Japan’s global rare earths quest holds lessons for the US and Europe

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In 2010, the Japanese government had an impolite reminder: Beijing had suddenly removed all uncommon earth fares to Japan over a fishing vessel question. Tokyo was as a rule reliant upon China for the basic metals, and the ban uncovered this intense weakness.

The silver coating to this occurrence, which sent worldwide uncommon earth costs soaring before they slammed down as the speculative air pocket popped, is that it constrained Japan to reevaluate its basic crude materials strategy. 10 years on, it has essentially diminished its dependance on China for uncommon earths, and keeps on expanding its store network by putting resources into projects all throughout the planet. Its model may have exercises for the US, which frantically needs to break China’s uncommon earths restraining infrastructure. Uncommon earths are a gathering of 17 metals that are urgent in the assembling of innovative items.

“Japan experienced what the US faces now: a political clash with China, where China is by all accounts willing to abuse its strength in the [rare earths] market,” composed Marc Schmid, who explores uncommon earths at the Martin Luther University Halle-Wittenberg. “The US seems, by all accounts, to be in a comparable weak situation as Japan was about 10 years prior.”

Central to Japan’s rare earths procurement strategy is the Japan Oil, Gas and Metals National Corporation, or Jogmec, a state-backed company governed by the ministry of economy, trade, and industry. Though Jogmec was established in 2004 through the merger of two decades-old oil and metals mining entities, it was only after China’s embargo that it turned its attention to rare earths, said Nabeel Mancheri, secretary-general of the Brussels-based Rare Earth Industry Association: “The focus started from the 2010 crisis.”

A key prong of Jogmec’s strategy was to diversify Japan’s supplies. That meant investing in and partnering with rare earths companies around the world starting soon after the Chinese embargo, including rescuing Australia’s Lynas from collapse, in order to build a wider portfolio of suppliers. It also supports efforts to recycle rare earths, as well as research to develop rare earth substitutes. That strategy has been largely successful: Japan slashed rare earth supplies from China from over 90% of imports to 58% within a decade, according to UN Comtrade data. It aims to bring that below 50% by 2025.

As the global shift to electric vehicles and renewable energy is expected to drive a surge in rare earth demand, Japan is set to further increase funding for the exploration and mining of rare earths, according to Nikkei. One consideration is to lift the current 50% cap on state funding for resource exploration projects, which could ease the private sector’s financial burden in inherently risky mining projects.

Industry experts say Japan’s example illustrates the importance of targeted state-led investment in the rare earths sector. Through Jogmec, Japan could direct substantial government funds to support different mining projects, and secure rights to a certain amount of rare earths in what’s known as offtake agreements. Often, that means Japan is able to lock in a specified quantity of rare earth imports over a designated time frame. That also stabilizes the volume and price of supplies, which is important for the sustainability of downstream manufacturers that use rare earth materials to produce batteries and magnets that go into things like electric vehicles and wind turbines.

For instance, Jogmec and top Japanese trading firm Sojitz invested $250 million in Lynas in 2011 in return for a steady supply of rare earths. The loan terms were restructured in 2016 to keep the ailing Lynas from going bust, and restructured again in 2019 to ensure Japan gets “priority supply” of its rare earths through 2038.

Elsewhere, Jogmec recently deepened its investment in a joint venture with Canada-headquartered Namibia Critical Metals on the Lofdal rare earths mining project in Namibia. Jogmec has already invested millions to finance exploration and development into Lofdal, and could pour in (pdf) another $10 million. The Lofdal project holds particular significance because it is rich in heavy rare earths.

“Light” and “heavy” rare earths refer to their atomic number. Lynas is more focused on the former, while China currently dominates global supplies of the latter. The most widely used rare earth permanent magnet, neodymium-iron-boron or NdFeB, uses the light rare earths neodymium and paseodymium. Adding a heavy rare earth like dysprosium and sometimes terbium makes the magnet more temperature stable, and suitable for use in offshore wind turbines where maintenance costs are high.

One reason why the US and Europe have not been as active in providing significant state support to the rare earths sector is that those governments are just not set up for the task, said Kotaro Shimizu, chief analyst at Mitsubishi UFJ Research and Consulting. While the US Geological Survey works on rare earths issues, it’s fundamentally a research organization and doesn’t have a financing function, he said. Similarly, the European Commission has an innovation council, but it too is centered around research rather than financing.

For now, the most recent US federal funding for rare earths projects have come from the defense department. Meanwhile, a body modeled after Jogmec was actually proposed by the European Commission in 2015, though the idea hasn’t taken shape.

Japan’s lessons for the US and Europe
As the US and Europe seek to secure their rare earths supply chains and limit reliance on China, Japan’s model may offer some guidance.

One key difference is that while Japan is scarce in mineral resources, the US and Europe have sizable rare earth reserves. The problem, in the case of the US, is that it ceded its mining and processing capabilities to China over the past decades, and must now rebuild the industry at a time when China is already deeply embedded in global rare earth supply chains.

“Japan and Australia have definitely led the way in terms of how the US government should approach [securing rare earths supplies],” but it’s “not necessarily a cut-and-paste” job for Washington in terms of emulating specific policies, said Pini Althaus, CEO of USA Rare Earth, which is developing a mine in Texas and establishing a domestic processing facility in Colorado. It is expecting to go public in a New York listing this year.

For instance, the US could go through existing government enactment to fabricate its public protection reserve of uncommon earths by focusing on purchasing uncommon earths from homegrown makers over a specific number of years, and inside a specific value band, clarified Dan McGroarty, warning board individual from USA Rare Earth.

That would, basically, be an offtake arrangement similar as those of Jogmec with different uncommon earths makers. Also, the US government, by focusing on purchasing from a specific homegrown maker, would convey a solid message to capital business sectors, said McGroarty. This would likewise keep away from “picking victors and failures,” which direct government awards to explicit organizations would involve, potentially to the detriment of pushing private capital away from different firms.

Specialists additionally alert that uncommon earth mines just address the upstream piece of the production network worried about getting the metals out of the ground. Handling those minerals into high-virtue uncommon earth metals, at that point utilizing them to make magnets and batteries, is similarly as vital.

“100 new mines can open all throughout the planet with liberal public help, yet without putting resources into esteem added preparing and fabricating, the remainder of the world will keep on leftover ward on China for refined uncommon earths and uncommon earth-bearing advances,” said Julie Klinger, right hand educator in topography at the University of Delaware.

The bare essential of uncommon earth acquisition approaches to the side, there’s one key takeaway from Japan’s relative achievement, said the Rare Earth Industry Association’s Mancheri: “It’s that presently to have your own worth chain, government support is required. The market can’t bring back the business that you lost.”

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