U.S. bill would block defense contractors from using Chinese rare earths

American Rare Earths

14/01/2022 18:24

(Adds reaction from rare earths miners and defense industry)
    By Ernest Scheyder
    Jan 14 (Reuters) - A bipartisan piece of legislation
introduced in the U.S. Senate on Friday would force defense
contractors to stop buying rare earths from China by 2026 and
use the Pentagon to create a permanent stockpile of the
strategic minerals.
    The bill, sponsored by Senators Tom Cotton, an Arkansas
Republican, and Mark Kelly, an Arizona Democrat, is the latest
in a string https://www.reuters.com/article/usa-mining-washington-idCNL1N2PD2DD
 of U.S. legislation seeking to thwart China's near control over
the sector. 
    It essentially uses the Pentagon's purchase https://www.reuters.com/world/us/bidens-defense-budget-gives-troops-27-raise-2021-05-28
 of billions of dollars worth of fighter jets, missiles and
other weapons as leverage to require contractors to stop relying
on China and, by extension, support the revival of U.S. rare
earths production. 
    Rare earths are a group of 17 metals that, after processing,
are used to make magnets found in electric vehicles, weaponry
and electronics. While the United States created the industry in
World War Two and U.S. military scientists developed the most
widely-used type of rare earth magnet, China has slowly grown to
control https://www.reuters.com/business/general-motors-sets-rare-earth-magnet-supply-deals-with-two-us-suppliers-2021-12-09
 the entire sector the past 30 years.
    The United States has only one rare earths mine https://www.reuters.com/article/us-usa-rareearths-insight/american-quandary-how-to-secure-weapons-grade-minerals-without-china-idUSKCN2241KF
 and has no capability to process rare earth minerals. 
    "Ending American dependence on China for rare earths
extraction and processing is critical to building up the U.S.
defense and technology sectors," Cotton told Reuters.  
    The senator, who sits on the Senate's Armed Forces and
Intelligence committees, described China's evolution into the
global rare earths leader as "simply a policy choice that the
United States made," adding that he hoped fresh policies would
loosen Beijing's grip.
    Known as the Restoring Essential Energy and Security
Holdings Onshore for Rare Earths Act of 2022, the bill would
codify and make permanent the Pentagon's ongoing stockpiling https://www.reuters.com/article/us-usa-rareearths-magnets-exclusive/exclusive-pentagon-to-stockpile-rare-earth-magnets-for-missiles-fighter-jets-idUSKBN1YO0G7
 of the materials. China temporarily blocked rare earth exports
to Japan in 2010 and has issued vague threats https://www.reuters.com/article/us-usa-trade-china-rareearth/china-ready-to-hit-back-at-u-s-with-rare-earths-newspapers-idUSKCN1SZ07V
 it could do the same to the United States. 
    To build that reserve, though, the Pentagon buys supply in
part from China, a paradox that Senate staffers hope will abate
in time. 
    The rare earths production process can be highly pollutive,
part of the reason why it grew unpopular in the United States.
Ongoing research is attempting to make the process cleaner.
    Cotton said he has talked to various U.S. executive agencies
about the bill, but declined to say if he had talked with
President Joe Biden or the White House.
    "This is an area in which Congress will lead, because many
members have been concerned about this very topic, regardless of
party," he said.
        
    ENCOURAGE DOMESTIC OUTPUT
    Most members of the nascent https://www.reuters.com/business/us-needs-more-mines-boost-rare-earths-supply-chain-pentagon-says-2021-10-19
 U.S. rare earths sector praised the bill, though some worried
defense contractors could continue to ask for waivers to buy
Chinese rare earths even after 2026.
    The Aerospace Industries Association, a trade group for
Northrop Grumman Corp  NOC.N , Lockheed Martin Corp  LMT.N  and
other U.S. aerospace and defense companies, declined to comment
on the bill.   
    "Well placed policies such as this one get us closer to the
target of onshoring this critical supply chain," said Marty
Weems, North American president of Australia-based American Rare
Earths Ltd  ARR.AX , which is developing three U.S. rare earth
projects. 
    MP Materials Corp  MP.N , which operates the only U.S. rare
earths mine and relies on Chinese processors, said it
appreciates "ongoing efforts by the Department of Defense and
broader U.S. government to secure the domestic rare earth supply
chain and promote free and fair competition."
    The bill, which the sponsors expect could be folded into
Pentagon funding legislation later this year, offers no direct
support for U.S. rare earths miners or processors. 
    Instead, it requires Pentagon contractors to stop using
Chinese rare earths within four years, allowing waivers only in
rare situations. Defense contractors would be required to
immediately say where they source the minerals.
    Those requirements "should encourage more domestic (rare
earths) development in our country," Cotton said. 
    The Pentagon https://www.reuters.com/article/us-usa-rareearths-pentagon-exclusive/exclusive-pentagon-races-to-track-u-s-rare-earths-output-amid-china-trade-dispute-idUSKCN1U727N
 has in the past two years given grants https://www.reuters.com/article/usa-rareearths/pentagon-awards-13-million-in-rare-earths-funding-to-u-s-projects-idINKBN27Y2F0
 to companies trying to resume U.S. rare earth processing and
magnet production, including MP Materials, Australia's Lynas
Rare Earth Ltd  LYC.AX , TDA Magnetics Inc and Urban Mining Co. 
    Kelly, a former astronaut and a member of the Senate's Armed
Services and Energy committees, said the bill should "strengthen
America's position as a global leader in technology by reducing
our country's reliance on adversaries like China for rare earth
elements."
    The bill only applies to weapons, not other equipment the
U.S. military purchases.
    Additionally, the U.S. trade representative would be
required to investigate whether China is distorting the rare
earths market and recommend whether trade sanctions are needed.
    When asked if such a step could be seen as antagonistic by
Beijing, Cotton said: "I don't think the answer to Chinese
aggression or Chinese threats is to continue to subject
ourselves to Chinese threats."

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
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 urn:newsml:reuters.com:*:nL1N2PD2DD
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U.S. needs more mines to boost rare earths supply chain,
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General Motors returns to rare earth magnets with two U.S. deals
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U.S. to work with allies to secure electric vehicle metals   
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EXCLUSIVE-Biden looks abroad for electric vehicle metals, in
blow to U.S. miners      urn:newsml:reuters.com:*:nL2N2NC32W
INSIGHT-To go electric, America needs more mines. Can it build
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    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Ernest Scheyder; additional reporting by Mike
Stone; editing by Amran Abocar, Richard Pullin and Marguerita
Choy)
 ((ernest.scheyder@thomsonreuters.com; Twitter: @ErnestScheyder;
+1-713-210-8512; Reuters Messaging:
ernest.scheyder.thomsonreuters.com@reuters.net))