories (Thor Lake) areas of Canada. There are high-grade deposits in Banyan
Obo, Inner Mongolia, China (where much of the world’s REE production is taking place) and
lower-grade deposits in South China provinces providing a major source of the heavy rare earth
elements.18 Areas considered to be attractive for REE development include Strange Lake and
Thor Lake in Canada; Karonga, Burundi; and Wigu Hill in Southern Tanzania.
13 Magnet Materials Supply Chain Players Propose Six-Point Plan to Address Impending Rare Earths Crisis, USMMA,
February 4, 2010, accessed online at http://www.usmagnetmaterials.com/?p=74.
14 Ibid.
15 Bastnaesite is mineral with the formula (Ce, La)CO3(F,OH) that may contain other rare earth elements.
16 Monazite is a mineral with the formula (Ce, La, Nd, Th)PO4 that may contain other rare earth elements.
17 DOI/USGS Circular 930 N, International Strategic Minerals Inventory Summary Report—Rare Earth Oxides, by
Wayne Jackson and Grey Christiansen, 1993.
18 Dr. Anthony N. Mariano, The Nature of Economic REE and Y Minerals on a World Level, presented at the MIT
Energy Initiative Workshop, April 29, 2010.
Rare Earth Elements: The Global Supply Chain
Congressional Research Service 6
Careful consideration should be given to the feasibility of mining and processing of REEs as a
byproduct of phosphorus deposits and from titanium and niobium mines in Brazil.19 Canadian,
Chinese, and U.S. firms have recently assessed various REE deposits associated with
development of primary minerals such as gold, iron ore, and mineral sand projects in the United
States. Table 2 below illustrates China’s near-monopoly position in world rare earth production.
However, REE reserves and the reserve base are more dispersed throughout the world. China
holds 36% of the world’s reserves (36 million metric tons out of 99 million metric tons) and the
United States holds about 13%. South Africa and Canada (included in the “Other” category) have
significant REE potential, according to the USGS. REE reserves are also found in Australia,
Brazil, India, Russia, South Africa, Malaysia, and Malawi.
Table 2. Rare Earth Elements: World Production and Reserves—2009
Country
Mine
Production
(metric tons)
% of
total
Reserves
(million metric tons)
% of
total
Reserve Basea
(million metric
tons)
% of
total
United States none 13.0 13 14.0 9.3
China 120,000 97 36.0 36 89.0 59.3
Russia
(and other
former Soviet
Union countries)
19.0 19 21.0 14
Australia 5.4 5 5.8 3.9
India 2,700 2 3.1 3 1.3 1
Brazil 650 small
Malaysia 380 small
Other 270 22.0 22 23 12.5
Total 124,000 99.0 154
Source: U.S. Department of the Interior, Mineral Commodity Summaries, USGS, 2010.
a. Reserve Base is defined by the USGS to include reserves (both economic and marginally economic) plus
some subeconomic resources (i.e., those that may have potential for becoming economic reserves).
There is no rare earth mine production in the United States. U.S.-based Molycorp operates a
separation plant at Mountain Pass, CA, and sells the rare earth concentrates and refined products
from previously mined above-ground stocks. Neodymium, praseodymium, and lanthanum oxides
are produced for further processing, but these materials are not turned into rare earth metal in the
United States. While the United States exports much of its REE stocks to Japan, that material is
not counted in the trade equation for import reliance because the material is not produced from a
primary source.
19 Ibid.
Rare Earth Elements: The Global Supply Chain
Congressional Research Service 7
Molycorp, which has an exploration program underway to further delineate its rare earth mineral
deposits, has plans for full mine production in the second half of 2012 and has plans to modernize
its refinery facilities. Molycorp’s Mountain Pass deposit contained an estimated 30 million tons of
REE reserves and once produced as much as 20,000 tons per day.20 Mountain Pass cut-off grade
(below which the deposit may be uneconomic) is, in some parts, 7.6%, while the average grade is
9.6%. U.S. Rare Earth (another U.S. based company), in the pre-feasibility stage of mine
development, has long-term potential because of its large deposits in Idaho, Colorado, and
Montana.21
Canadian deposits contain the heavy rare earth elements dysprosium, terbium, and europium,
which are needed for magnets to operate at high temperatures. Great Western Minerals Group
(GWMG) of Canada and Avalon Rare Metals have deposits with an estimated high content (1%-
2%) of heavy rare earth elements.22 Avalon is developing a rare earth deposit at Thor Lake in the
Northwest Territories of Canada. Drilling commenced in January 2010. Thor Lake is considered
by some in the industry to contain one of the largest REE deposits in the world with the potential
for production of heavy REEs.23 GWMG owns a magnet alloy producer in the U.K. When
GWMG begins production in Canada and elsewhere, they plan to have a refinery near the mine
site allowing greater integration and control over the supply chain. Great Western’s biggest
advantage could be its potential for a vertically integrated operation.
The Lynas Corp., based in Australia, has immediate potential for light rare earths development,
according to investor analyst Jack Lifton. Development of Lynas’s Mt. Weld deposit in Australia
is underway and there is potential to reopen the rare earth mine Steenkampskraal in South Africa.
An agreement between GWMG and Rare Earth Extraction Co. Ltd. of Stellenbosch to develop
the mine is in progress. The Japan Oil, Gas, and Metals National Corporation (JOGMEC) signed
an agreement with Midland Exploration Inc. for development of the Ytterby project in Quebec,
Canada. JOGMEC is under the authority of the Japanese Ministry of Economy, Trade, and
Industry with a mandate to invest in projects worldwide to receive access to stable supplies of
natural resources for Japan.
Access to a reliable supply to meet current and projected demand is an issue of concern. In 2009,
China produced 97% of the world’s rare earth elements (measured in rare earth oxide content)
and continues to restrict exports of the material through quotas and export tariffs. China has plans
to reduce mine output, eliminate illegal operations, and restrict REE exports even further. There
are some immediate supply concerns with lower rare earth export quotas in China. China has cut
its exports of rare earth elements from about 50,000 metric tons in 2009 to 30,000 metric tons in
2010. According to a Bloomberg news report, a July 2010 announcement by China’s Ministry of
Commerce would cut exports of REEs by 72%, to about 8,000 metric tons, for the second half of
2010.24
While limited production and processing capacity for rare earths currently exists elsewhere in the
world, additional capacity is expected to be developed in the United States, Australia, and Canada
20 The Jack Lifton Report, The Rare Earth Crisis—Part I, by Jack Lifton, October 2009.
21 Rare Earth Strategic Supplies More Important Than Price, Industrial Metals/Minerals Interview of Jack Lifton by
The Gold Report, December 14, 2009.
22 Ibid.
23 Ibid.
24 “China Cuts Rare Earth Export Quota,” Bloomberg News Report, July 9, 2010.
Rare Earth Elements: The Global Supply Chain
Congressional Research Service 8
within two to five years, according to some experts.25 Chinese producers are also seeking to
expand their production capacity in areas around the world, particularly in Australia. There are
only a few exploration companies that develop the resource, and because of long lead times
needed from discovery to refined elements, supply constraints are likely in the short term.
Supply Chain Issues
The supply chain for rare earth elements generally consist of mining, separation, refining,
alloying, and manufacturing (devices and component parts). A major issue for REE development
in the United States is the lack of refining, alloying, and fabricating capacity that could process
any future rare earth production. There are two U.S. companies (Electron Energy Corporation
(EEC) in Landisville, PA, and Santoku America in Tolleson, AZ) producing samarium-cobalt
(Sm-Co) permanent magnets, while there are no U.S. producers of the more desirable
neodymium-iron-boron magnets needed for numerous consumer electronics, energy, and defense
applications. Even the REEs needed for these magnets that operate at the highest temperatures
include small amounts of dysprosium and terbium, both available only from China at the moment.
EEC, in its production of its Sm-Co permanent magnet, uses small amounts of gadolinium—an
REE of which there is no U.S. production. EEC imports magnet alloys used for its magnet
production from China.
A Government Accountability Office (GAO) report illustrates the lack of U.S. presence in the
REE global supply chain at each of the five stages of mining, separation, refining oxides into
metal, fabrication of alloys and the manufacturing of magnets and other components.26 China
produces 97% of the REE raw materials, about 97% of rare earth oxides, and is the only exporter
of commercial quantities of rare earth metals (Japan produces some metal for its own use for
alloys and magnet production). About 90% of the metal alloys are produced in China (small
production in the United States) and China manufactures 75% of the neodymium magnets and
60% of the samarium magnets. A small amount of samarium magnets are produced in the United
States. Thus, even if rare earth production ramps up, much of the processing/alloying and metal
fabrication would occur in China. According to investor analyst Jack Lifton, the rare earth metals
are imported from China, then manufactured into military components in the United States or by
an allied country.
Lifton states that many investors believe that for financing purposes, it is not enough to develop
REE mining operations alone without building the value-added refining, metal production, and
alloying capacity that would be needed to manufacture component parts for end-use products.
According to Lifton, vertically integrated companies may be more desirable. It may be the only
way to secure investor financing for REE production projects.27 Joint ventures and consortiums
could be formed to support production at various stages of the supply chain at optimal locations
around the world. Each investor or producer could have equity and offtake commitments. Where
U.S. firms and its allies invest is important in meeting the goal of providing a secure and stable
25 Jack Lifton, “Is The Rare Earth Supply Crisis Due to Peak Production Capability or Capacity,”
michaelperelman.worldpress.com, September 6, 2009.
26 U.S. Government Accountability Office, Rare Earth Materials in the Defense Supply Chain, GAO-10-617R, April 1,
2010.
27 Op. Cit., Lifton Interview by The Gold Report, December 14, 2009.
Rare Earth Elements: The Global Supply Chain
Congressional Research Service 9
supply of REEs, intermediate products, and component parts needed for the assembly of end-use
products.
Role of China
State-run (“State-Key”) labs in China have consistently been involved in research and
development of REEs for over fifty years. There are two State-Key labs: (1) Rare Earth Materials
Chemistry and Applications, which has focused on rare earth separation techniques and is
affiliated with Peking University, and (2) Rare Earth Resource Utilization, which is associated
with the Changchun Institute of Applied Chemistry. Additional labs concentrating on rare earth
elements include the Baotou Research Institute of Rare Earths, the largest rare earth research
institution in the world, established in 1963, and the General Research Institute for Nonferrous
Metals established in 1952.28 This long term outlook and investment has yielded significant
results for China’s rare earth industry.
Major iron deposits in the Bayan Obo in Inner Mongolia contain significant rare earth elements
recovered as a byproduct or co-product of iron ore mining. China has pursued policies that would
use Bayan Obo as the center of rare earth production and R&D. REEs are produced in the
following provinces of China: Baotao (Mongolia) Shangling, Jiangxi, Guangdong, Hunan,
Guangxi, Fujian, and Sischuan. Between 1978 and 1989, China’s annual production of rare earth
elements increased by 40%. Exports rose in the 1990s, driving down prices. In 2007, China had
130 neo-magnet producers with a total capacity of 80,000 tons. Output grew from 2,600 tons in
1996 to 39,000 tons in 2006.
Spurred by economic growth and increased consumer demand, China is ramping up for increased
production of wind turbines, consumer electronics, and other sectors, which would require more
of its domestic rare earth elements. Safety and environmental issues may eventually increase the
costs of operations in China’s rare earth industry as domestic consumption is becoming a priority
for China. REE manufacturing is set to power China’s surging demand for consumer
electronics—cell phones, laptops and green energy technologies. According to the report by
Hurst, China is anticipating going from 12 gigawatts (GW) of wind energy in 2009 to 100 GW in
2020. Neodymium magnets are needed for this growth.29
China’s policy initiatives restrict the exports of rare earth raw materials, especially dysprosium,
terbium, thulium, lutetium, yttrium, and the heavy rare earths. The export restrictions would not
likely affect the downstream metal or magnets. According to Hurst, China wants an expanded and
fully integrated REE industry where exports of value-added materials are preferred. It is common
for a country to want to develop more value-added production and exports if it is possible. Hurst
also suggests China wants to build strategic stockpiles of raw materials as South Korea and Japan
have done, and thus have better control over global supply and prices.
28 China’s Rare Earth Elements Industry: What Can the West Learn? by Cindy Hurst, Institute for the Analysis of
Global Security, March 2010.
29 Ibid.
Rare Earth Elements: The Global Supply Chain
Congressional Research Service 10
Rare Earth Legislation in the 111th Congress
Congress is concerned about the potential problems with access to rare earth raw materials and
downstream products used in many national security applications and clean energy technologies.
Legislative proposals have been introduced in the 111th Congress to address these issues.
H.R. 4866, the Rare Earths Supply-Chain Technology and Resources
Transformation Act of 2010
The House bill, H.R. 4866 (Coffman) was introduced on March 29, 2010, has 16 co-sponsors,
and was referred to the House Committee on Ways and Means, Subcommittee on Trade. The
purpose of the bill is
To reestablish a competitive domestic rare earths minerals production industry; a domestic
rare earth processing, refining, purification, and metals production industry; a domestic rare
earth metals alloying industry; and a domestic rare earth based magnet production industry
and supply chain in the United States.
The bill would establish executive agents (at the Assistant Secretary level) from the Departments
of Commerce, Defense, Energy, Interior, and State to serve on an interagency working group. The
U.S. Trade Representative (USTR) and White House Office of Science and Technology Policy
would also appoint representatives to the working group. The secretaries and the representatives
appointed from above agencies would assess rare earth supply chain to determine which REEs are
critical to national and economic security. Based on a critical designation, rare earth elements
would be stockpiled in the national stockpile administered by the Defense Logistics Agency as
part of the National Defense Stockpile. The DLA would, if necessary, make a commitment to
purchase rare earth raw materials to process and refine raw materials including purchases made
from China if necessary. Stockpiling would be terminated when working group agencies
determine REEs are no longer critical to U.S. national security or economic well-being.
The USTR would review international trade practices of REE producers to examine possible
market manipulation. Action before the WTO would be possible. Loan guarantees would be
provided for supply chain development and the House bill would require a report that would
describe “mechanisms” for obtaining loan guarantees for new supply chain development in the
U.S. The Department of Defense (DOD) would issue guidance for obtaining loans for new
defense supply chains and the Department of Energy (DOE) would issue guidance for
development of a domestic supply chain for civilian and commercial purposes.
There is a Sense of Congress statement that would use the Defense Production Act (DPA) of 1950
to develop domestic rare earth supply chain and to provide workforce development and training
to reestablish the United States as the preeminent center for rare earths production. R&D funding
would also be authorized and if no projects are taking place under DPA, the Congress would want
to be notified.
Rare Earth Elements: The Global Supply Chain
Congressional Research Service 11
S. 3521, Rare Earths Supply Technology and Resources
Transformation Act of 2010
A Senate proposal, S. 3521(Murkowski), similar to the House bill, would expedite permitting to
increase domestic exploration and development of REEs. A Rare Earth Policy Task Force would
be established and would be composed of the Secretaries of Interior, Energy, Defense,
Commerce, State, and Agriculture. A representative from OMB, CEQ, and others as deemed
necessary by the Secretary of the Interior would also serve on the task force. The Rare Earth
Policy Task Force would monitor the acceleration of REE projects, review policies that
discourage REE development, and report to Congress on results annually. The Secretaries of
Interior, Energy, and others would assess supply chain vulnerability and determine elements
“critical” to clean energy technologies. They would prepare a stockpile report to determine if rare
earth materials critical for clean energy technology, national and economic security should be
stockpiled and determine if legal authorities exist to procure stockpile.
If a stockpile were established for clean energy, national defense, and economic security of the
United States, it would contain rare earth oxides, and other storable forms of rare earths and
alloys. DOE would issue guidance on obtaining loan guarantees to support a domestic supply
chain for clean energy and defense technologies. The DPA would be used to reestablish a
domestic supply chain of REEs. A sense of the Congress provision would fund workforce
development and training and R&D.
H.R. 5136, the Fiscal Year 2011 National Defense Authorization Act
The House-passed bill (H.R. 5136) would require the Secretary of Defense to assess the rare earth
material supply chain to determine if any of the materials were strategic or critical to national
security. If the material is determined to be strategic, the Secretary would be required to develop a
plan to ensure long-term availability by December 31, 2015. The Secretary shall submit a report
to Congress on the assessment and the plan not later than 180 days after enactment of this
legislation.
Also, based on congressional findings, among other things, there is an urgent need to eliminate
U.S. vulnerability related to the supply of neodymium iron boron magnets and to restore the
domestic capacity to manufacture sintered neodymium iron boron magnets used in defense
applications. Within 90 days of enactment of this bill the Secretary of Defense would be required
to submit a plan, to the appropriate congressional committees, to establish a domestic source of
sintered neodymium iron boron magnets used in defense applications.
P.L. 111-84, the Fiscal Year 2010 National Defense Authorization Act
In the proposed House and Senate (H.R. 2647/S. 1390) versions of the defense authorization bill
for 2010, Representative Mike Coffman and Senator Evan Bayh introduced legislation to direct
the Comptroller General to determine the extent to which specific military weapons systems are
currently dependent upon rare-earth materials and the degree to which the United States is
dependent upon sources that could be interrupted or disrupted. The measure also directed DOD to
describe the risks (both current and projected) involved in the United States’ dependence on
foreign sources of these materials, and any steps DOD has taken or plans to take to address any
Rare Earth Elements: The Global Supply Chain
Congressional Research Service 12
potential risks to national security.30 The measure was passed in the Fiscal Year 2010 National
Defense Authorization Act.31
Possible Policy Options
Authorize and Appropriate Funding for a USGS Assessment
In addition to the two current legislative proposals, Congress could authorize and appropriate
funding for a USGS comprehensive assessment to identify economically exploitable REE
deposits (as a main product or co-product), and where REE could be exploited as a byproduct.
Authorizations and additional appropriations could be supported for basic science research on
substitutes and efforts at secondary recovery for REEs. Additionally, R&D may be necessary on
how to proceed in the exploitation of high-thorium monazite deposits where REE could be
produced as a byproduct.
Support and Encourage Greater Exploration for REE
Supporting/encouraging greater exploration for REE efforts in the United States, Australia,
Africa, and Canada could be part of a broad international strategy. There are only a few
companies in the world that can provide the exploration and development skills and technology
for REE development. These few companies are located primarily in Canada, Australia, China,
South Africa, and the United States, and may form joint ventures or other types of alliances for
30 McCormack, Richard. China’s Complete Control of Global High-Tech Magnet Industry Raises U.S. National
Security Alarms. Manufacturing & Technology News, Vol. 16, No. 16, September 30, 2009, viewed online at
http://www.manufacturingnews.com/news/09...gnets.html.
31 P.L. 111-84 was signed into law on October 28, 2009. The text, as it appears in the bill, reads as follows.
Sec. 843. Report on Rare Earth Materials in the Defense Supply Chain.
(a) Report Required.—Not later than April 1, 2010, the Comptroller General shall submit to the
Committees on Armed Services of the Senate and House of Representatives a report on rare earth
materials in the supply chain of the Department of Defense.
(b) Matters Addressed.—The report required by subsection (a) shall address, at a minimum, the
following: (1) An analysis of the current and projected domestic and worldwide availability of rare
earths for use in defense systems, including an analysis of projected availability of these materials
in the export market. (2) An analysis of actions or events outside the control of the Government of
the United States that could restrict the access of the Department of Defense to rare earth materials,
such as past procurements and attempted procurements of rare earth mines and mineral rights. (3) A
determination as to which defense systems are currently dependent on, or projected to become
dependent on, rare earth materials, particularly neodymium iron boron magnets, whose supply
could be restricted—(A) by actions or events identified pursuant to paragraph (2); or (B) by other
actions or events outside the control of the Government of the United States. (4) The risk to
national security, if any, of the dependencies (current or projected) identified pursuant to paragraph
(3). (5) Any steps that the Department of Defense has taken or is planning to take to address any
such risk to national security. (6) Such recommendations for further action to address the matters
covered by the report as the Comptroller General considers appropriate. © Definitions.—In this
section: (1) The term “rare earth” means the chemical elements, all metals, beginning with
lanthanum, atomic number 57, and including all of the natural chemical elements in the periodic
table following lanthanum up to and including lutetium, element number 71. The term also includes
the elements yttrium and scandium. (2) The term “rare earth material” includes rare earth ores,
semi-finished rare earth products, and components containing rare earth materials.
Rare Earth Elements: The Global Supply Chain
Congressional Research Service 13
R&D, and for exploration and development of REE deposits worldwide, including those in the
United States. Whether there should be restrictions on these efforts in the United States is a
question that Congress may ultimately choose to address.
Challenge China on Its Export Policy
Challenging China on its export restrictions through the WTO would involve filing a dispute
based on WTO rules that generally prohibit members from imposing restrictions (i.e., quotas) or
other restraints (e.g., minimum prices or licensing) on exports. In June 2009, the United States
filed a dispute over raw material exports from China, which included: bauxite, coke, fluorspar,
magnesium, manganese, silicon carbide, silicon metal, yellow phosphorus and zinc.32 Some REE
analysts assert that China sets export restrictions to meet growing Chinese demand for raw
materials and to force the manufacturing of end-use products in China.33
Establish a Stockpile
Establishing a government-run economic stockpile and/or private-sector stockpiles that would
contain supplies of specific REE broadly needed for “green initiatives” and defense applications
is a policy advocated by some in industry and government. This may be a prudent investment.
Generally, stockpiles and stockpile releases could have an impact on prices and supply but would
also ensure supplies of REE materials (oxides, metals, etc.) during times of normal supply
bottlenecks. An economic stockpile could be costly and risky, as prices and technology may
change the composition of REEs that are needed in the economy.
According to USGS,34 DOD along with USGS is examining which of the REEs might be
necessary in the National Defense Stockpile (NDS). In the recent past, NDS materials were stored
for wartime use based on a three-year war scenario. Some of the rare earth elements contained in
the National Defense Stockpile were sold off by 1998. However, rare earth elements were never
classified as strategic minerals.35 DOD had stockpiled some yttrium but has since sold it off, and
none of the REEs have been classified as strategic materials. A critical question for stockpile
development would be: What materials along the supply chain should be stockpiled? For
example, should the stockpile contain rare earth oxides or alloyed magnets which contain the
REEs, or some combination of products?
The National Research Council (NRC) has produced an in-depth report on minerals critical to the
U.S. economy and offers its analysis as described here: “... most critical minerals are both
essential in use (difficult to substitute for) and prone to supply restrictions.”36 While the NRC
report is based on several availability criteria used to rank minerals for criticality (geological,
technical, environmental and social, political, and economic), REEs were determined to be
32 Office of the U.S. Trade Representative, Press Release, “WTO Case Challenging China’s Export Restraints on Raw
Material Inputs,” June 23, 2009.
33 Irma Venter, “Investors take closer look at rare earth elements as technology, green revolution pick up pace,” Mining
Weekly Online, http://www.miningweekly.com, September 18, 2009.
34 Phone interview with Jim Hedrick, Rare Earth Specialist, USGS, October 1, 2009.
35 For a discussion of the strategic materials for defense uses, see CRS Report RL33751, The Specialty Metal Provision
and the Berry Amendment: Issues for Congress, by Valerie Bailey Grasso.
36 National Research Council, Minerals, Critical Minerals, and the U.S. Economy, National Academies Press, 2008.
Rare Earth Elements: The Global Supply Chain
Congressional Research Service 14
critical materials assessed at a high supply risk and the possibility of severe impacts if supplies
were restricted. Some of the REE applications are viewed as more important than others and
some are at greater risk than others, namely the Heavy Rare Earth Elements (HREEs), as
substitutes are unavailable or not as effective.37
The federal government and private sectors are beginning to address how to secure reliable rare
earth materials (raw materials through metals and alloys) from China and non-Chinese sources in
the short term, and how to rebuild the U.S. supply chain for the long term.
Author Contact Information
Marc Humphries
Analyst in Energy Policy
mhumphries@crs.loc.gov, 7-7264
37 DOI/USGS, Minerals Yearbook, Volume 1, 2007.
http://www.fas.org/sgp/crs/natsec/R41347.pdf