Korea on track to cut dependency on China for rare earths

A machine is seen at the Bayan Obo mine mining for rare earth minerals, in Inner Mongolia. Reuters-Yonhap

Korea places hopes in US-led Minerals Security Partnership, domestic production of rare earth metals

By Kim Bo-eun

HONG KONG ― South Korea's decision to join a U.S.-led pact on mineral supply helps satisfy a "definite need" to cut dependency on China for key resources, including rare earths, analysts said.

Securing key resources has become a core task for major economies around the world, as minerals are a crucial element incorporated into cutting-edge technologies, green energy and national defense industries.

Countries have traditionally relied on China as it not only holds the largest amount of rare earth reserves, but it also is the world's biggest producer.

But China's recent moves to regulate the mining and exports of rare earths has had economies scrambling to secure alternative supplies, with the U.S.-led Minerals Security Partnership launched earlier this month.

"Korea is more dependent on China [for supply of rare earth] because of proximity and because of the structure of trade between the countries where intermediate goods account for a large part," Kim Kyoung-hoon, senior researcher at the Korea International Trade Association's (KITA) Global Value Chain Research Task Force, said.

Korea has its own rare earth reserves, but does not possess its own production capabilities, although in recent years it has moved to produce its own rare earth magnets.

A first step to establish an integrated supply chain was taken when Australian Strategic Metals invested in Korea to set up a joint venture with its subsidiary to produce rare earth metals with raw materials sourced from Australia.

KSM completed setting up its production plant in Ochang, North Chungcheong province, last month and the company plans to produce 5,000 to 10,000 tons of rare earth metals on an annual basis.

The Korean-produced rare earth metals will then be turned into magnets by an intermediary for use by Hyundai Mobis, the parts and services arm of the Korean multinational automotive manufacturer.

"There is definitely a need for Korea to diversify sources of supply. While Korea's production of rare earth metal and magnets is in its very early stages, it is significant that it has set up a domestic base for production," added Kim.

Rare earths are among the four items the Joe Biden administration has identified as critical strategic assets, along with semiconductors, electric vehicle batteries and pharmaceutical ingredients. AP-Yonhap

U.S. allies in Europe, such as Germany, France and Britain, as well as others in the Asia-Pacific region, including Australia and Japan, have also signed up to the Minerals Security Partnership.

"Demand for critical minerals, which are essential for clean energy and other technologies, is projected to expand significantly in the coming decades," the U.S. Department of State said earlier this month.

It also said members "are committed to building robust, responsible critical mineral supply chains to support economic prosperity and climate objectives".

Rare earths are a group of 17 chemically similar elements composed of scandium, yttrium, and the lanthanides that are abundant in nature, but difficult and dirty to extract.

China accounted for 58.9 percent of South Korea's rare earth imports in terms of volume in 2020, according to the KITA.

"Rare earths are becoming increasingly important as industries covering electronics, chips and automobiles become more advanced," said Lee Jay-yoon, the director of the materials industry and sustainability division at Korea Institute for Industrial Economics & Trade.

He referred to the experience in 2019 after Japan placed restrictions on exports of its hi-tech materials and parts, which Korea was highly dependent on.

"Korea has faced the need to utilize diplomatic relations and boost its network when it comes to economic security," Lee added.

China began tapping into its rare earth reserves in the 1950s, taking advantage of a lack of environmental regulations to dominate the global market.

The difficult and costly process of extracting resources, as well as the environmental pollution involved, have served as substantial barriers for other nations to produce rare earths.

China holds 35.2 percent of global rare earth reserves ― equivalent to 12.5 billion tons ― according to data from the U.S. Geological Survey. It is followed by Vietnam with 17.6 percent and Brazil and Russia with 16.8 percent each.

The world's No. 2 economy produced 140,000 tons of rare earths in 2020 compared to just 39,000 tons from the U.S.

Myanmar produced 31,000 tons in 2020, with Australia fourth with 21,000 tons.

China's portion of global rare earth production peaked at over 80 percent after 2000 as economies opted to import resources that were cheaper than producing their own, but the percentage has fallen to around 60 to 70 percent.

This is attributed to countries recognizing the importance of rare earths given their use in cutting-edge industries, and instead turning to utilize their own resources.

Electric cars are seen charging at a station. gettyimagesbank

In China, 42 percent of rare earths were used to manufacture permanent magnets that are used in electric vehicles.

Some global carmakers, including Nissan and BMW, have opted to reduce the use of rare earth magnets in their electric vehicles given the risks associated with supply despite being more efficient.

GM has also stated that it will source and produce rare earth electric vehicle magnets in the U.S.

Traded rare earths are categorized into rare earth metals and rare earth compounds.

China's exports of rare earth metals fell in 2020 due to the coronavirus pandemic, but grew by 35 percent the following year, according to data from the Global Trade Atlas.

The growth is attributed to increasing demand as the eco-friendly and cutting-edge technology industries develop and as major economies seek to stock up on key materials over concerns of supply chain disruptions.

In 2021, the largest importers of China's rare earth metals were Japan, the Netherlands, Italy, India, the U.S., Canada, Brazil and South Korea.

China, meanwhile, accounts for 88 percent of South Korea's rare earth magnet imports by value.

Kim Bo-eun bkim@koreatimes.co.kr

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