By Adam Currie — Exclusive to Rare Earth Investing News
The Pentagon “monitors rare earth element markets and prices - as it does for other important commodities,” she added.According to the report, of the seven rare earth elements most commonly used in defense applications, supplies of six - dysprosium, erbium, europium, gadolinium, neodymium, and praseodymium - are at sufficient levels to meet demand in 2013. It did, however, state that yttrium, the seventh element, which is used mostly in lasers, may face a shortfall. According to the US Geological Survey, China produced approximately 98 percent of the world's yttrium in 2011, although the US owns about half of China's reserves of the element. Criticism of findings Although the report took over a year to compile, some industry experts are in disagreement with its findings. The view is "rather naïve" and ill-informed, according to Ed Richardson, President of the US Magnetic Materials Association, and an expert on REEs. He commented that even if US miners are able to find enough dysprosium and neodymium to produce military-grade magnets, the nation has already lost the manufacturing capacity to refine the raw materials. "There are no producers left in the States," he said. In an interview with the Pittsburgh Tribune, Richardson and other experts claimed that China and Japan now control the refining of rare earth, and stated that this will be the case for many years to come. "If we want the magnets, I guess we will have to go to China," said Richardson. "And we'll have to ask them very, very nicely." "The only way we can get that material right now is from a foreign company in China," agreed Jack Lifton, co-founder of Technology Metals Research, a US-based company that follows the rare earth industry, before referring to the report as "so lame I can't believe it." In the same discussion, Washington-based REE industry consultant Jeff Green pointed out that although several mining companies outside of China have been locating new supplies of rare earth, almost all are confined to light varieties.
Contingency plansBrett Lambert, US deputy assistant secretary of defense for manufacturing and industrial base policy, responded to criticism by underlining that the Defense Department will intervene in the case of a shortage of REE materials for the sector. “If we see restrictions, we would look to activate one of many measures, including contingency contracting,” which allows US defense contractors to buy materials on behalf of the Pentagon, he said in an interview last week. He did however stress that “the tripwire” for such action would be “if we are unable to meet requirements.” Lambert has also stated that the US defense industry's consumption of rare earth materials currently accounts for less than five percent of the nation's annual use, and that even at the height of Chinese export restrictions in 2010, there was no evidence that US defense contractors faced any shortages. He downplayed the importance of Chinese export restrictions by pointing to the global market as a future source for materials, stating that it has responded positively with the emergence of producers such as Molycorp Inc. (NYSE: MCP) in the US and Lynas Corp. (ASX: LYC) in Australia. The report reflects the Pentagon's forecast that increased mining capacity outside of China, falling prices for REEs since mid 2011, and lower forecasts for consumption in the western world are all factors that will result in a more stable REE market by 2015. While the report has not sent shudders through the market, it has been an interesting footnote to a western market that is increasingly calling for market diversification in relation to REE supply. Securities Disclosure: I, Adam Currie, hold no direct investment interest in any company mentioned in this article. Pentagon Says US Rare Earth Supplies Will Meet Defense Needs from Rare Earth Investing News