While prices of REMs have dropped since their earlier peak, a bullish outlook remains. KPMG believes that 75 percent of companies will close in the next 24 months due to current low prices. If such a major collapse of the industry in fact occurs, the industry will consolidate into the hands of a few. Government-owned Indian Rare Earths Ltd will no doubt be propped up by New Delhi. Similarly, China’s new fund to “restructure” its rare earth industry, as announced in a November press release, will likely centralize and consolidate the industry making it smaller and more manageable for Beijing.
Despite countries such as the U.S. and Australia pushing investments forward in REM production, their viability as profit-making enterprises is dubious given the high costs of labor and the difficulties in meeting environmentally-friendly regulations. Jack Lifton, founder of Technology Metals Research, told Reuters in 2011 that he believes only 4 percent of ventures will prove profitable. With estimates like this, India’s expensive entry into production and exploration of REMs, when prices have bottomed out, demonstrates the strategic importance of the resource for New Delhi. Low labor cost countries with REMs, such as Myanmar, Mongolia and possibly North Korea, will be courted by developed countries, and, of course, India. Regardless of increased production from countries other than China, Beijing will remain the largest producer and likely the cheapest.
The fact remains that the commercial viability and spillover politico-environmental costs make production of REMs too expensive in developed countries. China has more leeway in such issues and the lion’s share of current production. Prices will remain largely controlled by Beijing’s propensity to export. India has similarly cheap labor costs and, while actual reserves are low, boosting production is more viable there than in the U.S. or Australia. New Delhi wants to balance China’s influence in the region in order to expand its own. Japan and South Korea are among the countries more than willing to begin importing Indian REMs, while India’s growing domestic demand leaves little choice but to secure more domestic reserves. The geopolitical battle for REMs is well underway between China and India, and across the world. Indeed, rare earths look likely to become the next crucial strategic resource, the next oil.
Elliot Brennan is editor and project coordinator of research in resource security at the Institute for Security and Development Policy, Stockholm, Sweden.