The rare earth crisis: Is it a sign of things to come?

The crisis over the availability of rare earths seems to have receded, but is it a precursor for more troubles ahead?

Rare earth elements are not typically found in economically exploitable deposits.

The 1972 oil embargo left us with a keen perception of how vulnerable we are to interruptions in the supply of mineral resources. These worries may have materialized again when, in 2010, China announced that its exports of rare earths would be curtailed. Since China has a near monopoly of the production of rare earths, prices rapidly skyrocketed and the whole market was in turmoil for a few years with several reports of scarcity for critical applications in the electronics industry.

Nevertheless, the rare earth crisis seems to have been overestimated and mainly the result of our own fears. Today, the bubble has burst and rare earth prices have crashed down. They are still higher than they used to be, but production did not fall and fears of shortages seem to have receded. So, how should this crisis be interpreted? Was it just a speculative phenomenon, or does it signal real troubles ahead?

After the great oil crisis of the 1970s, the world has seen no major resource crisis attributed to political factors.

Certainly, the rare earth crisis took many of us by surprise. After the great oil crisis of the 1970s, the world has seen no major resource crisis attributed to political factors. This quiet has been, most likely, the result of the triumph of the phenomenon we call “globalization”. With the world becoming a single, giant market for all kinds of commodities, if a country refuses to sell a resource, buyers can simply get it somewhere else. Competition also forces sellers to cut prices as much as possible and that often means to neglect the cost of the pollution generated by mining.

But there is a problem with this global market: it is rooted in a paradigm of abundance. It works as long as resources are abundant enough that buyers can choose sellers. When sellers are few or, worse, someone has the monopoly of a resource, then things change. Prices rise, pollution costs are not any more neglected, and those who have the control of precious and rare resources are tempted to use them as economic, political, or even military weapons. These factors may have been at the root of the rare earth crisis. The Chinese may have reasoned that their resources were precious and limited and hence worth conserving. Another factor which may have led them to this decision is the horrific cost of the damage caused by rare earth mining, often extracted in small scale, dangerous and polluting operations.

Indeed, even outside the rare earths case, the paradigm of mineral abundance seems to be on its way out. A series of factors are causing a rise in extraction costs; including higher energy prices, depletion of high grade ores and increasing pollution. These higher costs are generating declining economic returns to extraction and, as a result, higher prices of all mineral commodities. At the same time, mining-related pollution is increasing, for instance in terms of CO2 emissions generated by the burning of fossil carbon.

Seen in this light, the rare earth crisis of a few years ago, though not anymore worrisome in itself, may have been a first symptom of things to come. Just a few years later, we are seeing a much heavier blow to globalization with the crisis in Ukraine which seems to be signaling a return to a two-blocs world (or, perhaps, more than two). An important factor which created the crisis may have been the perception that Ukraine could hold large resources of shale gas in the Lublin valley, in its Western provinces. In a perception of abundance, it would make no sense to arrive at a major geopolitical crisis for these resources (or for any single resource). But in a perception of scarcity, the opposite holds true.

In the end, we are not running out of any mineral resource, but we are entering an age of diminishing returns of extraction and increasing pollution costs. These two effects, indeed, are two sides of the same coin: a consequence of the gradual depletion of high grade deposits. What we have been seeing with rare earths is just a symptom of a new world to come.

Extracted: How the quest for mineral wealth is plundering the planet by Ugo Bardi will be published by Chelsea Green on 12thJune and is available through all high street and online retailers. It was presented in 2013 as a report to the Club of Rome, an international think-tank, whose mission is to undertake analysis and raise debate on how to achieve a more resilient, sustainable planet.

To read more, purchase Ugo's book Extracted: How the Quest for Mineral Wealth Is Plundering the Planet