[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
CHINA'S MONOPOLY ON RARE EARTHS:
IMPLICATIONS FOR U.S. FOREIGN AND
SECURITY POLICY
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON ASIA AND THE PACIFIC
OF THE
COMMITTEE ON FOREIGN AFFAIRS
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
SEPTEMBER 21, 2011
__________
Serial No. 112-63
__________
Printed for the use of the Committee on Foreign Affairs
Available via the World Wide Web: http://www.foreignaffairs.house.gov/
--------
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COMMITTEE ON FOREIGN AFFAIRS
ILEANA ROS-LEHTINEN, Florida, Chairman
CHRISTOPHER H. SMITH, New Jersey HOWARD L. BERMAN, California
DAN BURTON, Indiana GARY L. ACKERMAN, New York
ELTON GALLEGLY, California ENI F.H. FALEOMAVAEGA, American
DANA ROHRABACHER, California Samoa
DONALD A. MANZULLO, Illinois DONALD M. PAYNE, New Jersey
EDWARD R. ROYCE, California BRAD SHERMAN, California
STEVE CHABOT, Ohio ELIOT L. ENGEL, New York
RON PAUL, Texas GREGORY W. MEEKS, New York
MIKE PENCE, Indiana RUSS CARNAHAN, Missouri
JOE WILSON, South Carolina ALBIO SIRES, New Jersey
CONNIE MACK, Florida GERALD E. CONNOLLY, Virginia
JEFF FORTENBERRY, Nebraska THEODORE E. DEUTCH, Florida
MICHAEL T. McCAUL, Texas DENNIS CARDOZA, California
TED POE, Texas BEN CHANDLER, Kentucky
GUS M. BILIRAKIS, Florida BRIAN HIGGINS, New York
JEAN SCHMIDT, Ohio ALLYSON SCHWARTZ, Pennsylvania
BILL JOHNSON, Ohio CHRISTOPHER S. MURPHY, Connecticut
DAVID RIVERA, Florida FREDERICA WILSON, Florida
MIKE KELLY, Pennsylvania KAREN BASS, California
TIM GRIFFIN, Arkansas WILLIAM KEATING, Massachusetts
TOM MARINO, Pennsylvania DAVID CICILLINE, Rhode Island
JEFF DUNCAN, South Carolina
ANN MARIE BUERKLE, New York
RENEE ELLMERS, North Carolina
VACANT
Yleem D.S. Poblete, Staff Director
Richard J. Kessler, Democratic Staff Director
------
Subcommittee on Asia and the Pacific
DONALD A. MANZULLO, Illinois, Chairman
RON PAUL, Texas ENI F.H. FALEOMAVAEGA, American
BILL JOHNSON, Ohio Samoa
DAN BURTON, Indiana FREDERICA WILSON, Florida
EDWARD R. ROYCE, California GARY L. ACKERMAN, New York
STEVE CHABOT, Ohio BRAD SHERMAN, California
MIKE KELLY, Pennsylvania GREGORY W. MEEKS, New York
JEFF DUNCAN, South Carolina DENNIS CARDOZA, California
C O N T E N T S
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Page
WITNESSES
Mr. Mark A. Smith, president and chief executive officer,
Molycorp, Inc.................................................. 13
Mr. Robert Strahs, vice president and general manager, Arnold
Magnetic Technologies, North America........................... 25
Mr. John Galyen, president, Danfoss North America................ 31
Ms. Christine Parthemore, fellow, Center for a New American
Security....................................................... 40
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
The Honorable Donald A. Manzullo, a Representative in Congress
from the State of Illinois, and chairman, Subcommittee on Asia
and the Pacific: Prepared statement............................ 4
The Honorable Eni F.H. Faleomavaega, a Representative in Congress
from American Samoa: Prepared statement........................ 8
Mr. Mark A. Smith: Prepared statement............................ 16
Mr. Robert Strahs: Prepared statement............................ 28
Mr. John Galyen: Prepared statement.............................. 34
Ms. Christine Parthemore: Prepared statement..................... 42
APPENDIX
Hearing notice................................................... 66
Hearing minutes.................................................. 67
The Honorable Donald A. Manzullo: Statement by Grundfos.......... 68
The Honorable Eni F.H. Faleomavaega: Material submitted for the
record......................................................... 70
CHINA'S MONOPOLY ON RARE EARTHS: IMPLICATIONS FOR U.S. FOREIGN AND
SECURITY POLICY
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WEDNESDAY, SEPTEMBER 21, 2011
House of Representatives,
Subcommittee on Asia and the Pacific,
Committee on Foreign Affairs,
Washington, DC.
The subcommittee met, pursuant to notice, at 1 o'clock
p.m., in room 2172 Rayburn House Office Building, Hon. Donald
A. Manzullo (chairman of the subcommittee) presiding.
Mr. Manzullo. The Subcommittee on Asia and the Pacific will
now come to order. We are waiting for Congressman Faleomavaega,
so I will start with my opening statement.
In September 2010, the People's Republic of China shocked
the world by halting critical rare earth mineral exports in
retaliation to a territorial dispute with Japan in the East
China Sea. The Chinese action sent a clear and unmistakable
message to Japan and the rest of the world: China is willing to
use economic tools to achieve diplomatic goals.
Two months later, when the export ban was lifted, the price
of cerium soared from approximately $5 per kilogram before the
ban to $67 per kilogram after the ban. The price of neodymium
went from $42 per kilogram in April 2010 to $142 per kilogram 3
months after the ban. Then, the price of dysprosium nearly
doubled from $250 per kilogram to $400 per kilogram in January
2011.
Today's hearing about rare earth minerals is both timely
and important given the role that these elements play in
America's manufacturing and defense industrial base. Rare
earths are vital in a variety of manufactured goods, such as
fluorescent lights, hybrid engines, wind turbines, cell phones,
and neodymium iron boron permanent magnets used in defense
systems.
China's actions against Japan fundamentally transformed the
rare earths market for the worse. As a result, manufacturers
can no longer expect a steady supply of these elements, and the
pricing uncertainty created by this action threatens tens of
thousands of American jobs.
For America's defense industry, a total reliance on China
for rare earths represents a serious weakness for national
security. China currently controls 97 percent of the world's
rare earth production, including all stages of the supply chain
for permanent magnets.
China's ability to dictate market terms to the rest of the
world is particularly worrisome given its unwillingness to
follow established international trade rules. To make matters
worse, China is determined to retain much of the rare earth
minerals it produces to meet growing domestic demand.
Thus, American manufacturers are locked into a no-win
scenario where the world's sole supplier of rare earths is
tightly controlling global supply. In fact, domestic Chinese
demand is projected to consume nearly all the rare earth
minerals that country produces, leaving nothing for export
markets.
From the 1960s to the 1980s, the U.S. was the global leader
in production, research, development, and fabrication of rare
earth elements and magnets. During this period, however,
Chinese leaders strategically targeted the rare earth industry
for export to China. They succeeded. By using a combination of
low labor cost and non-existent environmental standards, China
gradually transferred the entire American rare earth industry
overseas.
In 2002, the sole remaining American producer of neodymium
iron boron magnets, Magnequench, located in Indiana, was sold
to the Chinese with full approval from the Committee on Foreign
Investment in the United States. That was the last act in the
American tragedy.
Subsequent to that, I authored a change in the bill that
provides whenever a state or an enterprise buys an American
company of significance, that it has to be elevated to the
highest level of vociferous review, as opposed to being done at
the lowest level.
This is where we are today. This crucial American
intellectual property was forever transferred to China. If it
were not for entrepreneurs like Molycorp, we would never end
our dependence on China for rare earths. That is why we are
having this hearing today.
After China's 2-month rare earth mineral export embargo
concluded in November 2010, the market price of certain rare
earths, particularly cerium, neodymium, and dysprosium, soared
to new highs. Currently, the prices of these elements are at
astronomical levels, in some cases 650 percent over pre-export
ban prices.
As a result of this unprecedented supply disruption, the
Japanese manufacturing industry implemented efforts to
stockpile rare earths and to begin development of alternative
technologies.
In the U.S., however, there has been barely any awareness
of the seriousness of this crisis. But, to their credit, the
Department of Energy, under the ARPA-E program, is conducting
cutting-edge research into rare earth alternatives.
Unfortunately, the scope of this crisis is enormous and only a
concerted national effort will lead us out of this mess.
The 16th District of Illinois, which I have the honor of
representing, depends heavily on manufacturing for its
livelihood. Manufacturing accounts for approximately 25 percent
of the local economy or is double the national average. In
fact, in just three counties comprising less than 300,000
people, we have exports in excess of $3.2 billion a year.
Manufacturers in Illinois and nationwide are extremely
concerned about China's monopoly on rare earths, and we need to
heed their urgent call to action. Thus, we call upon the
administration to work with Congress to formulate a coherent,
common sense approach to ending China's monopoly on rare
earths.
It is not a Republican or a Democratic issue. It is an
American issue that requires bipartisan leadership. I have met
at length with industry representatives and officials from the
Departments of Energy and State to try to gain a better
understanding of the magnitude of this crisis.
I cosponsored legislation authored by Representative Mike
Coffman of Colorado to streamline the process for domestic rare
earth production, and I recently urged U.S. Trade
Representative Ron Kirk to take action at the World Trade
Organization against China's unfair export practices.
Before I recognize my good friend the ranking member for
his opening statement, I want to acknowledge the presence of
Chairman Jerry Lewis, who is the Member of Congress that
represents Molycorp's mine in California. Chairman Lewis is
here to introduce Mr. Smith.
I intend to recognize the ranking member for his opening
statement, then allow Chairman Lewis to introduce Mr. Smith. I
now recognize Ranking Member Eni Faleomavaega.
[The prepared statement of Mr. Manzullo follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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Mr. Faleomavaega. Mr. Chairman thank you for calling this
hearing. Like you, I would like to personally welcome our
colleague before our subcommittee, my good friend Chairman
Jerry Lewis, for being with us this afternoon.
As I say, Mr. Chairman, thank you for holding this hearing.
Considering China has been operating in rare earths, it has
implications not only for our security concerns but as well as
our foreign policy issues.
Why do rare earth's elements matter? They matter because
these elements are used in military systems we count on to
protect us like anti-missile defense and space-based satellite
and communications systems. These are used to power clean
energy. They are used in medical devices, jet fighter engines,
the automotive industry, colored television, and flat panel
displays like cell phones, portable DVDs, laptops, et cetera,
et cetera.
While the United States was once self-reliant and
domestically producing REEs, over the past 15 years, we have
become 100 percent reliant or dependent on imports, primarily
from China, which currently controls 95 percent of the world's
market of rare earth even though they only have 35 percent of
the world's reserves.
Like many of my colleagues, I believe our dependence on
China for REEs poses a risk to our national security as well as
our economic well-being. Data from the U.S. Geological Survey
estimated that in 2010 the added value to Gross Domestic
Product by major industries that consume processed non-fuel
mineral materials, including rare earths, was approximately
$2.1 trillion, or 14 percent, of the total U.S. Gross Domestic
Product. That is $14.6 trillion GDP, a considerable portion of
our nation's economy.
Concerned by these developments and also many other
potential for the U.S. and its territories, I introduced a
bill, H.R. 2803, to recover non-fuel minerals from the shallow
and deep oceans under the U.S. territorial jurisdiction
throughout the Pacific. These deposits are known to include an
abundant supply of rare earth minerals.
My proposal would require the U.S. Department of Interior's
Bureau of Ocean Energy Management, Regulation and Enforcement
in consultation with other appropriate agencies to conduct an
assessment of the sea bed area around the U.S. continental
shelf, including areas that are contiguous to and within the
200 miles EEZ of the United States and its possessions for non-
fuel minerals.
Mr. Chairman, it is only a preliminary request, but the
important step is that there should be a comprehensive effort
to ensure that there is no risk to the supply of important
minerals for domestic consumption.
I want to thank my colleague Chairman Lamborn of the
Resources Subcommittee on Energy and Mineral Resources for
holding a hearing on the bill, especially considering the value
of refined rare earths imported by the United States last year
alone was $161 million and that the Chinese Government recently
placed restrictions on its supply of rare earths as reported in
the New York Times article dated 16 September entitled
``Chinese Consolidated Group on Rare Earths,'' which I ask to
be included and be made part of the record, Mr. Chairman.
Mr. Manzullo. Without objection.
Mr. Faleomavaega. And I do want to welcome our
distinguished guests and experts on this very important issue.
And I look forward to their testimony.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Faleomavaega follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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Mr. Manzullo. Chairman Lewis, can you wait until Mr.
Sherman gives his opening statement? Are you okay on time?
Okay. Mr. Sherman?
Mr. Sherman. The fact that China has been operating this
area is not an act of God. God in his wisdom put two-thirds of
the rare earth elements outside China.
It is a result of Chinese unfair trade practices, not only
the cheap labor and manages to the environmental standards that
the chairman referred to but the fact that China subsidizes
this industry under the table. And they could afford to do so
because of their other unfair trade practices.
The underlying problem is that the most powerful interests
of the United States benefit massively from Chinese unfair
practices. They may not benefit from Chinese unfair practices
with regard to rare earth elements but the overall relationship
with China means you make it for pennies, sell it for dollars
in the United States, ship the jobs overseas, and report high
earnings per share. And Chinese control over rare earth
elements gives them one more argument as to why we should
kowtow to China. After all, they have got all the rare earth
elements.
The solution is to end these practices by ending MFN for
China 6 months after enactment, which is what a bill I have
proposed would do, and force China to change all of its unfair
policies under threat of a regime-challenging economic
downturn.
Now, the most powerful and rich in our society are not
going to allow us to seriously consider that. And the think
tanks they fund will discourage it. They won't allow any
fundamental change in our relationship with China. And they
will constantly tell us that earnings per share is the same
thing as national economic health.
In my district, there are four full-time cable television
channels dedicated to the worship of Wall Street and earnings
per share. There are only three channels dedicated to the
worship of Jesus Christ.
So we will have a hearing on this unfair trade practice. We
could have 999 other hearings on other unfair trade practices.
We will file something with the WTO. It will be meaningless. We
may be able to deal with this one issue by subsidizing the
industry if we have any money left over for that or perhaps
restricting Chinese exports, rare earth elements, which strikes
me as unlikely.
It is time to tell China that MFN ends 6 months from today.
Otherwise we are going to die from 1,000 unfair cuts. And we
will have the opportunity to have 1,000 hearings on each one of
them.
I yield back.
Mr. Manzullo. Thank you.
Mr. Lewis, do you want to introduce your constituent?
Mr. Lewis. Yes. Thank you very much, Mr. Chairman. I will
be very brief. The members of the committee probably don't know
this, but in my territory, San Bernadino County, there is
enough desert space you can place easily four eastern states.
And within that territory, there is many an opportunity as well
as a resource. And it happens to be the location of America's
very large deposits of rare earth elements.
It is very important for us to expand upon your already
very able articulation about the importance of rare earth
minerals and what they mean to the United States. It is
significant I think for you to know that I met Mark Smith only
recently when I traveled out to Mountain Pass, which is really
out in the boondocks in my district, about 40 miles, 50 miles
away from Las Vegas.
At that event, there were a couple of hundred employees of
the United Steel Workers Union largely. And Mr. Smith, whom I
will be introducing to you formally, had a presentation to
make. And it was a very sizeable photograph of the president of
the United Steel Workers along with Mr. Smith and one Harry
Reid of beautiful downtown Nevada, all of whom have an interest
in this subject area in no small part because most of those
employees live across the line in Nevada, but also it is my
understanding that many years ago, Harry Reid's father worked
at this very location in Mountain Pass as one of the mining
employees.
This resource is critical to our future. And China is
deadly serious about having as much control as they possibly
can over this resource, wherever it might exist. They have made
significant efforts to try to get control, get their nose into
the control of this resource and other elements that relate to
it in the United States.
Australia has a very significant supply or location or rare
earth minerals. China was going about attempting to capture
influence and control of that resource. And the legislature in
Australia stood in the way and prevented it, indicating at a
very fundamental way the recognition of the importance of rare
earth minerals in terms of future development that relate to
horizon kinds of technologies, very important, as the chairman
mentioned, the guidance systems for some of our missiles and
used in elements that write very much to the effectiveness of
some of our computer systems and the like, very, very critical.
Mark Smith didn't start out to be a mining engineer. He got
his engineering degree from Colorado State University, where he
had hoped to specialize in the field of agriculture, maybe
building tractors for you at home, Don Manzullo.
But in the meantime, economies ebb and flow. And that took
him directly to mining. And, with that, he has been associated
with Unocal and Chevron for many, many years.
At one time, he was the president of Chevron's Mining
Corporation, a solely owned corporation of Chevron. With that,
eventually those interests were sold in the marketplace. And
Molycorp became the holding base for these rare earth elements
located at Mountain Pass.
Not so long ago, we recognized this growing need and the
competition that exists in the marketplace. Molycorp went about
to going public and, in no small part, going public in order to
raise the capital necessary to expand the mining activities at
Mountain Pass but also to be able to process those minerals in
a fashion whereby they can be effectively and efficiently used
in industry.
The project involves almost $800 million of investment at
Mountain Pass, very important to our constituency, a lot more
important to the country.
I have come today with absolutely no expertise in terms of
the details of the way these minerals do apply themselves to
our industry, but you and I share a great interest in the
future of our security and the role that we play on behalf of
freedom in the world.
So to have the likes of Mark Smith and the balance of the
balances that I will shortly leave to join you at the rostrum
is not just a privilege. They have been of great service to our
country. It is very important that your committee be focusing
the way they are upon these elements to our future security.
So thank you very much, Mr. Chairman. And let me introduce
Mark Smith.
Mr. Manzullo. Thank you. Mr. Chairman, would you like to
have a seat up here? Without objection, we welcome you to our
panel.
Today's witnesses represent three key components of the
rare earth supply chain from mining to fabrication to
manufacturing. Molycorp is at the forefront of bringing rare
earth production back to the United States. Mr. Smith is chief
executive officer of Molycorp. It is a real pleasure to welcome
you to our subcommittee.
Arnold Magnetic Technologies is one of America's leading
manufacturers of permanent magnets. Arnold is a key component
of the rare earth supply chain. Magnets are indispensable in
many of the products that we use today. I am delighted to
represent one of Arnold's manufacturing facilities in Marengo,
Illinois, which is part of the 16th Congressional District.
Mr. Robert Strahs is vice president and general manager of
Arnold Magnetic. He currently manages their three facilities in
Rochester, New York; Marengo, Illinois; and Ogallala, Nebraska.
Previous to this role, Rob was chief marketing officer in
charge of Arnold's global sales and marketing efforts. He has
been with Arnold almost 10 years.
He received a master's of business administration from the
Kellogg Graduate School of Management and a bachelor's of
business administration from Iowa State University.
Danfoss is a global manufacturer of energy-efficient pumps
and valves that depend on the rare earth magnets produced by
companies such as Arnold Magnetic. Danfoss is located in Loves
Park, Illinois, also part of our congressional district.
Mr. John Galyen is president of Danfoss North America, a
$600 million subsidiary of Danfoss, and oversees the company's
most important market. John has 30 years of industry
experience. He is a graduate of Northwood University. He also
completed a Strategic Leadership Program at the Ashridge
Business School in Hertfordshire, England.
Finally, Ms. Christine Parthemore is a fellow at the Center
for a New American Security, where she directs the
organization's Natural Security Program and natural security
blog. She is an adjunct professor at Johns Hopkins University.
Prior to joining the center, she worked with journalist Bob
Woodward. She has contributed to the Washington Post, Roll
Call, and Atlanta Journal Constitution. She is a graduate of
the Ohio State University and has an M.A. from Georgetown
University.
One of the reasons we are calling this hearing is that I
have heard from numerous manufacturers throughout the country
desperately trying to buy these permanent magnets, especially
the neodymium iron boron. They are down to two suppliers
worldwide and having to pay 50 percent in advance, even before
the order is processed.
The people who are using these magnets including Regal
Beloit, just over the line, which makes a high iron motor and
is using the neodymium iron boron to speed up efficiency by 2
to 3 percent, which is pretty high for a motor.
All over the country, there is a huge shortage of these
magnets. It impacts the manufacturing industry to the point
where China is sucking American manufacturers into China based
upon the fact that they have a monopoly on these rare earths.
This hearing is absolutely critical to keeping thousands, if
not tens of thousands, of jobs in this country.
Mr. Smith, you are up. You have 5 minutes. When you have
about 15 seconds remaining, I will lightly tap. If you go over
that, the tapping becomes louder.
Mr. Lewis. Mr. Chairman might have them hit the button so
we can hear them.
Mr. Manzullo. Okay.
Mr. Lewis. You have to hit the button.
Mr. Manzullo. Hit the button in front of you.
Mr. Smith. Got it. I think I should be on now.
Mr. Manzullo. I look forward to your testimony.
Mr. Smith. Thank you, Mr. Chairman. Thank you, Congressman
Lewis, for your kind introduction, and other members of the
subcommittee.
STATEMENT OF MR. MARK A. SMITH, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, MOLYCORP, INC.
Mr. Smith. You have my more detailed written testimony. So
I will try to err on the side of efficiency and try to be as
brief as I can today.
This hearing is very timely, Mr. Chairman. I spent last
week in China. Indeed, the first part of the week, I had the
privilege of touring the iron ore mine in inner Mongolia, where
63 percent of the rare earths are produced for the world as a
byproduct from that mine. According to the Chinese officials
that toured me, I was the first foreigner ever allowed into
that mine.
I spent the latter half of the week at a rare earth
conference in Beijing speaking with top government officials
and private sector leaders from around the world concerning
rare earth industry issues.
Last week, Chinese officials communicated to me and to the
world, through this rare earth conference in Beijing and in
subsequent public statements, several clear and unambiguous
messages about their rare earth policies.
First, while Molycorp currently supplies almost 5 percent,
China supplies over 95 percent of the global rare earth demand.
And they do not intend to remain the primary supplier to the
rest of the world. Instead, they will continue to consume more
of their own rare earths and export less.
Second, they see tight global supplies and high prices of
rare earths as an ``irreversible'' trend.
And, third, they believe that the rest of the world needs
to start meeting more of their own rare earth demand with their
own rare earth supply.
Molycorp has been predicting that China could potentially
move from being the world's predominant supplier to a net
importer of rare earths by 2014 or '15. If this happens, it
will have major implications for our defense as well as other
manufacturing sectors in the United States and other allied
nations.
Mr. Chairman, if I were to deliver one message to you
today, it is this. The time has come to roll up our sleeves and
get to work rebuilding our own domestic rare earth
manufacturing supply chain. And I can assure you that the men
and women of Molycorp have had their sleeves rolled up for
several years now and are committed to this effort.
We must continue to move as rapidly as possible to a
position where our economy and our national security interests
are no longer tied to these declining Chinese rare earth
exports.
Moreover, I think it is time we took a page from China's
own rare earth playbook. China is--and I might add, very
successfully--using its rare earth supplies to leverage growth
in its manufacturing base as a means to create hundreds of
thousands of jobs for its massive population. Simply put, I
strongly believe we can and should do the same.
Consider these facts. We have the geologic good fortune of
having one of the richest and largest rare earth mineral
deposits in the world at Mountain Pass, California. We have
some of the best and most experienced rare earth scientists,
chemists, engineers, and workers in the world. And Molycorp has
pioneered technological breakthroughs in rare earth processing
that will not only make us environmentally superior but will
allow us to produce rare earths at the lowest cost in the
world, indeed about half that of what the Chinese costs are.
All of this highlights our ability to unleash a job-
creating engine here in the United States fueled by our own
domestic rare earths, just as the Chinese have done and
continue to do in their country today.
As you can see from the photos being shown here, we are
making rapid progress to dramatically increase our rare earth
production from our current 5,000 tons per year to a level that
will be almost 20,000 tons per year at our flagship facility in
Mountain Pass.
Over the past year, we went to the capital markets
successfully and raised money that we needed for both phases 1
and 2 of Project Phoenix and were successful in raising the
money needed for that $781 million capital project.
We remain on time and on budget in constructing what will
be the most technologically advanced, energy-efficient, and
environmentally superior rare earth manufacturing facility in
the world.
Mr. Chairman, I provide in my testimony specific numbers on
what we expect to produce and when. Let me just say that, as a
result of Molycorp's efforts, the United States is on track to
achieve a high degree of independence in overall rare earth
production before the end of 2012.
Let me also take a moment to publicly acknowledge the
hundreds of men and women who are working virtually around the
clock to restore America's rare earth production capacity at
Mountain Pass. They are the reason that America is rapidly and
confidently moving toward greater independence concerning these
strategic materials. And they are doing it safely, I might add,
having gone well over 6 years without a lost time accident at
Mountain Pass.
In addition to increasing their production of separated
rare earth elements, we are working hard to have more
integration and do a ``mine-to-magnets'' strategic business
plan. When completed, this will increase the diversity of
global supply for a variety of other rare earth-based
materials, which are needed for additional job-creating
manufacturing sectors.
What can the U.S. Government do to encourage greater
independence of rare earth production and more diversity in
global supply? I think there are three things in particular.
One, we can promote more private sector investment in
technology innovation. Today, technology is the ultimate
differentiator between Molycorp and the Chinese rare earth
industry. It is what is enabling the United States to
confidently move to a position of greater independence in rare
earths.
Number two, we need to strengthen the fundamental research
and development of rare earth materials and our graduate and
postgraduate instruction in the basic and applied sciences
relative to rare earths.
And, number three, we need to support government and
private sector efforts to recycle rare earths.
Mr. Chairman, I would be happy to discuss these
recommendations and other issues in more detail. Thank you for
the opportunity to testify here today, and I look forward to
your questions.
[The prepared statement of Mr. Smith follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
----------
Mr. Manzullo. Thank you.
Mr. Strahs?
STATEMENT OF MR. ROBERT STRAHS, VICE PRESIDENT AND GENERAL
MANAGER, ARNOLD MAGNETIC TECHNOLOGIES, NORTH AMERICA
Mr. Strahs. Thank you, Chairman Manzullo and members of the
subcommittee.
Arnold Magnetic Technologies employs 775 people globally,
337 of these in the States of Illinois, Nebraska, New York, and
Ohio. The work of about 250 of our employees is directly
related to the production of rare earth magnets or precision
components containing them. These include engineers,
machinists, accountants, material scientists, and general
laborers.
We are a tier 1 or 2 supplier and produce rare earth
magnets and assemblies sold to approximately 200 customers,
many of which of them produce either final products or
components. We estimate that our downstream customers employ
over 25,000 people directly involved in the fabrication
products, including rare earth magnets.
These critical components can be found in all commercial
planes, including the 737 and the new 787. They are found in
the oil and gas, chemical, and mining industries.
Rare earth magnets are essential to green technologies,
including hybrid systems important in reducing our dependence
on foreign oil. Perhaps most importantly are the rare earth
magnets and assemblies that are found in military weapons
systems, such as the F-35, the F-18, Javelin Missile, Precision
Guidance Munitions, and military counter measures. They are
also being used to develop hybrid and electric power systems
for our ships and ground vehicles and many other defense uses.
Today China is the only supplier of rare earths needed to
produce the rare earth magnets: Neodymium iron boron, or neo,
and samarium cobalt boron magnets. We need to maintain good
relations with China as they have established themselves in
rare earth supply and for the time being have reserves of
heavier earths, such as dysprosium, that are needed to create
high-performance magnets.
The Chinese estimate that their known reserves of heavy
rare earths may last only 15 to 25 years at the projected
demand. So it is vital that alternate supply chains be created.
Due to the export controls put in place in China, prices
for products, including rare earths, have dramatically
increased. Neo and samarium cobalt magnet costs have increased
between 300 and 500 percent in the last 9 months.
These price increases came about not only because of export
controls imposed at 2008 levels, when demand was unusually low
due to the recession, but other factors contributed as well.
These include speculators bidding up the prices of rare earths
and China's enforcement of environmental laws, which has
stopped illegal mining operations. Increased demand for rare
earth magnets for green energy applications in hybrid vehicles
and wind turbines has also created price increases.
Industrial users had hoped that prices and supply would
quickly return to historical levels, but that is not going to
happen in my opinion. Neodymium iron boron is a relatively new
magnetic material. And many uses are just coming into the
marketplace that rely on this material to make their products
more energy-efficient and lighter and smaller than past
magnetic materials allowed. So at a time when demand is
growing, the reduced supply from China could be crippling to
the next generation of energy-efficient appliances, hybrid
cars, and wind turbines, not to mention defense systems.
We now have customers considering whether they should move
their production to China. Arnold Magnetic Technologies has
Chinese facilities, in addition to our facilities in the U.S.
and Europe, to maintain a close relationship and source of
supply. But this should be an opportunity for the U.S. to step
up and reestablish an industry that was started here in the
late 1950s but was substantially closed by 2002.
We are here to state the importance of the need to bring
back the rare earth industry to the U.S. to protect and grow
jobs as well as to control our own sources of rare earths that
are so important to green technologies, aerospace, and defense,
and energy-efficient motors and generators.
Magnets are ubiquitous, but because they are largely unseen
inside the products we use, the public has not realized their
significance in our daily lives.
We cannot trade our dependence on foreign oil for
dependence on foreign rare earths. The U.S. Government has had
a preoccupation with funding battery and solar technologies,
but the power that is produced or stored by these technologies
will often be generated or consumed by motors and generators
that are most efficiently produced with neo magnets. Current
and next generation military products from the Joint Strike
Fighter to precision-guided munitions to hybrid systems all
require rare earth magnets to operate most efficiently.
Tens of thousands of jobs could be created by
reestablishing a rare earth industry here in the U.S.
In support of this goal, Arnold Magnetic Technologies has
the knowledge base and people in place to produce neo magnets
here in the U.S. in addition to the samarium cobalt magnets
that we produce, but there are critical issues that only the
U.S. Government can address to restart rare earth production in
the U.S.
One, intellectual property. Currently Hitachi holds the
patents for the production of net magnets and has refused to
license any U.S. companies. We would like the support of our
Government to work with Hitachi to have licenses granted to
allow production of these magnets in the U.S.
Two, stop the illegal importation of unlicensed neo magnets
that enters the U.S. either within products or as magnets. This
erodes the ability of our company and customers to fairly
compete.
Three, inclusion of rare earth magnets into Buy American
legislation to allow U.S.-based companies to compete with
subsidized Chinese producers of magnets and assemblies.
And, finally, grants or loan guarantees to accelerate the
construction of the rare earth industry and magnet production
facilities here in the U.S. and add high tech jobs, such as was
successfully used to bring back the production of beryllium.
Without these steps being taken, we foresee more jobs going
to China, and we see the potential for rare earths mined here
in the U.S. to be exported to China to support their
production, their green initiatives, and their job growth,
further strengthening their global manufacturing dominance.
Thank you.
[The prepared statement of Mr. Strahs follows:]
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Mr. Manzullo. Thank you.
Mr. Galyen?
STATEMENT OF MR. JOHN GALYEN, PRESIDENT, DANFOSS NORTH AMERICA
Mr. Galyen. Good morning. Thank you, Mr. Chairman and
members of the subcommittee.
I appreciate the opportunity to testify on this critical
issue surrounding rare earth elements and how it is undermining
American competitiveness, in our business area anyway.
Again, my name is John Galyen. I am the president of
Danfoss in North America. Danfoss is a leading global
manufacturer of compressors, controls, and variable frequency
drives, primarily for high-efficiency air conditioning,
refrigeration, heating, and motion systems. We have 12
factories in the United States, one of you mentioned, employing
somewhere around 3,000 or more employees, not including our
large network of U.S. suppliers of parts and services.
Our overall focus is climate and energy. We design, develop
and manufacture products to enhance the performance of our
customers' products. Innovation and energy efficiency are
really critical for us and our competitiveness in the
marketplace.
Our Danfoss Turbocor facility in Tallahassee, Florida
produces what we call advanced centrifugal compressors. They
are used in chiller systems manufactured here in North America
and also around the globe. Essentially, we use the magnets to
suspend the centrifugal shaft in a magnetic field, generating
high efficiencies but also eliminating oil that is problematic
in these systems.
It has been a fantastic business for us. We have been
growing at an annual rate of 20 percent from 2007 to 2010,
despite an economic slowdown. And we are creating jobs, good
jobs, in R&D and manufacturing, including in 2011 we have
increased employment by 21 percent.
I talk about these are high-paying jobs. The average
compensation, if you look at total wage and benefits, is
$72,000 per year, well above the average in the Tallahassee
area. These sophisticated magnetic bearings really eliminate a
lot of the reliability problems that you see in systems, again
without using oil. And they operate at very high speeds, but it
comes with rare earth elements, disposing them in neodymium.
And they are vital for their unique combined capabilities.
The root of the issue is our suppliers tell us that in the
early '90s, the Chinese suppliers began to really price out of
the market the domestic competition here and around the world.
We have seen almost a tenfold increase in our cost of the rare
earth elements and let alone in this year alone, we have seen
an 800 percent increase.
On top of that, we have got reduced supplies. And, as you
mentioned earlier, Mr. Chairman, we are having to pay in
advance, as much as 6 months in advance.
Our business in Tallahassee is not the only one affected by
this crisis. We are currently developing a new line of
variable-speed compressors with very high efficiency for
residential air conditioning and light commercial systems that
will be used around the world, but the target market for us is
the U.S. This technology will result in very large energy
savings, as it is already being deployed in many countries,
including China and Japan. But the U.S. is behind.
We have started this transformation, but it is in the
beginning stages of applying this type of technology, which
makes the viability of this technology especially vulnerable
now.
The severe cost increases that we have seen this year make
the high-efficiency technologies uneconomical. I mean, it is
challenging our existing business plans and is jeopardizing
some of the energy savings opportunities for our customers and
our nation.
My over-arching point is this. China's rare earth elements'
strategy is an issue affecting the U.S. and friendly country
industries broadly. It is threatening our leadership in such
innovative technologies and our ability for our country to meet
energy-saving goals. And it appears that their strategy will
also attract high technology manufacturing, investment, and
jobs to China while offering local supply and price advantage.
Unless the U.S. is willing to pay a steep price in lost
opportunities to innovate in energy, defense, and other
important areas, the U.S. Government must develop an effective
means of countering China's emerging approach to rare earth
elements.
I would add that we do not see such a recommendation as
anti-China. In a global economy, lost opportunities for
progress and innovation affect all economies.
What are we doing about it as an industry? We are reacting
to try to migrate to other alternatives, but it takes time. It
takes research and effort. So there are no readily available
alternatives today.
Our procurement managers are seeking other sources of
supply, including new mines, new fabricators, and new
processes. But that is not so easily done nor timely. Our
research and development teams are evaluating alternative
technologies. But finding, testing, and qualifying new
alternatives will require years, not months. And we need action
now.
In the near term, we need to ensure that there is access to
Chinese sources at reasonable prices while U.S. manufacturers,
as we have already heard, develop alternative solutions.
I would like to conclude my testimony today by outlining
the short and long-term actions that we hope you will consider
to minimize the destructive impact on the cost and availability
of these elements because these elements are critical to the
U.S. manufacturing and trade.
In the short term, we would ask that you reduce the import
duties on magnets from 2.1 percent to 0 percent. While we know
this is a small step, it sends a signal of actions to alleviate
additional price burdens for manufacturers.
We would ask also that you consider temporary subsidies for
new mining or processes to bring them online within the next 18
to 36 months. We would also ask that you establish a
collaborative approach to encourage China to increase export/
production quotas until other sources can be brought online.
Longer term, I think it was brought up by Mr. Sherman that
the U.S. should file a claim with the World Trade Organization
to pressure China to honor their commitment to the World Trade
Organization, not to restrict exports of materials, including
the ones we're speaking of today.
And then, additionally, consider Federally funding research
of alternative materials, through the National High Magnetic
Field Laboratories based in Tallahassee, Florida or Los Alamos,
New Mexico.
We ask Congress and the administration to act on this
decisively to protect American industry, our economic and
technological future, and jobs in the U.S.
Thank you for the opportunity to testify on this important
issue.
[The prepared statement of Mr. Galyen follows:]
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Mr. Manzullo. Thank you.
Ms. Parthemore?
STATEMENT OF MS. CHRISTINE PARTHEMORE, FELLOW, CENTER FOR A NEW
AMERICAN SECURITY
Ms. Parthemore. Thank you. Mr. Chairman, Ranking Member
Faleomavaega, and other members of the subcommittee, thank you
for the honor of appearing here to testify.
While I concur with the remarks of my fellow witnesses
today, as a fellow at a nonpartisan and nonprofit think tank
here in Washington, my perspective is a little bit different on
the rare earths challenge.
My comments to the committee are based on years spent
conducting academic research on the long history of the United
States Government trying to minimize the foreign policy and
national security risks surrounding its natural resource
demands.
One thing that is clear from this history is that Congress
has consistently been the leading edge of identifying U.S.
security and foreign policy vulnerabilities related to minerals
and other natural resources. It is clear by this hearing today
that Congress is once again on this leading edge in terms of
understanding the challenge, the current challenge, brought to
us by rare earth elements.
The risks to U.S. foreign policy and national security
surrounding China's near total monopoly on rare earths are
clear. It allows mineral suppliers easy leverage over the
United States, creates roadblocks for achieving other U.S.
foreign policy goals around the world, especially in Asia and
the Pacific region, and can ignite trade disputes that entangle
other U.S. security interests, create supply disruptions that
can drive price spikes and lags in delivery, including for
defense equipment. And, most important, the United States may
also lose ground strategically if it continues to lag in
managing mineral issues as countries that consider assured
access to minerals as far more politically important are
increasingly setting the rules for trade in this area.
In terms of helping to prevent supply disruptions that
affect U.S. businesses and America's allies, based on my
research, government officials can watch for a series of
warning signs that minerals are likely to become strategically
problematic or challenging to U.S. interests; for example,
political instability in supplying countries, lack of
stockpiles by our Government, by our allies, and by domestic
businesses, or just generally increasing demand and new
competitors capturing large market shares.
The historical concentration of world supplies in the hands
of just a few actors is the single most glaring warning sign
that minerals will trigger problems for the United States. This
is certainly the case with rare earth supplies from China
today. And, put simply, as long as we face the situation of
near-complete control over rare earth supplies by China or any
single country, I do not expect the risks I mentioned to
decline.
Moving forward, it is important to note that these
challenges are ultimately manageable and future foreign policy
challenges related to rare earths and other minerals are
preventable. The trends leading to China's dominance in the
supply of rare earths have been clear for years. And its
behavior with respect to its rare earth industry should have
been pretty predictable given its past behavior and the
historical patterns that other supplier countries have
exhibited.
So, first and foremost, I recommend that the United States
Government can act to improve its ability to foresee foreign
policy and security challenges regarding minerals. For example,
the Departments of Defense, State, and Energy can integrate
conflicts over minerals and raw materials into relevant war
games and scenario exercises, which they conduct on a regular
basis as a way of thinking freshly through these challenges.
The Defense Science Board could conduct a new assessment on
the changing nature of its different supply chains, including
more extensive consideration of minerals and raw materials,
than has been the case in its last two reports focused on
supply chains.
Greater information sharing among U.S. Government agencies
and with the private sector and internationally would be
helpful. Some of my fellow witnesses are engaging in that,
clearly, as well as the chairman of this committee mentioned
his own information exchanges.
Congress can also play a critical role in preserving the
ability to collect and analyze data that the government has
expanded for the past 2 years through its programs in the
Department of Energy and USGS.
Additionally, the U.S. Government has several concrete
options for mitigating challenges, like what we are
experiencing now with rare earths. It could leverage its
relationships with defense contractors so that the government
can better prevent supply chain vulnerabilities. They can
provide other countries with leverage over the United States
that potentially cause major disruptions.
Congress and the executive branch should continue updating
stockpiling policies with the Department of Defense. The U.S.
Government can create incentives to reduce consumption and
promote recycling and develop substitutes. Research and
development funding and loan guarantees can be useful
mechanisms for doing this.
And while domestic production is not a panacea for every
mineral and for all foreign policy challenges related to
minerals and raw materials, in the current challenge
surrounding rare earths, domestic production would clearly help
mitigate the geopolitical tensions and security risks that we
have at hand.
In closing, because disputes related to natural resources
tend to be preceded by clear warning signs, complacency is
probably the single biggest challenge for the U.S. Government.
This committee must, therefore, be commended for calling a
hearing today on U.S. challenges with rare earth minerals.
And I hope that research we have conducted at the Center
for New American Security can help with the current challenge
and assist in preventing this history from repeating itself
again in the future.
Thank you. And I look forward to your questions.
[The prepared statement of Ms. Parthemore follows:]
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Mr. Manzullo. Thank you.
Eni, I want to thank you for bringing up the issue of the
ionic clays, the rare earths that are found at the bottom of
the seabed. You have lots of water around your district, don't
you?
Mr. Faleomavaega. Mr. Chairman, I wanted just to share with
you a bit of information because it does include the issue of
rare earths in the Pacific. We call it seabed minerals:
Manganese nodules that contain cobalt, manganese, copper, so
many other different rare elements, quite extensive throughout
the Pacific region.
And what I have come to realize is that we have not done a
very good job in putting our focus on this issue, just as has
been the testimony of our friends here before the panel. But I
will
Mr. Manzullo. Thank you.
Yes. I have a very basic question to educate us. Would you
give examples of where rare earths are used by themselves and
then where rare earths are used in the magnetic form? There are
two different applications here. Anybody?
Mr. Smith. Mr. Chairman, I would be happy to answer that
question. Elements like cerium are used primarily to polish
glass or they are used in the catalytic converters in our
automobiles so that we meet the emissions standards set by the
U.S. Government.
Lanthanum is primarily used in two applications. One would
be FCC catalysts, which is a unit at a refinery that takes
crude oil, breaks the hydrocarbon chains and turns it into
gasoline for our vehicles. The other primary use is lanthanum
metal, which goes into nickel metal hydride batteries, which
runs all of the hybrid vehicles today. Those would be your two
primary nonmagnetic rare earth elements.
Mr. Manzullo. Then would you give an example of the
application of the magnetic rare earths?
Mr. Smith. Yes, sir. The application of magnetic rare
earths, which would be primarily neodymium, praseodymium, and
dysprosium--sometimes terbium can be used as well--those would
be used in things like hybrid vehicles, electric vehicles,
permanent magnet generators in wind turbines, and many of the
products that my esteemed colleagues here on the panel make as
well.
Mr. Manzullo. Why are they called permanent magnets?
Mr. Smith. I would be happy to answer that question, but
Mr. Strahs as the magnet manufacturer might want to answer
that.
Mr. Manzullo. This is a very basic question.
Mr. Strahs. Thank you, Mark.
A permanent magnet is a material that once it is
magnetized, it will stay magnetized essentially forever.
Mr. Manzullo. The witnesses today have set forth to me the
full range of the issue with the rare earths. I would like to
address my question to--is it Mr. Galyen?
Mr. Galyen. Galyen is the proper pronunciation.
Mr. Manzullo. Galyen?
Mr. Galyen. Yes.
Mr. Manzullo. There seems to be a lot of conflict in the
country today, not a lot of conflict, maybe some
misunderstanding as to whether or not there is really a
shortage of rare earth elements. When your representative
stopped by my office and told us about the centrifugal chiller
that is made in Florida, he said that it is becoming more and
more difficult to get those permanent magnets. Could you
elaborate upon that?
Mr. Galyen. Yes. Probably you got more direct from the
source today, from the CEO, I would assume, Ricardo Schneider.
But I think our biggest concern, really, is not so much the
availability. It is concern over availability, but it is more
so the long lead time; in other words, going out to 6 months in
lead time and also having the price again increase tenfold,
including 800 percent this year.
So I think as China looks to set up export restrictions,
the amount, then our availability, especially as the demand for
the material goes up, causes us great concern for price but
also for availability.
Mr. Manzullo. When you have a long lead time like that,
what does that indicate to you?
Mr. Galyen. Shortage.
Mr. Manzullo. Ms. Parthemore, could you comment on that?
You bring a unique perspective to this.
Ms. Parthemore. Comment on which, the shortages?
Mr. Manzullo. The shortages, if you feel comfortable to do
that.
Ms. Parthemore. Again, so a lot of my research on this has
looked at historical trends and past disruptions. And there is
nothing about the current situation with rare earths that is
atypical from the history of past experiences, particularly
with minerals that are important for defense manufacturing
equipment.
Whenever you see all of the signs that we have seen in the
past 3 or 4 years with China and its exports of rare earths,
all of those warning signs were there that we were going to
start seeing shortages and that China, whatever the exporting
country is--in this case, it is China--was going to use those
shortages and their control over the entire export sector for
political leverage and tie it in with other strategic and
security and foreign policy challenges that we have with them.
So, again, I am not happy to hear that American businesses
are experiencing these kinds of shortages. Again, from looking
at the history of this for the country, it is not surprising at
all.
Mr. Manzullo. In speaking to manufacturers today, my
understanding is that as technology evolves, to make, for
example, electric motors more efficient, there is more demand
for the neodymium iron boron not only in components that exist
today but in components for new products that are coming out.
Do you want to take a stab at that, anybody? Mr. Galyen?
Mr. Galyen. Yes. Sure. I will. In fact, I mentioned it
briefly. You know, we make the very large compressors down in
Tallahassee. So we are ranging from 600- to 200-ton. And you
have a market globally in the, let's say, tens or the hundreds
of thousands.
We are developing today compressors for the residential air
conditioning market in the U.S. That is a market that, even
depressed with the construction industry, is 5 million units a
year. And we plan on using permanent magnet motors to get the
maximum efficiency for variable speed of those compressors.
And that business plan is being now put at risk. And we
have been investing there significantly for years.
Mr. Manzullo. The reason for using the permanent magnets in
the motors is to increase the efficiency of the air
conditioners and, therefore, to save energy. Is that correct?
Mr. Galyen. Absolutely. You are generally looking at 30
percent or so improvement in system performance.
That is not just pure motor efficiency. But when you
incorporate variable speed, you are actually able to--rather
than turning it on and off, you are able to follow the demand
load, control the temperature, humidity, comfort, all of those
kinds of things, very accurately.
Mr. Manzullo. So, cutting-edge technology in air
conditioning really depends upon the availability of these
permanent magnets. Is that correct?
Mr. Galyen. Correct. And most of the research and
development has been around these rare earth elements. There
may be others, but it is going to take us some time to try to
figure that out.
Mr. Manzullo. Mr. Faleomavaega?
Mr. Faleomavaega. Thank you, Mr. Chairman.
I fear that I don't want to take Mr. Smith's statement out
of context, but I do want to quote this from you, Mr. Smith.
And, again, I think it does add some substance to our hearing
this afternoon.
You said that it is not very productive to spend time
blaming China or to seek legal threats or sanctions or whatever
against China. It seems to me that at this stage when China now
controls 95 percent of the world's market on rare earths it is
because they have been working on it for years.
My question is, what have we been doing for all of those
years? Why are we in the situation that we are in now where we
have to import from China? Are we blaming China for its
success, the fact that we have to provide 1.3 billion people
with their needs and jobs and all of this?
I just want to catch that note from Mr. Smith's statement.
Can you elaborate on that, Mr. Smith?
Mr. Smith. Yes. I would be happy to address that, sir. And
it is a very good question. And thank you for asking for
clarity.
Molycorp's position on that is that the United States
should take whatever measures it needs to. And certainly
actions by the WTO or anything else, those are legal channels
that are available.
Our concern about taking those measures is that the ability
to make something happen under those measures takes a lot of
time. And the problem that we have now is immediate. And we
need to act. We need to not depend on those legal actions to
get where we need to go today. We really need to roll up our
sleeves, get to work and solve the problem, which we can do
domestically.
Mr. Faleomavaega. How much does China spend in developing
this industry or has it spent for all these years in developing
rare earths?
Mr. Smith. I don't have a precise figure on that, but I do
know that they have over 6,000 scientists dedicated to nothing
more than the research and development of rare earth processing
and uses of rare earth minerals.
Mr. Faleomavaega. And how many scientists do we have, in
contrast?
Mr. Smith. Molycorp has about 25 research scientists.
Mr. Faleomavaega. 25 to 6,000 scientists. That is a real
good combination.
Mr. Smith. However, I would add, sir, that I would take my
25 against their 6,000 any day. [Laughter.]
Mr. Faleomavaega. All right. I understand China graduates
about 100,000 engineers a year. How many engineers do we
graduate a year?
Mr. Smith. I don't have a clue on that.
Mr. Faleomavaega. Yes. Well, I appreciate your response to
this because you had mentioned also that you were visited--was
it in Mongolia that you visited?
Mr. Smith. Yes. Mine in inner Mongolia.
Mr. Faleomavaega. Did you visit Mongolia proper?
Mr. Smith. I did not get that far, no.
Mr. Faleomavaega. You should because there is tremendous
wealth of minerals and potential resources available in
Mongolia, not necessarily in--well, inner Mongolia is part of
China.
I like the challenge you offered. Do we have the resources?
Do we have the technology or the markets? Where do we go from
here?
Mr. Smith. We keep doing what we are doing, sir.
Mr. Faleomavaega. Should the Congress be involved in
offering subsidies or some way of start-up capital to assist
our companies or to help you in this industry to develop this
industry?
Mr. Smith. I will let Congress make that decision on other
members of the industry, but we have all the capital we need.
And we are fully funded for our project.
Mr. Faleomavaega. I see. How much capital are you utilizing
right now in developing the industry, about?
Mr. Smith. It will take us $781 million to put our new
Mountain Pass Project Phoenix into operation.
Mr. Faleomavaega. Is that in contrast to the green energy
program that we are trying to develop? Are rare earths part of
the green energy dynamics in terms of the industry that it
develops?
Mr. Smith. They absolutely are.
Mr. Faleomavaega. Okay.
Mr. Smith. And it is our humble opinion that without them,
the green energy technologies that all of us want and desire
today will not be possible.
Mr. Faleomavaega. And I didn't mean to just ask Mr. Smith.
Please, I would welcome the members of the panel to join. We
are looking at potentially at how many jobs. If we get this
industry done right within our own domestic consumptions and
needs and the means for our military for private sector
consumer needs, what are we looking at?
Mr. Smith. for Molycorp's mine to magnets business
strategy, we are looking at a total of over 1,000 direct jobs
just in Molycorp alone. And then, of course, there will be the
multiplier effect because of all of these direct jobs that are
created.
Mr. Faleomavaega. Approximately how many Chinese workers
have developed out of this industry since the Chinese have been
doing this for years? Approximately how many people are
employed in China for this besides the 6,000 scientists?
Mr. Smith. I don't have a clear number on that. My estimate
is that it is well into the tens of thousands of people.
Mr. Faleomavaega. Please, gentlemen, you are welcome to
join in the dialogue. I know one specializes in air
conditioning, the other one on magnetics. And I totally envy
you. I have to plead my ignorance about the industry.
The fact is how many Americans know anything about the
industry? I would say less than \1/10\ of 1 percent know
anything other than the fact you turn the air conditioner, you
do all of this. But beyond that, are we looking at a possible
multibillion-dollar industry if we work this thing right?
Mr. Strahs. I think from our standpoint, absolutely.
Neodymium magnets are critical to green technologies, the
hybrid cars. We need to bring hybrid car manufacturing to the
United States. They need the neodymium for that.
Mr. Faleomavaega. And we have the substance in our own
country.
Mr. Strahs. Right.
Mr. Faleomavaega. We don't need to import it from China. Am
I correct?
Mr. Strahs. That is correct.
Mr. Faleomavaega. Thank you, Mr. Chairman.
Mr. Manzullo. Mr. Johnson?
Mr. Johnson. Thank you, Mr. Chairman, for holding such an
important hearing today on the importance of rare earth
procurement to the U.S. economy and China's troubling monopoly
of these elements.
The extremely wide range of applications for rare earth
minerals from cars to medical devices to military jets speaks
to the significance of these elements. Many of these consumer
and defense products contribute to vital industries that have
kept our economy strong and our nation at the forefront of
technological innovation. And, yet, the U.S. is almost
completely dependent on China for all aspects of the rare earth
supply chain.
China's monopolistic control over the mining processing and
exporting of rare earth elements has drastically driven up
costs for U.S. manufacturing companies, particularly after
China cut export quotas by 40 percent last year.
And the availability of rare earth elements has
increasingly diminished as China diverts these resources to
internal domestic production. However, the real problem here
isn't so much about China's actions but more about our own
inaction.
According to your testimony, Mr. Galyen, China is currently
the source of 97 percent of the world's supply of rare earth
elements but holds only 35 percent of the world's known
reserves.
As portions of China's reserves run out and it continues to
restrict its own production quotas, resolving rare earth trade
practices with China will no longer be the answer.
I believe we must look to our own rare earth elements
strategy or the lack thereof. This is not only an opportunity
for American mining and processing but also for American
manufacturing.
According to the U.S. Geological Survey, 13 million metric
tons of rare earth elements exist within known deposits in 14
states.
Last week President Obama unveiled his newest plan for
jobs. To me, our rare earth potential as an obvious solution is
staring us in the face. This could be a far-reaching investment
in our nation's economic future, not just something to give us
a near-term economic jump start over the next few months, but
also in creating long-term jobs here at home. Such an
investment also has serious national security implications. As
China attempts to build up its military, another source for
rare earths used by the U.S. defense industry will become
pivotal.
I do have a few questions. Mr. Smith, in your testimony,
you outlined the steps that Molycorp has taken in anticipation
of China's rare earth supply limitations.
You also point out that we do have the ability to leverage
the power of our own very large and very rich rare earth
resources to catalyze manufacturing and job growth. With so
many U.S. stakeholders in the development of a new supply
chain, how have mining, manufacturing, and other industries
readied themselves to meet this demand in a potential U.S.
market?
Mr. Smith. Sir, we have been working for over 8\1/2\ years
to make sure that we develop new technologies so that we are
not subject to the cost limitations that we were subject to
prior to this time.
The price that China could produce their materials was much
lower than ours, not something we were proud of. But we have
worked on that issue feverishly for 8\1/2\ years. And we have
developed our own innovative technologies right here in America
that will allow us to produce at half the cost of what China
does today.
Mr. Johnson. Okay. Mr. Strahs, based on known deposits of
rare earth minerals in the United States, how much of a role do
you believe the U.S. could play in meeting this future demand
once Chinese reserves are depleted?
Mr. Strahs. I think certainly the United States and
production here could fulfill all of our needs. That would be
easy to do. The first step, though, even once the materials are
available, is the patent issues that need to be dealt with. So
currently there are patents held by Hitachi.
So, for instance, in Arnold today, we could be producing
neodymium iron boron magnets within 12 to 18 months. However,
we can't do that because there are patents in place that don't
allow us to. So we need to address the licensing issue.
Mr. Johnson. In terms of going after our own rare earth
resources here in America, have any of you experienced
regulatory issues or barriers to being able to go after those
elements?
Mr. Smith. We have not experienced any, sir. And we have
been working very hard on that. We have all of our permits in
place, which are good for the next 30 years.
Mr. Johnson. Okay. Well, as a member of the Natural
Resources Committee, I have had the chance to explore some of
these issues from another viewpoint in other hearings back in
June. Businesses nationwide have highlighted the importance of
permitting reform in the U.S. as a crucial step needed to be
able to develop a comprehensive rare earth policy.
And I would commend to the committee to look at the
National Strategic and Critical Minerals Policy Act. This bill
would coordinate a government-wide survey of our national
mineral policy, suppliers' demands and other critical factors
impacting mineral development to eliminate our dependence on
foreign sources for rare earth elements.
And, with that, I yield back, Mr. Chairman.
Mr. Manzullo. Mr. Duncan?
Mr. Duncan. Thank you, Mr. Chairman.
I just want to piggyback on some things Mr. Johnson talked
about because I, too, serve on the Natural Resources Committee
here in Congress. And we have had at least one, if not more
than one, committee hearing about rare earth minerals, about
mining practices in this country.
We had a hearing today on ANWR. And the theme is very
prevalent when we talk about rare earth minerals. And that is
jobs. These are American jobs that could be created,
maintained, and expanded through lessening of regulations and
opening up Federal land for production of these rare earth
minerals.
I visited a company in my district that takes rare earth
minerals and develops the catalyst for catalytic converters but
also the catalyst for a lot of chemical processes using gold,
platinum, palladium, and some other minerals that they use
there, long-term good-paying jobs. That company has been there
for decades providing good-paying jobs in South Carolina. So it
is not just mining of these rare earth minerals. It is also the
use of those minerals as well.
And I firmly believe that we have got to change the
policies in this country to open up the Federal land and
lessening the regulations and revamp the regs and laws that are
keeping us from harvesting those resources and utilizing those
and being so reliant on foreign sources of those resources. It
is not just China, but it is very, very similar to oil and
natural gas, where we are reliant on other countries to provide
the needs here in this country.
So, Ms. Parthemore, I want to ask you. We heard from Mr.
Johnson 13 million tons of rare earth minerals exist according
to the Geological Survey. I believe it could be far more with
that with new mining techniques.
What specific laws and Federal regulations does U.S.
Congress and this administration need to repeal in your opinion
or to allow businesses to access these natural resources and
prevent the U.S. from being so dependent on China and other
countries?
Ms. Parthemore. Sir, I don't know of any specific laws or
regulations that need to be repealed to open it up. Again, it
varies greatly mineral by mineral of those that I have studied,
our current history and our current predicament. There are none
for which regulatory or legal issues are standing in the way.
One of the main things that we need to do in this country
is be vigilant and watch for those. Keeping domestic jobs here
and allowing these industries to bloom over time and changing
laws and regulations if it is necessary to do that requires
identifying the next rare earths and this type of issue in
advance, years in advance, and making sure that those
industries are created and maintained, get the research and
development support from the government, potentially loan
guarantees, things like that, well in advance of it hitting a
crisis level, like we have with rare earths right now.
Mr. Duncan. Thank you very much.
When I was in business for myself, I realized real quickly
that you could never hire somebody or pay someone to do
something as cheaply as you could do it yourself. And I believe
that buying rare earth minerals from other countries that are
producing them, I believe we can do that cheaper here in
America.
We can increase the tax base of working Americans' revenues
to the country by putting more Americans to work in this and
many, many other industries. And so I think this is a very
timely issue.
I think Americans have common sense. And they understand
that we have got the resources here, whether it is rare earth
minerals or natural resources for energy production. And they
scratch their head wondering why government policies continue
to thwart efforts to be self-reliant in this country.
It is what made America great, was harvesting our natural
resources and utilizes those in American companies and putting
Americans to work. So I think it is an important issue, Mr.
Chairman, and thank you for holding this hearing. I yield back.
Mr. Manzullo. Without objection, we welcome Mr. Rohrabacher
to the subcommittee. Mr. Rohrabacher, you are recognized for 5
minutes.
Mr. Rohrabacher. Thank you very much, Mr. Chairman.
I am very interested in this, perhaps for survival
purposes. If our country is to survive, we have got to be able
to have those building blocks to modern society that will
permit our people to have a decent standard of living.
I noticed when I was younger that the price of gasoline
stayed about the same for a long period of time. I remember
when I was a kid in the '50s, it was like 50 cents, actually 25
cents, a gallon. By the time I got into college, it was still
right around 50 cents, 25-50 cents, a gallon. But the minute
that the United States became a net importer of gasoline,
rather than exporter of oil, the price of oil jumped
drastically and had a major impact on the standard of living of
the American people.
But what is worse, Mr. Chairman, an increase in the price
of oil, that only the United States stood between this higher
price and the lower price which was there for almost a decade,
or that the people in the Third World's standard of living
dramatically went down. I mean, to have the wealth sucked out
of their country by a natural resource of oil that America now
needs to import, rather than export, well, I am afraid the same
can be true of just the very issue that we are looking at today
with rare earth minerals, and I think China sees the type of
leverage that it can have to squeeze wealth out of the rest of
the world.
Those producers of oil back in the '60s saw that they could
squeeze wealth out of the world by manipulating oil prices, so
it behooves us as Americans and to the benefit of the rest of
the world to see that this does not happen, that this control
of rare earth minerals does not take place.
I would like to ask the panelists, do we know of instances
similar to when China tried to pressure Japan in a policy
dispute by using the cutoff of rare earth minerals, where China
is trying to corral the control of these rare earth minerals in
other parts of the world? Do you have any stories of that at
all?
Mr. Smith. I certainly don't have any stories about
dictators, but there are certainly documented cases where
different Chinese mining companies have tried to acquire the
Molycorp assets here in the United States as well as the Lynas
assets in Western Australia, which are the two largest and
richest ore bodies in the world.
All of those attempts have failed, which is the good news,
but they are strategic in their thinking, and they are very
disciplined.
Mr. Rohrabacher. I am sure in the Third World they would
just be paying off the local government officials. Thank God
that they have been unsuccessful.
Mr. Chairman, we might look into, for example, legislation
that might restrict the sale of this type of mineral wealth to
corporations that were associated with, for example,
dictatorships, China being the world's foremost human rights
abuser and dictatorship.
I would think that would be very much against our national
interest to permit companies that are really fronts for the
People's Liberation Army from coming in and purchasing those
mineral rights here in the United States.
So let me just add one note. I have also noticed in my
career the demonization of people who are utilizing minerals in
the United States for the betterment of our people, whether it
is mining or whether it is the oil industry.
People who were utilizing these gifts, that we have from
God, in order to put into our marketplace, which helped
ordinary people's lives, had been demonized to the point that
there are all sorts of political impediments to their ability
to get that job done. I hope this panel today and your
leadership will provide us a method of getting away from that
demonization of people who are trying to do an efficient job of
providing us with these resources.
Thank you very much, Mr. Chairman.
Mr. Manzullo. Thank you.
In 2007, when Congress passed the Foreign Investment and
National Security Act, I added an amendment stipulating that
whenever the Committee on Foreign Investment in the U.S. is
examining a potential sale and the buyer is a state-owned
enterprise, it will be reviewed at the highest level so that
something like this would not happen again.
Mr. Rohrabacher. Thank you for your leadership, Mr.
Chairman.
Mr. Manzullo. I appreciate that.
I have a couple of questions. Mr. Faleomavaega brought up
the issue of jobs, but it is not just the jobs that are
associated with the mining and the manufacturing and the steps
in between. Tell us about companies that have gone to China to
set up operations because that is where the rare earths are and
what China does to woo those American companies to leave here.
Mr. Galyen. I will take a stab at it, Mr. Chairman. For us,
we haven't seen it directly. We have operations and production
in China, but our intent, as I commented earlier--we produce in
Florida. And we produce the residential compressors I was
talking about in Arkansas. And we manufacture power electronics
in Rockford.
I think the risk becomes stronger if the supply of this
needed material, as we have talked, is only available in China.
Then my options are going to be such that if I want to play in
the market, then I must go to China and be in China to get
those materials. And that is where I think you could actually
see a movement of jobs and production and investment to China.
Mr. Manzullo. Do you know of any anecdotal stories of where
this actually happened or is that just a sore that is hanging
out there that you can see dangling?
Mr. Galyen. I asked some questions of my colleagues. And I
said, ``I don't have any evidence of it actually moving,'' but
we do track the prices in China and out of China. And there is
a gap today. There is also very clearly the statements that
they are going to establish quotas and given a priority to
their domestic supply.
Mr. Manzullo. Yes.
Mr. Galyen. So in both of those cases, I think they are
sending us the signal that they would like to have the jobs,
they would like to have the technology, and they would like to
have the investment in China.
Mr. Manzullo. They are setting the stage.
Mr. Galyen. And, to be honest, Mr. Duncan's comments, I
think did they see the opportunity? Yes. I think they have seen
the opportunity and for a long time.
Mr. Manzullo. I would like to shift just a little bit. We
are talking about additional mining and processing to come up
with these permanent magnets. Mr. Smith, talk to us about the
terbium that is found in fluorescent lights and what your
company has done to recycle those and the possible uses of
terbium.
Mr. Smith. We are looking at the recycling of the rare
earth elements from the compact fluorescent light bulbs. Those
light bulbs have been on the market for about 10 years now. So
the useful life is starting to come to an end. And there is a
real need to recycle these materials.
There are only about 200 tons of terbium that are required
worldwide every year. So a very simple process of recycling the
terbium from those compact fluorescent light bulbs year after
year now can actually do a major piece of good to the supply
situation in terms of making sure terbium is available.
The other advantage that terbium offers, particularly in
the magnetic market, is that terbium will also increase the
temperature capacity of the neodymium iron boron magnets, which
only need about one-third to one-half of that amount of
material versus dysprosium.
So there are a lot of win-win situations here by taking
advantage of what we think are existing resources of materials
by just simply recycling these items.
Mr. Manzullo. We discussed in our office this morning about
contacting GSA on using the fluorescents that are in public
buildings.
There is technology that is available to do this. There is
a French company that does this that is looking to set up
operations in this country. There is obviously room for more
than one company----
Mr. Smith. Right.
Mr. Manzullo [continuing]. Based upon the amount of
fluorescents.
If GSA decided to start a program to take fluorescent bulbs
and put them into a facility to recycle, what impact would that
have?
Mr. Smith. We do not have exact numbers on that, Mr.
Chairman, but I will speculate that it will have a major impact
on our ability to supply the terbium market across the board
and probably provide additional uses for terbium that we don't
have today because there isn't enough supply.
Mr. Manzullo. It is not just recapturing terbium. It is
recapturing----
Mr. Smith. Europium and yttrium as well.
Mr. Manzullo. And then those can be recycled again for
lighting?
Mr. Smith. Absolutely.
Mr. Manzullo. Is that correct?
Mr. Smith. That is correct.
Mr. Manzullo. Mr. Faleomavaega, did you have any other
questions you want to ask?
Mr. Faleomavaega. If I could? Thank you, Mr. Chairman.
For our second round, I wanted to ask Ms. Parthemore. I
sense that you have an extensive understanding about
implications of foreign policy and our national security
interests concerning this issue.
What is your estimate of the dollar value that we place on
rare earths as far as our military industry complex is
concerned? I mean, with a $760 billion budget that we have in
our defense, how much of that goes into rare earths in terms of
building our aircraft, our electronic system, and all of that?
Do you have any estimates on that?
Ms. Parthemore. No, sir. And the challenge is that no one
knows. The Department of Defense's biggest problem by my
estimate is that it does not fully understand, despite years
and instruction by Congress, to really study its supply chains
and quantify how, when, where, and in what quantities it relies
on different valuable earths. I don't think the Department is
anywhere near having a good estimate of----
Mr. Faleomavaega. Let me say this for the record. Are you
saying that we do not know in the Defense Department how much
we are spending for these rare earth materials that we need for
our aircraft, missile defense system, and all of this?
Ms. Parthemore. It is my estimate that that is the case,
correct. Again, so there are contractors. There are private
companies that supply the Department of Defense that may have a
good estimate of what they need for their own supplies and
assets that they are providing to DoD.
But they don't always share that information with the
Department of Defense, even upon request. I have seen more
willingness over the past year or 2 than previously to share
that information with DoD given the current crisis and concerns
over shortages.
But no, I don't think that there is a single good overall
estimate. If there is, that is wonderful. But I don't know of
it.
Mr. Manzullo. With China now controlling 95 to 97 percent
of the rare earths, as we have discussed this afternoon, what
are the implications in terms of our national security?
What level of risk are we putting on our national security
because of the fact that China controls 95 percent? What is the
reaction time? Do we need, do we really critically need, these
elements as part of our national defense? I mean, not just
building tanks and bullets and airplanes, but where does it
really come in when it is really critical?
I don't know if I am asking the right question here.
Ms. Parthemore. No. It is a good question.
My biggest concern is political leverage. So for China, in
addition to other exporting countries that know that they have
control over a market that is strategically important to other
countries, they will use that for political leverage.
It has happened before the case of--in cases with uranium
and other mineral supplies historically from countries like
Kazakhstan, Chile, other places. And, again, I think that it
was predictable that China once it gained control over this
system was going to use that for political leverage in examples
like with the trawler captain issue with Japan last year, some
of its other geopolitical challenges and tensions and fights
with other countries. It is going to add this into the mix as
one more thing in which it has control over this situation and
can exert that leverage into negotiations.
Mr. Faleomavaega. What is your estimate in terms of how
many years would it take us to catch up with China concerning
this industry? Mr. Smith, Mr. Strahs, we have what it takes,
but I am just curious. How long will it take us to catch up
with China in that regard?
Ms. Parthemore. Sir, I am hoping not long given that
Mountain Pass was a productive mine before. And, from what I
have learned from industry counterparts, that goes a long way
toward speeding up the process of getting production up and
running domestically. So that is a good thing.
Part of it, though, anything that we can do to reduce that
control over the market, even if we are not displacing 75
percent or 50 percent of Chinese production and supplies to the
market of rare earths, anything to do to just change that
percentage in the favor of them not having almost full control
is going to start to diminish the political leverage that they
see in this situation.
So anything we can do in this country will help, but it is
sort of the more, the better, the faster, the better off we are
going to be.
Mr. Faleomavaega. Is uranium considered a rare element?
Mr. Smith. No, sir. No, it is not.
Mr. Faleomavaega. But we need it for nuclear----
Mr. Smith. Correct.
Mr. Faleomavaega [continuing]. Nuclear bomb development or
nuclear reactors that Japan has decided not to get into. The
reason why I raised the issue is the fact that Australia I
think has about 25 percent of the market in uranium. And
Kazakhstan also has about another 25 percent control of the
market.
What is our percentage control of uranium? Does anybody
know? Maybe I am asking the wrong question here.
Mr. Smith. I don't know. I am in the rare earths business.
Mr. Faleomavaega. All right. Let's stay with the rare
earths.
Mr. Smith. Okay.
Mr. Faleomavaega. As, Mr. Smith, I think, you have alluded
earlier that you are not having any problem with the
regulations. So with these Federal agency bureaucracies that
pound on you saying that you have got to fulfill your permits,
it has been no problem?
Mr. Smith. Well, I wouldn't ever say that it is not a
problem or that it doesn't take a long time to get them, but we
have all of our permits in place and some good advance timing
and some collaborative efforts have made a difference.
Mr. Faleomavaega. EPA is not giving you a hard time on
this?
Mr. Smith. No, sir.
Mr. Faleomavaega. Oh, that is interesting.
Thank you, Mr. Chairman. I thank the panel for their
testimony, appreciate your coming.
Mr. Smith. Thank you.
Mr. Manzullo. Mr. Johnson?
Mr. Johnson. Thank you, Mr. Chairman.
Mr. Smith, one of the recommendations you offer is to
support private sector efforts to recycle rare earths. How
effective would such a process be?
Mr. Smith. Right now under a voluntary program, it is not
very effective. The numbers that we are hearing are that we
have less than 5 percent of the used compact fluorescent light
bulbs being recycled today, which means that 95 percent of them
are being thrown away into landfills, which is also not a good
practice.
So it is our opinion that we can have a major impact on
certain heavy rare earth elements, such as yttrium, europium,
and terbium if we get the idea of recycling across to the
American public in a much bigger way than what it is today.
Mr. Johnson. Is it generally more cost-effective to recycle
rare earth elements than to mine new ones?
Mr. Smith. Historically the answer has been a very simple
absolutely not, but with prices for these rare earth elements
where they are today, recycling has become a very, very
important consideration by almost everybody that uses these
minerals.
Mr. Johnson. Ms. Parthemore, in September of last year,
China placed an embargo on rare earth exports to Japan after a
diplomatic dispute. How likely is it in your opinion that China
would use a similar foreign policy strategy with the U.S.?
Ms. Parthemore. For the United States, it depends on the
circumstances. In general, speaking in regards to China and,
again, any exporting country that has full control over a
market like this will use it again and again for political
advantage when they see that the circumstances are there, I
think 100 percent. They absolutely would, as we would as well.
I think it is just the logical thing to do when you have
possessed this type of economic control that allows you
political and strategic leverage.
Mr. Johnson. Besides Japan, has China used its rare earth
monopoly as leverage with other nations to date or threatened
to do so, as far as you know, other than Japan?
Ms. Parthemore. Sir, not that I know of. From a trans-
perspective as well, it is--I think there are partial truths in
all of those, but it is also trying to address its own
environmental concerns and the potential for its environmental
practices, which have been unregulated within China, to drive
social instability, which is an extraordinarily major concern
for the Chinese Government.
So, again, I think they have a lot of domestic issues that
are attaching to this. It is not just how they are using these
within the foreign policy arena. It all connects together,
though.
Mr. Johnson. Probably an easily answered question here, but
in your opinion, would a disruption in the supply chain of rare
earths have a serious negative implication, hinder, or harm our
national defense and foreign policy objectives?
Ms. Parthemore. Yes, sir, I do.
Mr. Johnson. Okay. Mr. Chairman, I think that is all the
questions I have. Thank you very much.
Mr. Manzullo. Mr. Duncan?
Mr. Duncan. Thank you, Mr. Chairman. Thank the panelists
for sitting through another round of questioning. And I want to
thank Mr. Smith.
I was talking about jobs earlier. I had not read your
testimony. And being tied up when you gave it, I didn't realize
a lot of the points I was making you had made as well. It is
all about jobs. And I appreciate your perspective on this.
In your testimony, you talk about China's former premier,
Deng Xiaoping, who famously commented in 1992, ``Middle East
has oil. China has rare earths,'' that China recognized this
key advantage 20 years ago and, ever since, has focused
intently on rare earths production as a job creation engine.
Hello? Jobs for America.
But you mentioned another critical trend that we are
witnessing as China's efforts to exercise much tighter control
over its internal production and that it has settled in the
pace of the internal consumption of these rare earth minerals
and rapidly resulting in rapid constriction of its exports.
What are they using? If they are using more and more of the
rare earths internally, what are they using those rare earth
minerals for?
Mr. Smith. There are two different areas that we look at in
terms of what they are using these minerals for. One is they
are making more and more end-use products: The MRI machines,
the motors, the cars, the wind turbines. They are actually
making those products and exporting them to the rest of the
world.
The other item, though, is that they are trying to increase
their standard of living. And their 1.3 billion citizens would
also like to have computers and cell phones and iPads and
iPhones. So we are seeing a real doubling-up, so to speak, of
China's demand because they are trying to produce more end-use
products for the rest of the world as well as these end-use
products for their own citizens.
Mr. Duncan. So if the U.S. were able to mine its own rare
earths and create products here that were in demand in China,
there would be an export possibility of U.S.-made goods to
China using U.S. rare earths?
Mr. Smith. We don't see any reason why that can't be done
with good technology.
Mr. Duncan. Okay. Well, thank you.
A lot of other questions, Mr. Chairman, were asked by Mr.
Faleomavaega. So I will yield back the balance of my time.
Thank you.
Mr. Manzullo. I have a couple more questions. In what you
are doing, Mr. Smith, the mining, extraction, alloying,
oxidizing, and then going into making the metal itself, you
are, what, four-fifths of the way through? Is that correct?
Mr. Smith. Yes. We look at the supply chain from mine to
magnets and suggest that there are five steps in that process.
Mr. Manzullo. Did I leave out a step?
Mr. Smith. Well, the fifth step is the actual production of
magnets.
Mr. Manzullo. You mean the actual magnets?
Mr. Smith. Yes. We certainly have the first four. And we
have all of those capabilities in Molycorp today.
Mr. Manzullo. So, then, your business plan is to
manufacture the neodymium?
Mr. Smith. The neodymium, the neodymium metal, the
neodymium iron boron alloy. And ultimately we plan to be in a
joint venture magnet production effort as well.
Mr. Manzullo. Mr. Strahs, you are presently manufacturing
the samarium cobalt and also lower-end ferrite magnets. Is that
correct?
Mr. Strahs. Yes, we do.
Mr. Manzullo. Your business plan, for lack of a better
word, is to manufacture the neodymium. Is that correct?
Mr. Strahs. We would like to be able to manufacture, yes,
neodymium iron boron magnets.
Mr. Manzullo. Mr. Galyen says the more manufacturers of
this the better because there are a lot of uses for it out
there.
I noticed you had mentioned this, Mr. Smith, that the
Chinese are developing more and more uses for the permanent
magnets in the development of more and more consumer products.
Mr. Smith. Correct.
Mr. Manzullo. And that is where the jobs are.
Mr. Smith. That is correct.
Mr. Manzullo. Go ahead.
Mr. Smith. From what we have seen, the further you get into
the supply chain, the higher level of employment.
Mr. Manzullo. Do you believe that if these and the
permanent magnets are more available in the United States they
could help keep jobs here or actually create jobs in areas to
manufacture new products that have to use these elements?
Mr. Smith. There is no question in my mind. The answer is
yes, it will.
Mr. Manzullo. Okay. Well, we are supposed to have votes at
2:45. Let me introduce to you Ken Reiman. Ken is on loan to us
from the State Department. He is a fellow. We have been blessed
to have him. He is working full-time on this rare earth issue.
What we have been doing for about the past 4 or 5 months is
meeting with every conceivable player that we know is involved
in rare earths, including people in the government. We have met
with people from State. We will be meeting with people from
DoD. We have obviously met with people from the Department of
Energy.
We have been trying to piece together this whole picture as
to exactly what it means for the United States not to be able
to manufacture these high-end magnets.
It is amazing to me. I know DoD is looking at it, but, for
goodness gracious sake, the guidance system of missiles depends
upon us importing these neodymium iron boron magnets from
China.
I would think that they are probably used in the drones.
Would that be correct?
Mr. Smith. That would be correct.
Mr. Manzullo. So we are making more uses of these permanent
magnets in our own defense systems. I just don't see DoD really
stepping up.
The last question is, should rare earths be classified
here, as it is abroad in Europe and Japan, as a strategic
resource? The Japanese refer to rare earths as ``the seeds of
high technology.'' Should we be stockpiling rare earths, as our
partners around the world are doing, in preparation for future
disruptions, especially in the area of military defense?
Anybody?
Ms. Parthemore. Yes, sir. I definitely think so. The
National Academies put out a report a few years ago
recommending hundreds of pages of material on just how to
update the stockpiling policy.
So DoD going further and just implementing these ideas that
have been floating around for years I think would benefit our
understanding of our defense supply chains and make sure that
rare earths and any other minerals that can be classified as
being this important and potentially leading to crises such as
this, we can be vigilant and watch for it and prevent it from
happening again.
Mr. Manzullo. You testified earlier that you don't believe
that the Department of Defense is quite on top of this. I am
not trying to be critical of anybody here because we are trying
to piece together all the resources and go forward.
Is that the statement you made earlier? I don't want to
mischaracterize your statement.
Ms. Parthemore. No. It is correct. It is less the fault of
anyone in DoD necessarily but just the fact that defense assets
are now relying on global supply chains more than they ever
were before. And defense assets are becoming more dual use in
terms of civilian and military technologies.
So telecommunications equipment, for example, obviously has
a lot of civilian use as well as military components to what it
is doing. So the supply chains for all of these are not just a
distinct defense supply chain, as it once was.
It is privatized. It is globalized. And a lot of these
things, such as using iPods for translations devices abroad,
things like that, mean that the supply chains are significantly
more complex than they used to be. It is just going to take a
lot of effort to fully understand how one mineral ties into----
Mr. Manzullo. It doesn't take much examination of the
supply chain for neodymium iron boron to realize it is all
coming from China. I would have thought somewhere along the
line that somebody at the Pentagon would have said, ``There is
a problem, Houston.''
Ms. Parthemore. Yes. I think that there is one manufacturer
in Pennsylvania of those magnets I believe is the case. One may
not be enough, especially if anything were to happen to that
one. But it is definitely problematic.
Mr. Manzullo. Even in the neodymium? I would think that any
of those----
Mr. Strahs. No, there are no producers of neodymium iron
boron magnets today in the U.S. There are two producers of
samarium cobalt magnets----
Mr. Manzullo. Right.
Mr. Strahs [continuing]. Ourselves and the company in----
Mr. Manzullo. But nobody is producing neodymium here?
Mr. Strahs. Correct.
Mr. Manzullo. Well, I want to thank you all for coming. It
has been a very interesting panel. We are still looking for
more information. The reason I introduced Ken is that he is
going to continue to work on this until we sharpen our focus
even more and make some priorities. We are very much
interested. One initiative we think we can help implement right
away is the recycling of rare earths.
It is a win-win for everybody. I don't see who would be
opposed to it. So, we are going to contact GSA and even perhaps
House Administration here in the House of Representatives to
see if we can get involved in helping to recapture the rare
earths from the tombs.
Thank you for coming. This subcommittee is adjourned.
[Whereupon, at 2:41 p.m., the subcommittee was adjourned.]
A P P E N D I X
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Material Submitted for the Hearing Record
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Material submitted for the record by the Honorable Donald A. Manzullo,
a Representative in Congress from the State of Illinois, and chairman,
Subcommittee on Asia and the Pacific
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Material submitted for the record by the Honorable Eni F.H.
Faleomavaega, a Representative in Congress from American Samoa
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