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China Produces 99% of Two Rare Metals Needed for Hybrids

Toyota Motor Corp. (TM) has the best-selling Prius, General Motors Corp. (GM) will soon roll-out the highly anticipated Volt, while Honda Motor Co. (HM), Ford Motor Company (F), Daimler AG (DAI) and every other large automaker either has hybrids on the market or is planning to introduce them – but a key component of the electric motors in hybrids is almost completely controlled by China.

The New York Times today published a story titled “China Tightens Grip on Rare Minerals.” It is a little known, but increasingly important fact, that China produces “more than 93 percent of so-called rare earth elements,” and specifically more than 99 percent of two particular elements, dysprosium and terbium, that are key components in hybrid cars.

Despite increasing demand, China appears to be ready to tighten worldwide supply in a move to get manufacturers into China as well as ease the incredible environmental burden China has so far allowed its mining practices to take:

China’s Ministry of Industry and Information Technology has drafted a six-year plan for rare earth production and submitted it to the State Council, the equivalent of the cabinet, according to four mining industry officials who have discussed the plan with Chinese officials. A few, often contradictory, details of the plan have leaked out, but it appears to suggest tighter restrictions on exports, and strict curbs on environmentally damaging mines.

Beijing officials are forcing global manufacturers to move factories to China by limiting the availability of rare earths outside China. “Rare earth usage in China will be increasingly greater than exports,” said Zhang Peichen, the deputy director of the government-linked Baotou Rare Earth Research Institute.

The move to tighten control of rare earth metals, is also, according to some, born of sheer necessity:

“Sometime in 2011 to 2012, Chinese domestic demand will surpass Chinese domestic production,” says Jack Lifton, an analyst and consultant who specializes in what he calls the “technology metals” and advises mining industry clients developing rare earth projects in North America. “This means no more Chinese exports of rare earths, other than in finished goods made in China that they allow to be exported.”

A Toyota Prius requires between 2 and 4 pounds of rare earth metals for its electric motor – a requirement that may become increasingly difficult if not impossible to meet. Concern about a crippling shortage may seem overly dramatic, but the United Kingdom’s Times notes that about 20% of Japan’s imports of rare earth metals are already believed to enter through the black market because supply is so scarce.

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