Rare Earth Elements (REEs) are seventeen elements on the periodic chart most of which are hard to mine and are crucial to many important products, such as cell phone electronics, missiles, and electric cars. About five years ago, there was a big concern internationally that China might corner the world market for REEs and force other countries into an economic collapse. China had 95% of the market for REE minerals.
They imposed government controlled prices by cutting export quotas by 40% and stopping altogether shipments to Japan.
However, something went wrong in China’s plan. It’s called the marketplace. As the late economist, Julian Simon, taught high prices encourage investment in new supplies and substitutes. That is exactly what happened when China tried to command the world market for REEs.
Innovation began and substitutes were found for many applications. Mining for REEs that was largely uneconomical at lower prices became economically feasible. As new mines opened and old mines reopened, the quantity supplied of key REEs grew. This eventually drove down prices by 80% from China’s desired and controlled pricing. The crisis was over.
However, not unexpectedly, low prices have driven market prices back up somewhat, as suppliers have been priced out of business. It’s the normal market roller coaster. It will be interesting to see if China tries to re-do their shenanigans. Did they learn their lesson?
Here’s the lesson, Beijing: Markets are more powerful than bureaucrats.
Innovation is the key. The Biz Bucks Guy recently got a new cell phone. Guess what? My three year old model was worth $30. Guess why? Recycling of REEs drives the worn-out cell phone market now.