US Auditor: Rare Earth Elements Vital For Clean Tech Getting Scarce

WASHINGTON -(Dow Jones)- Global supplies of rare earth materials vital to the military, mobile phone and clean energy technology sectors are scarce, the U.S. federal government auditor warned Wednesday.

The Government Accountability Office said China processes almost 97% of the world's supply of these elements, which have special electromagnetic properties, and although the U.S. has deposits of rare earth ore, it won't likely be produced until 2012. Furthermore, the U.S. has lost the necessary rare earth material refining capacity, and rebuilding the supply chain may take up to 15 years.

While the military needs the rare earth materials for many of its defense systems--including missiles, satellites and radar systems--commercial use includes hybrid electric motors and batteries, wind power turbines, computer hard drives, mobile phones, cameras, energy-efficiency light bulbs and fiber optics.

Availability of these elements will be largely be controlled by Chinese suppliers for at least the next several years. "China's dominant position in the rare earths market gives it market power, which could affect global rare earth supply and prices," the GAO said.

The auditor said government and industry officials believe China's not only planning to increase export taxes on the materials to 15%-20%, the country's also using production quotas to limit supply.

"While China is currently exporting rare earth oxides and metals, some rare earth industry officials believe that in the future China will only export finished rare earth material products with higher value," the GAO said.

A company called Molycorp Minerals, owned by Chevron Corp (CVX), has a large deposit of rare earth elements at its Mountain Pass Mine in California. But the mine lacks manufacturing assets to process the ore into finished components. Also, it doesn't have "heavy" rare earth elements necessary for many industry and military hardware. Other deposits exist in the U.S. and elsewhere, but it could take nearly a decade just to get production online.

-By Ian Talley, Dow Jones Newswires; (202) 862 9285; ian.talley@dowjones.com

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