Defense industry's help needed to avert rare metals supply crisis.

• Author: Delaney, Keith A.
• Position: VIEWPOINT

Just as the Defense Department and its suppliers worry about dependence on foreign oil, they also must be concerned about growing needs--and potentially declining supplies--of rare earth metals.

Rare earth materials are used in commercial and military systems for their magnetic and other unique properties. They include rare earth ores, oxides, metals and alloys.

According to a recent Government Accountability Office report, worldwide availability of these materials may be limited to a few overseas sources, primarily China. GAO noted that the Defense Department is in the early stages of assessing its dependency on rare earth materials and is planning to complete a study by September 2010.

A potential disruption of supplies of rare earth metals would not only affect the U.S. military's ability to produce high-end weapons, but would also jeopardize the nation's adoption of green-energy technologies.

The presence of globally competitive and diverse supply chains would help to eliminate this vulnerability.

The conventional wisdom in the industry is that China will continue to manage rare earth material production and exports to leverage its strategic supply position to create downstream manufacturing industries and jobs in China. That nation also is seeking to meet its own internal demand for rare earth enabled products such as electric vehicles, wind turbines and compact florescent lamps.

Global demand for rare earth products for green energy is forecast to grow at double-digit rates. Already the world's largest market for automobiles and wind turbines (the two highest volume applications for rare earth magnets), China will continue to consume an ever-increasing percentage of its output. China currently consumes 80 percent of rare earth material supplies.

Eventually, China will be faced with the decision of whether to expand rare earth production to meet global demand.

Industry insiders and investors are betting China will continue its current policies of limiting production and exports.

Congress mandated the GAO study out of concerns about the defense supplier base. The House Committee on Science and Technology's subcommittee on investigations and oversight also is looking into this issue. The Senate Committee on Energy and Natural Resources is just beginning to investigate. Last year, the Department of Commerce sponsored an interagency roundtable with industry looking at rare earth technology supply issues.

Among major manufacturers, the...