China tightens its hold on minerals needed to make computer chips

Zibo: The vise-tight grip that China wields over the mining and refining of rare minerals, crucial ingredients of today's most advanced technologies, is about to become even stronger.

In a series of steps made in recent weeks, the Chinese government has made it considerably harder for foreign companies, particularly semiconductor manufacturers, to purchase the many rare earth metals and other minerals mined and refined mainly in China.

Already, China produces almost all the world's supply of these materials. The new restrictions solidify that market dominance.

As of October 1, exporters must provide authorities with detailed, step-by-step tracings of how shipments of rare earth metals are used in Western supply chains. That has given China greater authority over which overseas companies receive scarce supplies.

China is also taking greater corporate ownership over the mining and production of the metals. In a deal that has received almost no attention outside the country, the last two foreign-owned rare earth refineries in China are being acquired by one of the three state-owned companies that run the other refineries in China.

Beijing's recent moves to take charge of the supply chain include other obscure chemical elements that are also needed by semiconductor manufacturers. On Sept. 15, China's Ministry of Commerce restricted exports of antimony, a material used in semiconductors, military explosives and other weaponry. Last year, the ministry imposed export controls on two other chemical elements, gallium and germanium, also needed to make chips.

National security officials have tightened the flow of information about rare earths. They have labeled rare earth mining and refining as state secrets. Last month, the Ministry of State Security announced that two managers in the rare earths industry had been sentenced to 11 years in prison for leaking information to foreigners.

The materials are a battleground in the broader fight between China and the United States over advanced technology, including the semiconductors used for artificial intelligence. Each side is imposing export controls on the components it produces, while trying to develop supply chains at home or abroad, with trusted allies.

"China has cornered the market for processing and refining of key critical minerals, leaving the US and our allies and partners vulnerable to supply chain shocks and undermining economic and national security," a White House statement said last month.

Daan De Jonge, a product director for critical minerals at Benchmark Mineral Intelligence, a London consulting firm, compared the risk of supply disruptions to "the sword of Damocles, hanging over the market, ready to strike at any time."

For two months in 2010, China banned exports of rare earth metals to Japan during a territorial dispute. But its current initiative is far broader.

China's Ministry of Commerce contends it is taking action to conserve scarce natural resources, discourage weapons proliferation and protect the country's national security.

Rare earths from China are used in US-made F-35 stealth fighters as well as in wind turbines, electric car motors, camera lenses and the catalytic converters on gasoline-powered cars. Demand for them is expected to grow. The International Energy Agency predicted that clean energy industries like wind turbines and electric cars would need seven times as much rare earths in 2040 as what they needed in 2020.

One example of China's growing power is dysprosium, a rare earth that sells for more than $100 a pound. Previously used mainly as an additive in powerful magnets for electric cars, dysprosium is highly heat resistant. That makes it an increasingly important component of advanced semiconductors.

In the past few years, Nvidia and other computer chip manufacturers have changed the material used in hundreds of tiny electricity management devices, called capacitors, on each chip. The capacitors are now made from ultrapure dysprosium. China's refineries produce 99.9% of the world's dysprosium, mostly at a single refinery in Wuxi, near Shanghai.

That refinery is one of the last two in China that are still in foreign hands, after the government's purchase or nationalization of the rest of the industry. The longtime owner of both refineries is a Canadian company, Neo Performance Materials.

Neo recently announced that, by the end of the year, it would sell an 86% stake in the Wuxi refinery to Shenghe Resources, a Chinese company traded on the Shanghai stock market. Shenghe's biggest shareholder is China's Ministry of Land Resources. Neo is closing the other refinery, 400 miles north in Zibo, China, and transferring its equipment and personnel to Shenghe.

Neo CEORahim Suleman said his company would retain an ability to sell to foreign companies. It has the right to market rare earths to international customers from the Wuxi refinery for five years. In addition, Neo has another refinery in Estonia that processes some rare earths, although not dysprosium. It has built a new factory in Zibo to turn rare earths into catalytic converter chemicals for cars.

China's ever-stronger reins on rare earth supply chains have accelerated efforts to set up supply chains in other countries.

Solvay, a Belgian company, refines tiny quantities of dysprosium in France and said it planned to increase production. An Australian company, Lynas, said it would start refining dysprosium in Malaysia next year. Work has begun on a refinery in Texas.

But all of these plans face obstacles. Few mines outside China and Myanmar, a restive nation on China's southwest border, have commercially viable concentrations of dysprosium. Chinese companies have been buying stakes or rights to production in mines being developed in Tanzania, Greenland and Australia. And rare earth refineries often take years to get going.

Producing the ultrapure dysprosium required for the computer chips that run artificial intelligence programs is particularly difficult: It took Neo seven years of trial and error to master the 100-step chemical process at its Wuxi refinery. Solvay said its initial increase in dysprosium output early next year would be for magnets, a less demanding application.

The sole American rare earths mine, in Mountain Pass, California, has low concentrations of dysprosium in its ore. But MP Materials, which owns the mine, has a Defense Department contract to upgrade its sophisticated refining equipment so it can extract dysprosium.

"If there were a situation where there were a panic and cost were no issue, we would have a lot of separated dysprosium quickly," said James Litinsky, chair and CEO of MP Materials.

Countries have been trying to diversify supply chains since 2010, when China imposed a two-month embargo on rare earth shipments to Japan during a territorial dispute. It has proved difficult to compete with Chinese companies, which have lower production costs and have been willing to cut prices and sustain financial losses.

"In a purely commercial sense, it has been hard to justify an investment outside of China even though there is a lot of talk," said Roderick G. Eggert, a minerals economist at the Colorado School of Mines.

China has also gained an edge through advances in chemistry that allow refiners to extract more rare earths at lower cost. China has 39 universities with programs to train engineers and researchers for the rare earths industry. Universities in the United States and Europe have mostly offered only occasional courses.

Michael Silver, chair and CEO of American Elements, a chemicals manufacturer and distributor based in Los Angeles, said rare earth refineries in China "have solvent extraction systems that are literally a generation ahead of anything outside."