Deep in an underground, World War II-era vault on the outskirts of Frankfurt, Germany, investment manager Louis O’Connor guards his firm’s most valuable assets. The treasure inside? Rare earth elements.
“Make no mistake about it, there’s 3 1/2-meter walls and doors and armed security,” says O’Connor, the CEO of Strategic Metals Invest, a firm that lets individual investors buy into stockpiles of rare earths.
Many so-called rare earth elements are actually quite common, and they are mined globally, but China has a near-monopoly on refining them for use in everyday electronics, like smartphones and speakers, as well as for crucial defense systems, like fighter jets.
When China decided to tighten control over supply chains for seven rare earth elements this spring, O’Connor says he felt the pinch immediately. One investor touring the company’s vault at the time offered on the spot to buy O’Connor’s entire inventory of terbium and dysprosium, two valuable “heavy” rare earth elements, he says.
Interview highlights
Rare earth minerals aren’t rare, but the U.S. is having a hard time getting them
The episode illustrated the power of China’s dominance over the industry.
“They’re installing what you might call a tap system, where they can turn that tap on and off,” says O’Connor, remarking on China’s recent policy.
That supply chain chokehold has given China a powerful tool it has wielded in a trade war with the United States. Within weeks of China requiring foreign companies to apply for a license to buy rare earths in early April, several U.S. and European corporations said they were forced to shut down production lines. Regaining access to Chinese rare earths was a central point of contention in U.S.-China trade negotiations this spring.
But China did not always enjoy such dominance. Developing an export control regime they could minutely control took decades of sometimes painful trial and error.
For much of the second half of the 20th century, the United States controlled the market on rare earth elements, after prospectors discovered them in Mountain Pass, Calif., in 1949.
China recognized the strategic value of rare earths, and starting in the 1960s, Chinese executives visited Mountain Pass several times, says Mark Smith, who was the CEO at Molycorp, a former rare earths processing company at the Mountain Pass mine.
“We toured them. We explained what we do, allowed them to take pictures and everything else. They took it back to China,” Smith says, who gave tours of Molycorp to Chinese visitors in the 1980s and 1990s.
Chinese refineries then improved on technology, and taking advantage of cheap electricity in China, hundreds of lucrative mining and processing firms in the country popped up to service mostly domestic demand for rare earths.
Known rare earth element deposits and occurrences, as of 2018 , But the industry was highly unregulated and chaotic, as hundreds of small-scale, private mines and refineries competed against one another, undercutting each other’s profits.
“They drive down the price against themselves,” says Chris Ruffle, an investor who has worked in China for decades, including in the metals industry. “They kill themselves.”
“China’s rare earths aren’t being sold at a ‘rare’ price but at an ‘earth’ price,” Xiao Yaqing, a former minister of industry, complained in 2021.
