rare earth metals renewable energyChina’s domination of the rare earth metals market potentially leaves almost every component of renewable energy vulnerable. There is speculation about the country’s reliability that it could decide to decrease or halt exports, and use the advantage to dominate the global market and choke off competitors.

by Michele Ashby, CEO of MiNE LLC, which is hosting the Modern Energy Investor Forum (MEIF) in September 2011 in Denver, Colorado.

Last month, I took a business trip around the world. I had meetings in London, Abu Dhabi, Hong Kong, and Toronto. Even though we’re living in a global economy, the regional differences in local economies are very distinct. London is in the midst of one of the greatest austerity programs the United Kingdom has seen, but the dealmakers remain active.

The opulence in Abu Dhabi is as advertised – the luxury economy is something to behold, and you can’t walk through a hotel lobby without seeing several representatives from international companies.

In neighboring Dubai, there’s talk that the fundamentals behind the economy are weak, even discussion about knocking down some skyscrapers to address the glut of luxury accommodations.

And China is as hot as what you read in the papers. One person I spoke with said he can put together a $50 million deal in three phone calls – provided it’s taking place in China.

In Hong Kong, I went to a conference on rare earth metals. I had been hearing discussion about China adjusting its export policy on these necessary commodities – integral components of nearly every component of renewable energy, from solar panels to wind turbines to electric vehicles.

China produces 90 percent of the world’s rare earth metals. Up until this year, the country exported about 60 percent of its production – and caused a major shock to Japan and other nations this fall when it temporarily slashed exports. Most countries don’t keep large stockpiles of rare earths – meaning even relatively minor disruptions in the supply chain could have severe consequences in production. A full embargo of these supplies – should China decide to make a statement and flex its economic muscle – could be fatal to some clean energy companies.

In the rest of the world, this chain of events raised the issue of China’s reliability in rare earth supply in the future. While rare earth production is certainly a competitive advantage for China in cleantech deveopment, is the nation planning to take this a step further and use the advantage to dominate the global market and choke off competitors?

China’s skyrocketing growth is changing the game for rare earth metals. New demand is increasing consumption, and if this outpaces new production – as looks likely in the near term – prices will have no where to go but up. The writing is on the wall: About 200 rare earth companies have sprouted up around the globe. Fortunately, the picture for actual rare earth (untapped) looks much different than production. Several areas of the world – including the United States – have significant resources to be mined, and exploiting them is a matter of mining costs, rather than of availability or capacity to do so. As prices continue to rise, expect the attractiveness to mining companies to increase, and production to ramp up as a corollary (most likely with government incentives helping to pave the way and remove some obstacles).

What does this mean for the renewable energy industry? There are lots of firms working hard to increase production in several areas of the world. But this won’t be immediate: expect 2-5 years for much of this production to come online.

Electric vehicles are particularly vulnerable to fluctuations in rare earth prices. We’re at an exciting point with electric cars, with many industry observers suggesting that we could be approaching a tipping point of sorts for widespread public adoption – particularly as we emerge from the Great Recession.

The spike in prices is great news for producers – we’re already seeing renewed interest from uranium miners in marketing rare earths that result as byproduct of operations. But let’s hope this same phenomenon doesn’t hinder our vulnerable electric vehicle market.

© 2011, Michele Ashby. All rights reserved. Do not republish.

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Author: Michele Ashby (4 Articles)

Michele Ashby, CEO of MiNE LLC, started her career as a mining analyst and stock broker in 1983. She graduated from Regis University in Denver, Colorado with a magna cum laude degree in Finance. From 1988 to 2005 Michele was CEO and founder of the Denver Gold Group, a trade association for the gold mining industry. In 2005, Ms. Ashby left Denver Gold Group and started her own company, MiNE LLC, which organizes investor meetings for the natural resources, mining, and modern energy. Michele Ashby is a member of the Board of Directors of US Gold, American Stock Exchange listed (UXG).