In early September, several news outlets noted that the Russian state-backed Rostec and private investment firm ICT Group launched a joint venture to produce 40,000 tonnes of rare earths from stockpiled monazite concentrates — a $1 billion investment over the next seven to eight years.
Shortly thereafter, rumors surfaced from anonymous Chinese government officials and industry executives about plans by the Chinese State Reserves Bureau to increase the size of China’s rare earth stockpile from 20,000 tonnes to 30,000 tonnes. The lion’s share of this planned purchase, expected to start once the National Day holiday is completed in early October, is the ever-scarce heavy rare earths. The total value of this stockpile expansion is not less than $1.5 billion at domestic China prices.
With the Russian and Chinese governments considering rare earth investments in the billions of dollars, it is worth considering in which direction the U.S. Government is heading.
In past, the Department of Defense (DoD) has asserted that rare earth elements are not uniquely important to defense applications. Even during the significant rare earth restrictions of 2010, DoD industrial base officials insisted there was no evidence that U.S. defense contractors faced shortages of material (Bloomberg).
Recently though, the DoD requested authority to stockpile rare earth elements in Section 1412 of the National Defense Authorization Act for FY 2014 (H.R. 1960) — authority that industrial base officials said they would only seek if they noticed an emerging shortage. The Defense Logistics Agency (DLA), which is responsible for providing spare parts and fuel to Combatant Commands as well as maintaining the aforementioned rare earth stockpile, also has expressed concerns about the reliability of the rare earth supply chain. They have advised holding a larger inventory of spare parts for defense systems that contain heavy rare earths (Report on Rare Earth Inventory).
Each of these seems to indicate a gradual course correction by the DoD, but the legislative request from the DoD only asks for authority to stockpile dysprosium metal and yttrium oxide. It is unclear, at this point, how much material the DoD is planning to purchase, and it is essential that such purchases be right-sized to offset sustainment and acquisition shortfalls during a long-term supply disruption. Meanwhile, increased inventories by DLA or vendors will increase immediate flexibility to buffer short-term price spikes.
Considering where the DoD’s policy position began, the Department’s recognition of the problem and initiation of risk mitigation procedures should be applauded. We continue to have concerns about the source from which the DoD will ultimately purchase these stockpile materials, but there is an opportunity for the Department to use these transactions — as is being done in Russia and China — to rebuild a critical industry.
