The rare-earth party is over.
A new report from IHS Global Insight titled "Rare Earths: Is the Genie Out of the Bottle?" shows that China is losing its grip on a key global commodity.
Rare-earth metals (which actually are not rare at all) are instrumental ingredients in such things as hybrid vehicle motors, solar panels, wind turbines and other "green" products. And they are largely mined in China, which has enjoyed a near monopoly on this market for years.
That's about to change, IHS says.
Globally, more than 350 new construction projects—by 200 companies in 35 countries—are under way, setting the stage for a boomlet in rare-earth production. Currently, China controls roughly 95% of the rare-earth supply.
Basic supply and demand caused this summer's sudden price swing. Rare-earth prices doubled between 2005 and 2009, tripled between 2009 and 2010 and grew another 500% between January and July of this year, according to John Mothersole, who wrote the IHS report.
"There is an awful lot of incentive to bring those other alternative sources of supply into production," he told me in a recent phone interview. Since the summer, prices have plummeted 25%.
Not only did the high prices trigger more production outside of China, clean-tech companies are actively engineering rare earths out of their products. Toyota, Nissan and Tesla Motors, for example, have introduced hybrid or electric-vehicle powertrains that do not rely on permanent-magnet motors.
"Supply managers and end users are now aware of the central positions rare earths have in their supply chains, and they are taking steps to mitigate that risk," Mothersole said. "And I think the desire is to move away from them."
Hybrid construction equipment, too, is finding ways to create electric power without fancy elements, such as the hybrid John Deere loader I wrote about earlier this year.
Rare earths touch the green space in many ways. Observers of the Solyndra saga have pointed out that the price volatility of solar components, which often incorporate rare earths, contributed to its downfall. The solar panel producer chose a different technology path than most of today's flat solar panels, which rely largely on silicon.
As the price of silicon dropped, the traditional chemistry became more competitive. In the end, Solyndra's formula just couldn't compete when the market shifted. Others have also theorized that Solyndra was not an effectively managed company, and that China's subsidies to its solar-cell producers gave them an unfair advantage.
No matter where you stand on this debate, the lesson to be learned is that economics still rules the green space.
"If a market is functioning properly, pricing sends signals," Mothersole said.
