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Rare minerals - The treasures of a sustainable economy

Dit artikel door Dr. Annemarie Hinten-Nooijen is gepubliceerd in Asset Magazine.

Rare minerals - The treasures of a sustainable economy

geplaatst: 25-03-10

Driving a hybrid car, using energy from wind turbines or solar panels. That are choices to contribute to the transition to a sustainable economy. Sustainability is the spearhead of many western policy plans. It is regarded as the solution to get out of the crisis. But ironically, the raw materials that are needed for hybrid cars and wind turbines, for our technological industry as a whole, are not that sustainable.

Necessarily required minerals like neodymium and indium are rare. And they are not available in the west, China has almost all of them. And having this position of power, China wants to use it. That is about strategy. The high-tech raw materials play a central part in the highly industrialised high-wage countries to survive the global competition by technological excellence. Will future wars be about minerals instead of oil, territories or water?

THE BONE MARROW OF MODERN ECONOMY
Minerals are an indispensable material pillar of our current economies and societies. They are the natural product of geological processes and occur in the crust of the planet. Only a fraction of the known minerals exists in greater quantities. Some of these are mined, refined and processed; are broken up into their elemental components, which are recombined into different types of materials. These materials are used to manufacture products that form the backbone of our modern economies: from LCD displays to fighter jets, from smart phones to electric cars. Without minerals, industrial society and modern technology would be inconceivable. That seems unbelievable, because we hardly hear or read about them in the media - whereas several research reports have been published recently. But imagine that by reading this article on printed paper or at your computer screen, minerals like nickel, chromium, molybdenum, gallium, selenium, aluminium, silicon and manganese were needed! And all these elements have to be first extracted from minerals, which in turn need to be mined from the earth's crust.

CHINA'S GREEN DEAL
In recent years, the world economy has grown enormously, and many new high-tech applications have been made. Moreover, the demand for minerals has exploded. Mining tried to meet the demand. A global competition between countries and companies over rare mineral resources started. Prices have shot up, countries have created strategic stockpiles or imposed export restrictions in order to secure supplies of these valuable resources. Mineral scarcity concerning the industry seems to be more of an economic issue than an issue set by limited resources. Minerals are getting evermore difficult to find and costly to extract - while they are the key to advanced sustainable technologies.
Talking about sustainability seems not talking about China, because China is still building many polluting coal-fired power plants, and the social circumstances there are poor. However, recent developments also show progress concerning sustainability. And in a country like China these developments go faster than in many western democracies. Where we in the west talk and dawdle, they think and act strategically. In the United States, president Obama has to explain the Americans that forms of the New Green Deal are inevitable - like the situation in the thirties of the last century, when President Roosevelt made the so-called New Deal to reform the economy. Many Americans do not want the government to influence the market. They radically believe in the free market. In China, by contrast, the ideological separation between market and government does not exist. There is no Wall Street with greedy bankers, no neoconservative Grand Old Party that dreams of the cowboy economy. Decisions are taken quickly. And besides, they have to feed one billion people and develop a country that lived in Mao-ist poverty before.

The Chinese are successful, after all, also in creating a sustainable economy: China does not only build old polluting power stations but uses the latest technology, with CO2- catch and -storage. And they are working on alternatives: windmills. In the next five years, they will build 100,000 windmills in the Gobi desert. Did they hate the wind in that area before, now they consider it the new gold. In the north-west area of China, the province of Gansu, the Qilian-mountains pass into the Gobi desert. There China is building the biggest windmill and solar panel park in the world. Six windmill parks with a capacity of ten gigawatts each are built, making China the biggest market of technology of wind energy, defeating the United States.

"Red China becomes green China", party officials are saying. China has to grow, and so has the contribution of wind, water and sun at the energy market. This market would be interesting for foreign investments. According to Chinese officials they are welcome and can get subsidies. But, Beijing has decided that 70 percent of the windmills have to be made and designed in China. So it can be questioned if European and American companies have a fair chance in tendering for a contract. China considers itself a developing country and thinks that the western countries should contribute money to China to reduce the CO2 discharge. While America thought that energy saving is not worthwhile, China has taken an enormous energy-technological lead. The authoritarian and undemocratic but intelligent China exposes a variant of the New Deal.

THE OPEC OF THE RARE MINERALS
The example of China shows us that sustainable economy has everything to do with strategy and power. In a few decades China has been flooding the market of rare metals. The legend goes that president Deng Xiaoping had already predicted this in 1992, during a tour in the south of China: "They [the Mid East] have oil, but we in China have rare minerals". Nowadays, China indeed has 95 percent of the global supply of rare minerals. How did it do that? It was a result of good strategy: in the nineties, China flooded the world market with the rare minerals, although there was not that much demand. The west thought it okay because getting the minerals was a very expensive production process and the environmental legislation was very strict. The western competitors went bankrupt and they closed their mines. China became powerful. One of the centres of the rare mineral supply is around the city Baotou, an industrial city of two million people in Inner Mongolia. Here the states concern exploits almost half of the world storage of neodymium.

DISRUPTION OF THE MARKET
The lack of raw materials is not particularly a result of the geological availability but of disruptions in the market, because the developments of the world wide demand for rare minerals are not recognised in time - as part of the stormy development of the Chinese economy and the expansion of technical developments - and because the minerals occur in only a few countries. Experts have predicted that in the next few decades the demand of neodymium will increase by a factor 3.8. China uses 60 percent of its exploitation for its own economy. What's more, the Chinese export quota become stricter every year.

What happens? Sudden peaks in the demand can lead to speculative price movements and a disruption of the market. "2010 will be the year of the raw materials", according to Trevor Greetham, Asset Allocation Director of Fidelity. Indium, a silver-white metal, which is not found directly in nature, but is a residual product of thin and zinc, is used in LCD displays for TVs, computers, mobile phones, and for led lights and the ultrathin and flexible solar panel. The price of this mineral multiplied tenfold between 2003 and 2006 from 100 to 980 Dollars per kilogram. The price of neodymium decreased from 11.7 dollar per kilogram in 1992 to 7.4 dollar in 1996. The market volume rose. In 2006 almost all of the world production of 137,000 tons came from China. By scaling back the export, prices rose, up to 60 dollar per kilogram in 2007. Imagine that for a hybrid car, like the Toyota Prius or the Mercedes S 400, you need at least 500 grams of neodymium for the magnetic power of the engine; and for the newest generation of wind turbines, the ones that are 16 meters high, you need about 1000 kilogram. That makes 60,000 dollars - for just a little bit of metal! Big business for China.

At the same time, China makes further strategic investments: it took an interest in oil and gas fields. In August 2009, PetroChina paid 41 billion dollar to gain access to an enormous field of natural gas in front of the coast of Australia. And in September that year, it obtained a stake of 60 percent in the exploitation of fields of tar sand in Alberta, which might hold one of the biggest oil reserves in the world. And because China considers titanium a growing market, it took an interest of 70 percent in a titanium mine in Kenia - not only to build the Chinese 'Jumbojet', but also to provide Boeing with 2000 tons of titanium each year. By doing so, China might beat the competition in the battle for the market in green technologies.
The 'free' market can be questioned. The mineral policies of China and the US both mention the usage of administrative barriers. These nontariff barriers involve regulations that seek to protect the national mineral extraction industry. As a result, it is much harder for foreign companies, if not impossible, to invest and gain a foothold in the national mineral extraction industry in these countries. The search for rare metals has become a global race: a mine in California has also been reopened, the mine of Mountain Pass. In 2008, it was bought by a group of investors, the partnership 'Molycorp Minerals'. The process of bringing the old mines into use costs much time and money.

What does this mean for us? Do we get more dependent of China? The 'Innovationplatform' in Rotterdam planned to build a unique windmill park in the sea, further from the coast and in the strongest sea wind than anywhere in the world. To build these windmills, we need rare minerals, the export of which is dominated by China. Part of the project is Darwind, which designed enormous windmills for at sea. But the umbrella company, of which Darwind is part, Econcern, was about to go bankrupt. Then, in mid-August 2009 it was saved by the, surprisingly, Chinese XEMC.

THE THREAT OF GEOPOLITICAL INSTABILITY
The transition to a sustainable economy involves underexposed elements like deficiency in minerals and shifting balances of power. They are the ideal receipt for geopolitical instability. The new world order will be a balance between countries that do have particular raw materials and ones that do not. The lack of indispensable minerals sharpens the relations in the world. The access to critical minerals is more and more an issue of national security, concluded the 'The Hague Centre for Strategic Studies' (HCSS) in its report about the scarcity of minerals (January 2010). The US, Japan and China are making a policy that tries to secure the supply of these raw materials. That will disturb the free market activity. HCSS thinks that large concerns will, with support of the government, compete more intensively with each other for access to these raw materials, e.g. by direct investments in areas rich in raw materials. Mineral scarcity will be an issue in the next decades, though it is uncertain when and to what extent. And we have to do something because a change in supply of rare minerals directly affects our current modern lives.

How can we in Europe deal with this? There is at least enough information about mineral scarcity to start taking actions. Research seriously has to deal with questions about the short, medium and long-term effects of this scarcity on the European and Dutch economies. Government has to stimulate research into new recycling technologies and to promote a more sustainable society. We have to use the rare minerals in a sustainable way. That means we will have to produce more efficiently, we have to recycle more, and we have to look for more substitutable materials, according to Derk Bol, director of the Material Innovations Institute (M2i) in Delft, a research centre for new materials, supported by the government and in which companies like Stork, Philips and Corus participate. Our neighbours in the South set an example to us: A company called Umicore, near Antwerp, shows how profitable recycling can be. It is one of world's biggest recyclers of precious metals. They yearly bring 50 tons of indium on the market, 8 percent of what is globally mined. China produces 60 percent of the (global) supply. Because there are hardly any substitutes for this metal, recycling is lucrative.
Choices for sustainable materials and efficient use of rare minerals in products practically are choices for more profitable and safer operations. They are a key factor for long-term survival and may enable continuous economic growth. At the road towards global sustainability it becomes clear how close economy and geopolitics are connected. There is no time to waste to consider the questions of rare and strategic minerals seriously.

Dr. Annemarie Hinten-Nooijen, Academic Forum