Trade dispute, protests highlight global demand for rare earth minerals

Prior to the maritime dispute between Japan and China nearly two years ago, it was rare to see rare earth minerals in the news, and almost unheard of to see them reported on twice in one week. However, these 17 essential rare earth elements are attracting attention these days for two main reasons: trade disputes and a highly controversial rare earth processing facility in the Pahang state of Malaysia.

Rare earth minerals, used in many applications such as rechargeable batteries, fluid cracking catalysts and super alloys for their magnetic and unique properties, are in fact not so rare. The reason they are called ‘rare’ is because concentrated, economically viable deposits of the minerals are scarce.

China’s stronghold over the rare earth supply is a common misconception: although China produces 97 per cent of the world’s rare earth metals, they only have 37 per cent of world reserves (this figure is steadily declining) while United States and Australia are home to 13 per cent and 6 per cent of reserves respectively. It is seldom acknowledged that the standards set by the US Environmental Protection Agency, as well as its Occupational Safety and Health Administration, drove up the cost of mining rare earth ores in the US in the mid-1980s. The standards were imposed largely because of the health risks associated with land, water and air contamination as a result of rare earth production.

Rare earth minerals are widely used in US defence systems. They lack substitutes and are difficult to replace without resulting in performance loss. For example, parts used in precision-guided weapons are specifically designed around the capabilities of neodymium iron boron rare earth magnets. Rebuilding a US supply chain is dependent on several factors including capital investment, processing plant capability, environmental concerns and regulations, new technologies and intellectual property rights.

Mountain Pass, the largest rare earth supplier in the early 1970s, does not currently have the full capability needed to refine the oxides into pure rare earth metals. The US, having the expertise, seems to lack the manufacturing assets and facilities to refine oxides to metal. And while other US rare earth deposits exist, such as those in Idaho, Montana, Colorado, Missouri, Utah, and Wyoming, these deposits are still in early exploratory stages of development.

The fact remains that for the US, rare earth supply is an issue of national security.

Last month, US-based rare earth giant Molycorp made a bid to take over Canadian rare-earth processor Neo Material Technologies for about US$ 1.3 billion. Then, President Obama announced plans to file a complaint to the World Trade Organization and join with Japan and the European Union in pressing China to hold talks on its rare earth export quotas.

China set quotas on its exports of rare earth minerals in 2010 on grounds that its caps are to support environmental protection, which is one restriction the WTO usually permits. China also announced a Rare Earth Development Plan in 2011, the first of its kind in 11 years. The plan includes a resource tax, introduced in April 2011, which is designed to control the export of rare earth primary products, reduce smuggling and consolidate the industry. In doing so, China hopes to halve severe environmental degradation while maintaining a reserve supply for the development of its domestic clean energy and high technology sectors.

Critics of the policy, however, maintain that China has violated WTO rules by only restricting production for export and not for domestic use, a fact which undermines the environmental protection argument.

Meanwhile, Beijing’s attempts to clamp down on domestic companies have fuelled production elsewhere. Lynas Corporation, an Australian company with operations in Australia and Malaysia, has developed capacity to produce 22,000 tonnes of rare earths each year set to come online by 2013, equivalent to almost 40 per cent of China’s 2011 exports.

Nuclear watchdog the International Atomic Energy Agency (IAEA) has given the green light to Lynas Corporation’s rare earth processing plant at the Gebeng Industrial Zone in Malaysia’s Pahang State on the condition that Lynas puts in place stringent, long-term waste management plans.

Waste from rare earth processing falls under the oversight of IAEA because it contains low concentrations of thorium, uranium and their decay products. These require proper segregation and storage for the various solid waste streams in order not to cause any harm.  While Lynas proposes to recycle and reuse the solid residue as much as possible to minimise the total amount of waste, the firm has yet to identify the disposal site for the remainder. Hence, no environmental impact assessment has been done for this part of the facility’s operations.

The IAEA report, released in June of last year, highlighted not only the lack of a long-term waste management plan, but also found gaps in Malaysia’s regulatory framework and legislation on radioactive waste. Legislature such as the Atomic Energy Licensing Act (1984), Malaysian Radiation Protection (Licensing) Regulation (1986) and Transport Regulations (1989) was found to be outdated and in need of more regular and timely updates to comply with most recent international standards.

For instance, the Malaysian Waste Management legislation at the national and municipal (Kuantan Municipal Council) level should look into mandating emergency response plans, stipulate maximum driving and working hours per day, and enforce mandatory risk and traffic impact assessments for review.

Community protests sparked by radiation fears have prompted concerns that Lynas’s ability to process the raw materials sent from its Mount Weld mining operation in Western Australia is now under threat. In addition to having its website hacked, Lynas’s stock plunged 53 per cent in the immediate days following protests across Malaysia.

Members of the Save Malaysia Stop Lynas (SMSL) advocacy group continue to gather support against Lynas. For two weekends last month, crowds bearing placards shouted slogans such as ‘Hancur Lynas, hidup rakyat’ (Destroy Lynas, long live the people), ‘Stop Lynas, save Malaysia’.

Protestors claim there was no public consultation over the plant’s development.

Lynas maintains it has continued a programme of consultation and adhered to the requirements of the Malaysian Government’s regulatory authorities. Yet, the country’s regulations are clearly inadequate in providing specific requirements for public involvement - a case in point being the Malaysian Atomic Energy Licensing Act of 1984. Similarly, the Environmental Quality Act (1974) requires an Environmental Impact Assessment (EIA), which may or may not involve public consultation. In the case of the Lynas plant, such involvement was not included in the decision-making process.

Public consultations were held by the IAEA review team (not by the Malaysian Government) from 30 to 31 May in Kuantan and on 2 June in Putrajaya, where 17 groups of up to six people at a time expressed their views, opinions and concerns to the review team. In total, 66 people representing five political parties, four professional bodies, 12 local residents, one trade association and seven NGOs participated.

Malaysians’ concerns are not unfounded. In Bukit Merah, a former Mitsubishi Chemical facility that processed slag from oil tin mines – material rich in rare earth ore – had reportedly buried radioactive material at the core of a hill near a forest reserve. Residents in a community of 11,000 are now blaming the company’s irresponsible actions for birth defects and an abnormally high number of leukaemia cases.

In all, trade disputes and public dissent highlight that sound, enforceable resource and environmental legislation is key to striking the right balance and ensuring sustainable development.

Melissa Low is an Energy Analyst at the Energy Studies Institute of the National University of Singapore.

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