U.S. moves to nail down strategic metals

Rare-earth minerals, with names like cerium, dysprosium and gadolinium have become ‘must have’ materials in the global race to win the technology battles of the future. The problem is that throughout the last 30 years China has built a near monopoly in these strategic metals.

Rare-earth elements (REEs), consisting of 17 different minerals, are used to make components in many high technology devices, including smart phones, digital cameras, computer hard discs, fluorescent and light-emitting-diode (LED) lights, flatscreen televisions, computer monitors, and electronic displays. China commands 35% of the world’s reserves of these minerals and produces more than 70% of all rare earth tonnage worldwide.

In our present trade wars with China, the possibility that China might respond to U.S. tariffs by embargoing our REE imports is a real threat, since last year China accounted for 80% of our total rare-earth compounds and metal imports.

After years of delay before recognizing this danger, President Trump signed an executive order aimed at expanding domestic production of REEs last week. He ordered the Interior Department to explore using the Defense Production Act to speed up the development of such mines. Trump used the same law to accelerate the production of medical supplies to help combat the coronavirus pandemic this year.

The hope is that the Energy Secretary can identify projects here in the U.S. that could help the country increase our own production and holdings of these minerals. Sadly, we have a long, long way to go before we catch up to China. Today, the U.S. has only one rare-earth mine, which is located at Mountain Pass, CA. It is owned by a private company, MP Materials, which is 10% owned by a Chinese company, Shenghe Resources Holding Co. All of MP’s materials are exported back to China.

Rare-earth isn’t the only strategic metal that the U.S. needs, however.  Lithium is another metal in great demand and is used to manufacture electric car batteries. Global lithium production is about 400,000 tons annually. That is enough to power 2-3 million electric vehicles (EVs), but only about one third of that production actually goes into EVs. The rest, like REEs, is used in computers, cellphones and rechargeable devices. If companies such as Tesla plan to increase production of EVs in the future, then the supply of lithium must increase dramatically. Once again, it is China that controls about 40% of world lithium production. The rest is divided among Australia and Chile. The “Big Three” producers–Albemarle, Sociedad Quimica y Minera de Chile, and FMC-- hold practically an oligopoly in the lithium market.

In another U.S. initiative, our Department of Commerce has taken steps to protect America’s uranium industry from foreign dumping.  Both Russia and the U.S. have initialed a draft amendment to reduce U.S. reliance on uranium from Russia over the next 20 years. Russia has been dumping cheap uranium into U.S. markets for years, driving American miners and processors out of business. This practice leaves our country exposed to the same dangers we now face with other strategic metals. 

While all of the above actions are necessary, in my opinion, it will be years before the U.S. can gain a competitive advantage in any of these resource areas. Doing so0 is just as important as domestic recognition back in the 19702 that we needed energy independence in order to remain the nation we are. 

Bill Schmick is registered as an investment advisor representative of Onota Partners, Inc., in the Berkshires.  Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners, Inc. (OPI).  None of his commentary is or should be considered investment advice.  Direct your inquiries to Bill at 1-413-347-2401 or e-mail him at bill@schmicksretiredinvestor.com .Investments in securities are not insured, protected or guaranteed and may result in loss of income and/or principal.