Rare Earth Supplies in U.S. to Meet Defense Needs, Pentagon Says

Domestic rare earth supplies will meet the U.S. defense industry’s needs by 2013 for the materials that go into military motors and electronics, according to a Pentagon report sent to Congress.

China, the world’s largest producer of rare earth materials, accounting for at least 90 percent of the global supply, has tried to restrict supplies. The 17 materials include elements such as neodymium, samarium and dysprosium that also go into commercial products, including hybrid batteries, mobile phones and computer hard drives.

President Barack Obama’s administration has joined the European Union and Japan to challenge China for placing export limits on the materials, and the countries may ask the World Trade Organization to resolve the issue if the negotiations fail. China says it curbed output and exports to conserve resources and protect the environment.

Congress last year required the Pentagon to examine the use of rare earth materials in defense applications, determine if non-U.S. supplies might be disrupted, and suggest ways to ensure long-term availability, as well as secure an assured source of supply by 2015.

The Pentagon’s unpublished seven-page report, titled “Rare Earth Materials in Defense Applications,” was sent to Congress last month. While it found the elements are “widely used” in defense applications, such uses “represent a small fraction of U.S. consumption.”

‘Not Uniquely Important’

Rare earths “are important to the economy as a whole, but they are not uniquely important” to the Defense Department, Cheryl Irwin, a Pentagon spokeswoman, said yesterday in an e-mail. The Pentagon “monitors rare earth element markets and prices -- as it does for other important commodities,” she said.

Of seven rare earth elements that are most used in defense applications, supplies of six -- dysprosium, erbium, europium, gadolinium, neodymium and praseodymium -- are sufficient to meet demand in 2013, according to the Pentagon report. Yttrium, the seventh element, which is mostly used in lasers, may face a shortfall, the Pentagon said.

“The assessment determined that by 2013 U.S. production could satisfy the level of consumption required to meet defense procurement needs, with the exception of yttrium,” according to the report. According to the U.S. Geological Survey, China produced about 98 percent of the world’s yttrium in 2011, though the U.S. has about half of China’s reserves of the element.

Since 2010, demand for rare earth materials in defense and commercial applications has “decreased significantly,” and domestic and international suppliers have “responded to market conditions” with new investments and corporate restructurings, according to the report.

Contingency Plans

Forecasts show that non-Chinese consumption is projected to decline and that prices have dropped by half from their peak in July 2011, according to the report. “By 2015, the department believes this will help to stabilize overall markets and improve the availability,” the Pentagon said.

The Defense Department will continue to pursue substitutes, reclaim waste through recycling and prepare contingency plans including stockpiling, if necessary, according to the report.

Molycorp Inc. (MCP) of Greenwood Village, Colorado, owner of the largest rare earth deposit outside China, said last month that it agreed to purchase Canada’s Neo Material Technologies Inc. for C$1.3 billion ($1.3 billion) to add capacity. Neo operates two plants in China.

Molycorp, which owns the Mountain Pass mine in California, is restarting the mine and expanding its capacity. Molycorp is also building a center at the site to process the minerals, and in U.S. regulatory filings, the company has said its reserves mostly include so-called light rare earths such as cerium, lanthanum, neodymium, praseodymium and samarium.

When its two-phase project is complete, Molycorp will be a “mine-to-magnets” producer that mines as well as processes the materials and can produce as much as 40,000 metric tons of rare earth oxides, the company has said in its filings.

To contact the reporter on this story: Gopal Ratnam in Washington at gratnam1@bloomberg.net

To contact the editor responsible for this story: John Walcott at jwalcott9@bloomberg.net

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