Firms rethink rare earth sourcing

Makers look to diversify suppliers and end overreliance on Beijing

by Hiroko Nakata

China’s reported ban on rare earth metal exports to Japan underlined the risk of depending too much on one country for the crucial natural resource.

China, which controls more than 90 percent of the world’s production of rare earth elements, reportedly halted exports as part of its diplomatic spat with Japan over the disputed Senkaku Islands.

While some rare earth shipments resumed Wednesday, China’s clampdown forced Japanese firms to rethink their risk management strategies. Rare earth metals are crucial to producing computers, mobile phones, electric vehicles and other high-tech products.

Companies were already concerned about rare earth shortages as early as July, when China cut its export quotas to bolster prices and ensure domestic supplies.

“Because 97 percent of (global) production is concentrated in China, we have to find sources other than China,” a trading firm official said on condition of anonymity.

The official said that while he has heard that exports have resumed for other companies, rare earth exports to his have been at a total halt since last week and are likely to remain that way until Oct. 7, when holidays in China come to an end.

“It is our mission to find ways to supply rare earth metals steadily,” he said.

Sojitz Corp. is conducting a feasibility study in Vietnam with trading house Toyota Tsusho Corp., aiming to start production there as early as 2012. The two companies hope to mine rare earth elements used in catalytic converters, oil refining catalysts and glass-polishing compounds for liquid crystal displays.

Meanwhile, the industry ministers of Japan and Kazakhstan confirmed Wednesday that the two countries will cooperate on production of rare earth elements in central Asia.

In March, Sumitomo Corp. signed a deal with Kazakhstan’s national nuclear power company Kazatomprom to form a joint venture and produce rare earth metals in the country, including neodymium and dysprosium, which are crucial to building motors for electric vehicles.

Toshiba Corp. said it signed up with the same Kazakhstan firm in June to establish a joint venture to produce rare earth metals coming out of uranium mines in which Toshiba has a financial interest. The electronics maker said it hopes to set up the venture by the end of the year and start producing rare earth elements used in motor magnets.

Automakers, meanwhile, are trying to figure out a way to build gasoline-electric hybrid cars without rare earth metals.

“We have been conducting research and development to find alternatives for the rare earths,” Honda Motor Co. spokeswoman Kumiko Hashimoto said. But she declined to comment on other details, including future prospects and whether the carmaker is trying to diversify its sources of rare earth metals.

Hashimoto said, however, that Honda’s suppliers have not been affected by China’s latest action. “But we’re keeping an eye on (China’s moves),” she added.

Toyota Motor Corp., the world’s largest maker of hybrid cars, said it has set up a task force on rare earths metals, although it also declined to comment. The automaker formed the committee earlier this year to explore new sources for rare earth elements and ways to recycle used parts, the Nikkan Kogyo newspaper reported Wednesday.

On Thursday, the Japan Business Federation (Nippon Keidanren,) called on the Ministry of Economy, Trade and Industry to ensure stable supplies of the crucial materials. METI chief Akihiro Ohata said he will try to secure funds for the effort in the 2010 supplementary budget.

Experts said it will take time to diversify. They say the number of mines worldwide is limited due to high environmental and safety standards, because some rare earth elements are radioactive.

“We can’t have an optimistic outlook, as it would be hard to speed up production in other areas (than China) even though we hope to do so,” said Koji Nakui, managing director of the Metal Economics Research Institute, a research institute specializing in nonferrous metals.