Valerie Bailey Grasso
Specialist in Defense Acquisition
Some Members of Congress have expressed concern over U.S. acquisition of rare earth materials composed of rare earth elements used in various components of defense weapon systems. Rare earth elements consist of 17 elements on the periodic table, including 15 elements beginning with atomic number 57 (lanthanum) and extending through number 71 (lutetium), as well as two other elements having similar properties (yttrium and scandium). These are referred to as “rare” because although relatively abundant in total quantity, they appear in low concentrations in the earth’s crust and extraction and processing is both difficult and costly.
From the 1960s to the 1980s, the United States was the leader in global rare earth production. Since then, production has shifted almost entirely to China, in part due to lower labor costs and lower environmental standards. China now produces about 97% of rare earth oxides, is the only exporter of commercial quantities of rare earth refined metals, and is the majority producer of the world’s two strongest magnets (samarium cobalt (SmCo) and neodymium iron boron (NeFeB) permanent rare earth magnets). An underinvestment in the U.S. supply chain for rare earths has resulted in a situation where, with few exceptions, there is a lack of domestic refining, fabricating, metal-making, alloying, and magnet manufacturing capacity to process rare earths.
In 2010, a series of events and press reports highlighted what some referred to as the rare earth “crisis.” Some policymakers were concerned that China had cut its rare earth exports and appeared to be restricting the world’s access to rare earths, with a nearly total U.S. dependence on China for rare earth elements, including oxides, phosphors, metals, alloys, and magnets. Additionally, some policymakers had expressed growing concern that the United States had lost its domestic capacity to produce strategic and critical materials, and its implications for U.S. national security.
Pursuant to Section 843, the Ike Skelton National Defense Authorization Act for FY2011 (P.L. 111-383) and S.Rept. 111-201 (accompanying S. 3454), Congress had mandated that the Secretary of Defense conduct an assessment of rare earth supply chain issues and develop a plan to address any vulnerabilities. DOD was required to assess which rare earths met the following criteria: (1) the rare earth material was critical to the production, sustainment, or operation of significant U.S. military equipment; and (2) the rare earth material was subject to interruption of supply, based on actions or events outside the control of the U.S. government. The seven-page report was issued in March 2012.
On March 13, 2012, President Obama announced that the United States had joined with Japan and the European Union to bring a World Trade Organization (WTO) joint dispute resolution case against China because of China’s restrictive policies on rare earths and other minerals. Given DOD’s assessment of the supply and demand for rare earths for defense purposes, coupled with the recent announcement of Molycorp’s proposed acquisition of Neo Material Technologies, Congress may use its oversight role to seek more complete answers to the following important questions:
• Given Molycorp’s purchase of Neo Material Technologies and the potential for the migration of domestic rare earth minerals to Molycorp’s processing facilities in China, how will this move affect the domestic supply of rare earth minerals for the production of U.S. defense weapon systems?
• Given that DOD’s assessment of future supply and demand was based on previous estimates using 2010 data, could there be concern for a possible rare earth material supply shortage or vulnerability that could affect national security?
• Are there substitutes for rare earth materials that are economic, efficient, and available?
• Does dependence on foreign sources alone for rare earths pose a national security problem?Congress may encourage DOD to develop a collaborative, long-term, well-thought-out strategy designed to identify any material weaknesses and vulnerabilities associated with rare earths and to protect long-term U.S. national security interests.
Date of Report: April 11, 2012
Number of Pages: 34
Order Number: R41744
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