U.S. officials say they can’t sit back and just hope that Beijing will provide what’s needed for crucial defense equipment. By Richard Sammon, Senior Associate Editor October 15, 2009 U.S. officials are getting worried. China has cornered the market on rare earth metals vital to defense and for three years in a row has cut back on exports on which the Pentagon depends. Officials say it’s time the U.S. takes action to assure a long-term supply. In the last decade, China has moved aggressively, acquiring mines around the world that now account for more than 90% of global production of the most desired rare earth metals, such as terbium, dysprosium, molybdenum, thorium, erbium and yttrium. Because of their special qualities, several are used in defense applications, especially in missile assemblies, radars, satellites and power supplies. The U.S. no longer keeps many rare earths on hand, although at the height of the Cold War, the U.S. national defense stockpile included several hundred materials and mineral ores. The stockpile, worth billions, included a lot of lead, nickel and copper but also many precious metals largely found in Asia, Australia and parts of South America. In recent years, however, the Pentagon sold off the stockpile in order to accumulate parts and assemblies for ships, planes and military weapon systems. This was not a problem while supplies of rare earths were easily obtainable. But in each of the last three years, China has kept more rare earths for internal use and cut exports accordingly. Experts think that trend will continue. Chances are that the Chinese government also is stockpiling the ores instead of allowing them to be traded in the global market. Advertisement Some U.S. military officials and leading members of the House and Senate Armed Services committees want to start restocking at least some of the rare earth materials over the next several years. Rare earths are not used in huge amounts, but many are expensive; dysprosium costs about $50 per pound and is used in communication systems. Terbium costs about $150 per pound and is used in avionic systems and radars. The prospect of many years of limited supplies of about a dozen rare earth minerals is likely to spur the U.S. to negotiate with mining companies in countries such as Australia and Argentina about increasing exploration for rare earths and restricting further acquisition by China of rare earth mines. The North American market for rare earths is about $1 billion per year, but there may be more demand in the future, especially with a growing market for electric vehicles. Rare earths are used in batteries for electric cars. Japan, also dependent on China for rare earths, likely a major producer of electric cars, also may begin building a strategic reserve in the next few years. Tight global supplies from China will lead to more prospecting, although there are only a few countries in which geologists expect rare earths to be found in large enough quantities to make mining operations worth the investment. Among them are South Africa, Greenland, Mongolia, Paraguay and New Guinea. For weekly updates on topics to improve your business decisionmaking, click here.