By Rajeev Sharma
The over aggressive diplomacy displayed by China over its recent spat with Japan on the Senkaku Islands (called Daioyu in China) territorial dispute has caused more harm than good to China. The international community has already started gearing up to tackling the rise of China which does not look all that “peaceful” as the Chinese leadership would like the world to believe.
Apart from diplomacy, there is another important area where China is all set to be a loser: rare earth metals. China is poised to lose its monopoly over the rare earths exports because it used it as a strategic tool and placed an unofficial ban on these exports to Japan and the United States which have depended on China solely for these metals for years.
Sino-Japanese relations nosedived in September over Japan’s seizure of a Chinese fishing vessel and arrest of the vessel captain. Though Japan decided to release the captain and return the fishing vessel, the implications of this dispute are likely to be far reaching. China squandered away a precious opportunity of exploiting the Japan-US differences over the Futenma air base issue. Beijing could have handled the issue more cautiously but it upped its ante, cancelled the ministerial dialogue that was due with Japan, put on hold export of rare earth metals (on which Japanese high technology industry depends heavily) and threatened Tokyo of dire consequences if the ship crew were not released immediately.
China’s loss will be India’s gain in near future, both in terms of trade and diplomacy. The China-wary world powers are looking beyond China for assured supply of the rare earths that is not affected by the vagaries of politics. These 17 elements on the periodic table are used by the advanced nations for manufacturing various energy-efficient electric appliances and high-tech products like hybrid cars, smart phones, solar panels and air conditioners.
The main focus is on two elements: neodymium and dysprosium. Mixed with iron and other metals, neodymium enhances magneticity in compounds. Dysprosium raises the heat resistance of such magnets. The neodymium magnet, a permanent magnet made from an alloy of neodymium, iron and boron, was invented nearly three decades ago by Japanese researchers. This type of magnet has since been improved upon with the addition of dysprosium. Now, such magnets are used in products ranging from air conditioners and refrigerators to motors for hybrid and electric vehicles.
India has vast reserves of rare earths and is currently the second largest producer after China, though India’s share of the global output of rare earths is a meager two per cent. India has completely neglected the exploitation of the rare earths, though it had set up a public sector undertaking Indian Rare Earths Ltd (IREL) way back in 1950. Even after six decades of its existence, the IREL is able to produce just 2700 tonnes of rare earths, in sharp contrast to China’s last year’s massive figures of 180,000 tonnes.
During Prime Minister Manmohan Singh’s visit to Japan in October 2010, one of the agreements that the two countries had signed related to Indian supply of rare earths to Japan. Recently, the then Science and Technology Minister Prithviraj Chavan, who is now the Chief Minister of Maharashtra, had gone on record saying that “Rare earths are vital future resources and we won’t like any country to have a monopoly.” The ongoing international scramble for rare earths has jolted India out of its stupor and there are indications that India is going to increase its production of rare earths manifold in double quick time. The Japanese will be too eager to help India ramp up production of the rare earths.
The Government of India will have to come up with substantive support to its PSUs and the private sector for greater and quicker exploitation of rare earths. The US Geological Survey has pegged the Indian rare earths reserves at 3.1 million tones. The corresponding figure for China is a whopping 36 million tones. Chavan has already hinted that the private sector would be encouraged to enter into joint ventures with the public sector for extraction of the rare earths.
The Indian laws currently do not allow foreign players in rare earths’ extraction business. However, the foreign companies can join hands with the Indian companies by holding a minority stake and it should be okay to the Government of India. Chavan has already gone on record saying that the foreign companies were free to partner Indian companies in processing and refining of rare earths.
Technical experts say India requires to invest Rs140 crore for a 10,000 tonnes per annum processing plant that will produce 5,000 tonnes rare earth oxides in Orissa where a a plant is coming up and is expected to be operational in a year’s time. This plant will be instrumental in tripling India’s production of rare earths.
But this would still be a drop in the ocean as far as the international demand for these metals goes. The Chinese say about rare earths that they have been selling gold for the rate of carrots and will no longer be committing this mistake. After Chinese restrictions on rare earths exports and the available indications that China will be using its rare earths stockpile domestically, the international prices have soared six times.
A whale of a strategic opportunity is knocking at the Indian doors and India should seize it. The fact that rare earths’ exploitation is an environmental hazard should not be a deterrent. Instead India should make efforts to minimize the environmental pollution during the rare earths’ extraction process.
(The writer is a New Delhi-based journalist-author and commentator on strategic issues, international relations and terrorism. [email protected])
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