tag:blogger.com,1999:blog-2938311055760665357.post4460996865280389557..comments2024-03-27T03:49:12.592-07:00Comments on Ed Dolan's Econ Blog: China's Fragile Rare Earth MonopolyEd Dolanhttp://www.blogger.com/profile/08757995049056872214noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-2938311055760665357.post-87266164370603569882010-12-28T16:38:19.200-08:002010-12-28T16:38:19.200-08:00Great article Ed, thanks for sharing your opinion....Great article Ed, thanks for sharing your opinion. <br />Here is some update - China is considering establishing an industry association and a government unit for the rare earths industry http://www.chinadaily.com.cn/china/2010-12/29/content_11767880.htm<br /><br />M.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2938311055760665357.post-75808472959789321152010-11-02T07:39:17.109-07:002010-11-02T07:39:17.109-07:00Kevin, I don't disagree with any of this. I ad...Kevin, I don't disagree with any of this. I admit that when economists see that one state of the world is not sustainable (the 95%--or is it 97% now?) Chinese REE market share, and see that another state of the world is coming (more research into REE substitutes and more investment in supply outside China), they (we, that is) tend not to focus so much on the fact that the transition from one state of the world to the other is time consuming and costly. Another way to put this is to say that economists are always looking for a "tendency for something to happen" and neglecting to emphasize that even when there is a tendency for something to happen, it does not have to happen right away, and that the transition to the new state of affairs may sometimes be incomplete even in the long run.<br /><br />Putting on my hat as an adviser to China, the strategy of controlling downstream products to extract the value added by REEs is probably a sound one, and makes more sense than just holding the rest of the world up for high prices on the REEs themselves. But even that strategy will only slow down the gradual erosion of their strategic position.<br /><br />I see recent moves by China to assure the US of their reliability as a supplier as part of this strategy. It reminds me of Russia's attempt to assure Western Europe of its reliability as a gas supplier after each episode in which they cut gas off for a while. I just hope no one believes their assurances.Ed Dolanhttps://www.blogger.com/profile/08757995049056872214noreply@blogger.comtag:blogger.com,1999:blog-2938311055760665357.post-4263751638112679192010-11-01T21:07:45.298-07:002010-11-01T21:07:45.298-07:00Ed,
A good and very fair piece on rare earth elem...Ed,<br /><br />A good and very fair piece on rare earth elements (REEs).<br /><br />I agree with your overall assessment that China does not have any natural or long run monopoly on REEs. Nonetheless, they do have very much have a short term one. <br /><br />The FOB spot price is now some 3 to 4 times what a Chinese-based end user would pay for access to these minerals.<br /><br />As such, China is using the promise of 'access" to REEs to “encourage” non-Chinese manufacturers who want to produce goods which require rare earth inputs to set up shop in China. This ensures jobs for the Chinese. More importantly in the long term, those foreign companies that do move are essentially forfeiting their technologies to Chinese.<br /><br />So increasingly these companies have a choice. They can substitute REEs out of their product, which begs the question of how competitive their products will be against those manufacturers who still have access to REEs—and don’t have to substitute.<br /><br />And while I don't disagree that substitution will come into some effect—the latest iteration of Apple’s MacBook Air eliminates the traditional hard disk for a flash drive—there are too many advantages and too many uses of REEs in myriad applications for this to have any real effect.<br /><br />Neodymium magnets are just one example. They're the most powerful of all permanent magnets and can lift more than any other type of magnet of the same size. They invention made the original walkman possible in the early 1980s, hence many applications are very much embedded into our everyday usage. Today, they’re even used for alleviating symptoms and relieving pain caused by health issues like arthritis.<br /><br />There are more current uses for rare earths Ed, than are dreamt of in your philiosophy.<br /><br />The question then becomes one of the opportunity cost suffered by end-users who lose the ability to commercialize and market products, which require rare earths as critical inputs.<br /><br />Thus we may see “strategic logic” rather than pure economic logic would drive the development and eventual the future of REEs.<br /><br />The game is also about controlling the downstream products, capturing the value added by converting rare earth oxides into metals and into products. Given that REEs are typically used in relatively small amounts vis a vis the total amount of product inputs, their cost is a relatively small part of total product cost and thus should have a muted effected on product demand.<br /><br />Manufacturers that do have access to REEs will have a competitive advantage and may gain market share vis a vis those that have limited or no access to crucial REEs.<br /><br />So the question becomes how will some large manufacturers—Toyota's making of Prius for one example—risk losing the high "end value" captured from selling the entire car because they can't access enough REEs for a critical components? Will they risk losing the cost reduction benefits from a more scaled up production? <br /><br />Or will they "capture their REE supply" buy investing in/buying up proven deposits? Thus ensuring they remain competitive at what they do?Kevinnoreply@blogger.comtag:blogger.com,1999:blog-2938311055760665357.post-50655353444610005222010-10-25T06:39:37.095-07:002010-10-25T06:39:37.095-07:00Very interesting post! Sometimes it seems that tha...Very interesting post! Sometimes it seems that that rare earth mineral bulls are like gold bugs on steroids, so it's nice to read a level headed analysis of the issue.Mattias musikalerhttps://www.blogger.com/profile/00762247197954673398noreply@blogger.comtag:blogger.com,1999:blog-2938311055760665357.post-65815209747963537242010-10-25T00:35:04.990-07:002010-10-25T00:35:04.990-07:00Thank you Ed, this blog is great.Thank you Ed, this blog is great.Gianluigi-Zenhttps://www.blogger.com/profile/02008639719300250660noreply@blogger.com