LONDON (Reuters) - Countries outside of China are scrambling to invest in domestic supplies of rare earth metals, but new mines could take 10 years to come on stream, asset manager Van Eck Global said on Monday.
China accounts for 97 percent of world total production of rare earth, which was around 120,000 tonnes in 2008, mining experts say.
Cheap labour, lax environmental policies and heavy investment in technology allowed China to undercut other global producers in the 1990s, leading to closures of competing rare earth mines around the world. China then reduced export quotas to build up its refining, processing and alloy production industry.
“In countries like Japan, the European Union and the United States, governments are beginning to look at where they source these metals from,” Ed Lopez, marketing director at Van Eck, told Reuters on Monday.
“A lot of people are anticipating government support for redeveloping domestic industries to replace or supplement supply from China,” he added. “The problem is, that could take some time to develop mines to do that — anywhere from seven to 10 years to get a mine up and running.”
Furthermore, these countries will have to rebuild expertise in the sector, he said. “A lot of the expertise is in China right now.”
Beijing cut export quotas by 70 percent for the second half of 2010, sending prices of some oxides — the purified form of rare earth elements — up as much as 850 percent.
Rare earths have become crucial components for some of the world’s consumer and industrial icons: the Toyota Prius, General Electric wind turbines, the Apple iPhone and hundreds of other devices.
“(Rare earths) is an area that has become more important or being followed a little more closely,” Lopez said. “What people are beginning to realise now is that we are dependant, in some cases 100 percent, on some of these metals for a lot of things.”
Analysts say demand for rare earth metals is likely to increase by 10-20 percent each year.
“You have technology that is really driving the demand for a lot of these rare earths because your LED television and hard-drives just wouldn’t work without some of these metals,” Lopez said.
Investors have been seeing potential for some time in the combination of rising global demand and limited supplies of rare earth metals.
In late October, Van Eck launched the first U.S.-listed exchange-traded fund (ETF) focused on rare earth and strategic metals. The ETF tracks the Market Vectors Rare Earth/Strategic Metals Index, which invests in globally listed miners, exploration and recycling companies with activities related to strategic or rare earth and minor metals.
The top two rare earth and strategic metals index constituents are rare earths prospector Lynas Corp and exploration firm Iluka Resources.
Earlier this month, Australia’s Lynas signed a new long-term supply contract with a European consumer amid international concerns about China’s curbing of rare earth exports.
New York-based Van Eck’s ETF is worth about $114 million, and after a volatile performance is 4 percent higher for the year.
“There is a good long-term story for the rare earths and strategic metals base, though we want to make sure investors understand the speculative nature of this segment,” Lopez said.
“It can be very volatile. You want to be careful when you are evaluating this and understand what you’re really getting into,” he added.
Reporting by Michael Taylor; editing by Jane Baird