Why you should know about Bautou in China and its monopoly on rare earths metals...

Bautou is located in Inner Mongolia. It was unknown to the outside world for millenia and not on the Silk Road, set up during the Han Dynasty (206BC - 220AD). It was described as "a little husk of a town in a great hollow shell of mud ramparts" when one of the first visitors came across this place in 1925.

Today, this once barren outpost has been transformed into the powerhouse of China's dominance of the market in some of the globe's most sought-after minerals. The Baotou Rare Earth Research Institute is home to some 400 scientists whose work has put China at the pinnacle of research into a group of 17 metals which sound as if they were dreamt up as poisons for superheroes. Discovered by a Swedish scientist in 1787 and despite their name, they are relatively abundant in the Earth's crust but the high cost of extraction means only areas with rich deposits, in particular China, are worth exploiting. The arrival of new technology means that global production has risen from less than 5,000 tonnes in 1955 to the current level of about 120,000 tonnes a year. Since 2000, demand for rare earth elements (REEs) has ballooned from 40,000 tonnes to a predicted 200,000 tonnes by 2014. Their unique properties of luminescence, magnetism and conductivity make them indispensable to industries reliant on REEs estimated to be worth US$5 trillion.

*Cerium (Ce) - catalytic converters for diesel engines
*Praseodymium (Pr) – an alloying agent for aircraft engines
*Neodymium (Nd) – key component of high-efficiency magnets and hard disc drives
*Lanthanum (La) – a major ingredient for hybrid car batteries
*Samarium (Sm) – lasers and nuclear reactor safety
*Promethium (Pm) – portable X-rays and a nuclear battery
*Gadolinium (Gd) – shielding for nuclear reactors, compact discs
*Dysprosium (Dy) – improves the efficiency of hybrid vehicle motors
*Terbium (Tb) – a component in low-energy light bulbs
*Erbium (Er) – fibre optics
*Europium (Eu) – used in flat screen displays and lasers
*Holmium (Ho) – nuclear control rods, ultra-powerful magnets
*Thulium (Tm) – lasers, portable X-rays
*Ytterbium (Yb) – monitoring equipment for earthquakes
*Lutetium (Lu) – oil refining
Two more elements, Scandium and Yttrium, are considered rare earths as they tend to occur in the same ore deposits and have similar chemical properties.

The development of Baotou into the global capital of REES is due to two factors: its proximity to the Baiyunebo mine, a vast open pit that is the world's largest rare earth mine, and Beijing's deliberate policy of at least two decades to turn this "Mother Lode" into a stepping stone towards status as an economic superpower. China, which by accident of geography holds about 50 per of the world's rare earth deposits and currently produces 97 per of global supplies, has made no secret of the nature or scale of its ambitions, summarised by former premier Deng Xiaoping when he said: "The Middle East has oil. China has rare earths." In 1999, President Jiang Zemin went further on a visit to Baotou when he summed up Beijing's strategy as being "to improve the development and applications of rare earth, and change the resource advantage into economic superiority".

Above all, REEs are an integral part of the technologies that politicians are relying on to try to avert the worst effects of global warming. From the generators of wind turbines to catalytic converters, and the batteries on hybrid cars to alloys that dramatically reduce leakage from overhead power cables, rare earths are at the heart of the green revolution.

During the past seven years China has reduced by 40 per cent the amount of REEs available for export. The result is that the rare earth industry in China is rapidly moving from a role as a provider of rare earth extracts for export, worth a few hundred million dollars a year to Chinese GDP, to a producer of finished REE components worth billions. In response to Chinese reductions in exports, global manufacturers are forced to move factories making rare-earth rich components to China to ensure continued production.

REEs are relatively cheap at about US$32 per kg. But others are far less abundant. Terbium, which is soft enough to cut with a knife, is an irreplaceable component of low-energy light bulbs. It sells for up to US$300 per kg and China needs its entire production to meet domestic demand. Dysprosium, whose Greek name translates as "hard to get at", allows lightweight magnets to function at high temperatures and costs about US$125 per kg. China is responsible for 99 per cent of the global output of both. In October 2009, an internal report by China's Ministry of Industry and Information Technology disclosed proposals to ban the export of five rare earths and restrict supplies of the remaining metals. China's control over rare earth supplies has sparked unease over their availability. Senior players in the rare earths industry are anxious to avoid suggestions that Beijing is using its commanding position to hold the world to ransom.

This is likely to prove extremely disruptive for the rest of the world. A sudden cut in supply is going to have painful knock-on effects for many high-technology industries in developed countries. The obvious response is to seek other suppliers. And rare earth mines are being developed in South Africa, Australia,Canada and Greenland. Questions remain as to whether mines outside China, such as the Mountain Pass site in California, which closed in 2002 and is being reopened, can be operated at economically sustainable levels. Nearly all operators outside China closed soon after 2000 when cheap Chinese REEs flooded the market, using highly polluting but cheap mining methods.

Jack Lifton, an independent consultant and a world expert on REEs, said: "A real crunch is coming. In America, Britain and elsewhere we have not yet woken up to the fact that there is an urgent need to secure the supply of rare earths from sources outside China. China has gone from exporting 75 per cent of the raw ore it produces to shipping just 25 per cent, and it does not consider itself to be under any obligation to ensure supplies of rare earths to anyone but itself. There has been an effort in the West to set up new mines but these are five to 10 years away from significant production."

For those who wish to climb the wall of worry that lies ahead, the race is still very much in its infancy. While both Western countries and China are already dashing to secure new sources of rare earths, last September, Australian regulators signalled they have got ahead of the curve by imposing restrictions and preventing a Chinese company (China Non-Ferrous Metal Mining Group) from taking a US$400m controlling stake in the Lynas Corporation, owner of one of the country's richest rare earth mines.

The above article includes excerpts from The Independent newspaper (UK)