Pentagon Less Dependent on China Rare Earths, Report Says

Pentagon Less Dependent on China Rare Earths, Report Says

China’s virtual monopoly on rare earth elements used in high-technology applications has been loosened, decreasing the risk that supplies to U.S. defense contractors could be disrupted, according to the Pentagon’s latest assessment of the nation’s industrial base.“Global market forces are leading to positive changes in rare earth supply chains, and a sufficient supply of most of these materials likely will be available to the defense industrial base,” said the Pentagon report by Elana Broitman, the Defense Department’s top official on the U.S. industrial base. “Prices for most rare earth oxides and metals have declined approximately 60 percent from their peaks in the summer of 2011.”

Rare earths are 17 chemically similar elements used in products from Apple Inc.’s (AAPL) iPads and hybrid-electric cars to smart bombs and Tomahawk cruise missiles made by Raytheon Co. (RTN)

“An increase in supply of material from outside of China” and the substitution of other substances have reduced reliance on China since 2011, when it controlled 95 percent of the world’s supply and imposed export restrictions, said the report, which was sent to Congress last week.

Congress in 2011 required the Pentagon to examine the use of rare earth materials in defense applications, determine if non-U.S. supplies might be disrupted, and suggest ways to ensure long-term availability, as well as secure an assured source of supply by 2015.

Defense Research

The Defense Department is “conducting research in cooperation with a domestic producer to develop an economic and environmentally superior process for producing rare earth metals,” according to the report, which said that defense requirements generally are a small percentage of demand for the materials.

“These conclusions are wishful thinking, not a defense strategy,” Jeff Green, president of J.A. Green & Co. in Washington, who represents miners and users of the elements, said in an e-mailed statement.

“We still have no producers of the more defense-critical heavy rare earths, and significant gaps remain in the domestic production of metal, alloy and magnets, all found in our most critical weapons, with no appreciable investment planned to solve the production problem,” he said.

Magnet Material

Concerns remain about certain rare earths, according to the Pentagon report, which cited the lack of domestic production of neodymium-iron-boron magnets used in defense programs.

While China has been “the ultimate source” for the rare earth elements needed to make them, the report said, a joint venture between a U.S. producer and Japanese companies “has developed the technology for producing these magnets and is building a facility in Japan.”

Molycorp Inc. (MCP) is the U.S. partner in that project, according to Jim Sims, spokesman for the company based in Greenwood Village, Colorado. Molycorp mines and processes rare earths at its Mountain Pass plant in California.

Molycorp, which owns the largest rare-earth deposit outside of China, and Sydney-based Lynas Corp. Ltd. (LYC), which processes rare earths in Malaysia, “are increasing their production so there’s a growing diversity of supply for those rare-earth materials that eventually go into the magnets,” Sims said in an interview.

To contact the reporters on this story: Tony Capaccio in Washington at acapaccio@bloomberg.net; Larry Liebert in Washington at lliebert@bloomberg.net