U.S. Defense Department undervaluing importance of rare earths for national security: report

Valerie Bailey Grasso, defense acquisition specialist and author of the report, calls authorities to answer four important questions on rare earth elements:

1. Are rare earth elements essential to U.S. national security?
2. How would the scarcity of rare earths affect the delivery or performance of defense weapon systems?
3. Is the United States vulnerable to supply disruptions, and if so, are there readily available and equally effective substitutes?
4. What are the short-term and long-terms options that the Department of Defense may consider in response to a lack of domestic rare earth element production and China’s continued dominance?

Last year the U.S. Congress required the Pentagon to examine the use of rare earth materials in defense applications to determine if non-U.S. supplies might be disrupted and identify ways to ensure adequate supplies by 2015. In response, the Pentagon released a seven-page report titled “Rare Earth Materials in Defense Applications,” which concluded that although rare earth materials are “widely used within the defense industrial base…such end uses represent a small fraction of U.S. consumption.”

While China produced about 98% of the world’s yttrium in 2011, U.S. natural reserves of that material are about half as large, said that study.

Brett Lambert, the Pentagon official responsible for industrial policy, said early last week that Defense Department would intervene in case of a shortage of rare earth materials for defense electronics and motors.

Even at the height of export restrictions placed by China in 2010, Lambert told Bloomberg that there was no evidence U.S. defense contractors faced such shortages.

China dominates the world’s rare earths production, accounting for more than 95% of global supply – a situation that has often generated protests from foreign manufacturers who rely on Chinese rare earths.

Last month, the U.S., Japan and the European Union filed an official complaint at the World Trade Organization, urging the body to take actions against China’s restrictions on these metals.

In 2011, Beijing imposed an export quota of 30,184 metric tonnes, marginally reduced from 30,258 metric tonnes in 2010. For 2012, based on analyst calculations, the country’s full-year quota may hit approximately 31,130 metric tonnes.

China underlined that it feels that export restrictions are necessary in order to maintain domestic demand and protect the environment. The WTO responded by stating that it considers the argument illegitimate and that China has been “unable to demonstrate” the benefits of its policies on the environment. At present the ruling does not include rare earth metals, however analysts are hoping to see China alter some of its rare earth policies as a result of the ruling moving forward.

Last year, in the midst of China’s crackdown on illegal rare earths mines, prices for rare earths went up by as much as ten times their value from 2011, before beginning to gradually come down again.