Coronavirus slows China rare earth sector
Extended workforce, logistics snags could affect REE exports Metal Tech News Weekly Edition – February 19, 2020
Last updated 6/27/2020 at 5:17am
Many in the United States, from President Donald Trump to sector analysts, have been raising the alarms about America's heavy dependence on China for rare earth elements and other critical minerals and metals. Most of this talk has centered on the geopolitical risks associated with depending on an economic and strategic rival for more than 80 percent of these 17 metals vital to a wide array of high-tech and military devices.
Instead of export restrictions resulting from politics or trade disputes, it now seems that the novel coronavirus pneumonia (NCP) outbreak could leave the U.S. and the rest of the world with an REE shortage.
According to Global Times, a newspaper focused on Chinese government views on international events, the coronavirus outbreak has caused the rare earths sector inside of China to slow to a crawl, due to limited workforce availability and slowed transportation.
And, if China's rare earth sector does not get back up and running soon, dwindling REE stockpiles could result in supply chain disruptions both within the country and globally.
According to a Feb. 12 article by Global Times, China's rare earth sector is currently running at about 20 percent capacity, "and industry insiders said if production did not resume within a month, exports to the U.S., Japan and Europe would be affected, along with the global supply chain."
Considering that roughly 90 percent of the world's useable rare earths come from China, this could become a problem for global manufacturers that need these 17 elements for a wide array of high-tech devices and other consumer goods.
"It's not necessary to predict how severe the coronavirus will be or how long it will last, to see even at this early point that, in our interconnected global economy, near single-source reliance for a critical material is a vulnerability," said Daniel McGroarty, advisor to companies developing U.S. sources of rare earths and other critical minerals.
Worker, logistic problems
The coronavirus outbreak took place during Chinese New Year, a countrywide holiday that runs from Jan. 25 until Feb. 8. With the government trying to control the spread of the virus, officially known as COVID-19, bans on transportation have been imposed in Hubei, a Central China province where the virus originated.
The only businesses allowed to be open in Hubei are ones that provide essential services, such as stores and hospitals, and residents are being restricted to their homes. Emergencies and a single household member allowed to buy food and essential items every three days are the only exceptions. Private vehicle travel is also forbidden in the province.
While Hubei is not the center of China's rare earth sector, the bans on travel there and elsewhere are snarling logistics and worker availability across the country.
"There are few local labor sources and returning workers from other parts of China are still being quarantined for seven to 14 days," Yang, manager at a state-owned magnet facility in East China's Jiangxi Province told Global Times. "It's also very difficult to source materials in and send products out because of logistics problems."
This problem is being felt by all sectors of the Chinese economy.
A survey by the American Chamber of Commerce in Shanghai found that U.S. factories in the country are facing similar challenges. While most of the 109 members that responded to the survey plan to resume operations within the next week, production is expected to be limited.
Roughly 78 percent of the companies said they do not have enough staff to run at full capacity and 30 percent said logistics is their biggest concern moving forward.
Over the next few months, 58 percent of the U.S. companies expect demand for their output to be lower than normal due to coronavirus-related economic slowdown.
Rare earth crossroads
Hubei lies at the crossroads of China's three major rare earth districts – the northern, which includes inner Mongolia and Shandong; western, which covers the Sichuan Province; and southern, which covers Jiangxi and other provinces to the south of Hubei.
According to Global Times, gearing up work at rare earth separation and magnet facilities Ganzhou, a city in Jiangxi that is a hub for China's rare earths sector, is further complicated by local government restrictions in response to the coronavirus epidemic.
Yu Xi, general manager of Ganzhou Fortune Electronic Co, which makes rare earth permanent magnets, told the Chinese news service the magnet company is preparing protective supplies such as face masks so that it can submit documents for work resumption to the local government.
"We have not decided on the date to restart work and will set the date based on how the NCP is being controlled," Yu said, according to the Global Times report.
According to the Chinese newspaper, rare earth experts in the country believe that current stockpiles at manufacturing facilities should allow the rare earth supply chain within the country to weather any logistics delays related to the corona virus.
However, longer delays could affect both manufacturing of goods that require rare earths within China and exports to the U.S., Japan and other countries.
"If we can reopen within half a month and the delivery network also resumes by that time, the impact will be temporary and limited," Yang said.
While it is hard to tell right now whether the coronavirus will create a global rare earth shortage in the coming months, the possibility reinforces concerns over heavy reliance on one source for rare earths and other commodities critical to the U.S.
"Saying an event is a 'black swan,' beyond anyone's power to predict, is no excuse for failing to develop more diverse supply," McGroarty said. "Just as world health organizations are laser-focused on developing an anti-virus vaccine, we've got to take steps to ensure the U.S. economy builds up its immunity to global shocks that can destroy growth and GDP – and a key part of that is avoiding extreme dependencies on any one country for critical minerals."