Unearthing foreign elements from the Good Earth ➢ Magnet ➢ BFN CA

By R. Chandra Mouli

The creator of ‘The Odd Couple’ captioned his memoir ‘Neil Simon Rewrites,’ a wry reference to Hollywood’s penchant for modifying scripts. Rewriting a Nation’s economic future calls for foiling a bigger plot.

Foil is most appropriate because the domain in question is metals, with a drama playing out on the world stage… its genre being a quest for rare earth and precious minerals, in which foreign elements, covert and overt, vie for dominance.

The target could be stable elements in the periodic table such as iron, copper, zinc and aluminium, so as to create economic instability or excess dependence on major producers. Here are some nuggets in support of my hypothesis.

Steel: China tops the top 10 list, and India is second, according to the World Steel Association.

Aluminium: China ranks first, and GCC countries second, as per International Aluminium Institute ranking.

Zinc: First is China, and India ranks fifth, as per TheGlobalEconomy website.

Copper: Chile, Peru and China rank among the top 3 copper producing countries in the world, according to an NS Energy report.

Beyond base and ferrous, Rare Earth Elements (REE), a group of 17 chemical elements that occur together in the periodic table, merit an introspection. Read on if you wonder why.

Public Sector Undertaking Indian Rare Earths Limited has captive units at Kerala, Tamilnadu and Odisha which together mine and process Ilmenite and other associated beach sand minerals such as Rutile, Zircon, Sillimanite, Rare Earth Chloride, and a High Pure Rare Earths (HPRE) plant to produce separated Rare Earth Oxide/Carbonates.

Natural resources conglomerate Vedanta recently acquired Nicomet, which produces nickel and cobalt, minerals integral to EV batteries and energy storage systems, and slated to play a role in India’s transition to clean energy and electric mobility.

While India has its share of rare earths, a global overview can be scary. China controls 70% of the strategic metals market as per a September 2021 Bloomberg news report. It accounts for 97% of global production of rare earths according to the US Foreign Policy Research Institute. Although China is the world leader in rare earth production, it only controls about 36% of the world’s reserves.

REEs mined in other countries are sent to China for refining. Reasons could be lower labor costs, generous state subsidies and investment in rare earth mining and processing for over two decades.

In 2020, the monopoly and grip became so evident that President Donald Trump signed an executive order “declaring a national emergency in the mining industry,” aimed at “incentivizing domestic production of rare earth minerals critical for military technologies while reducing American dependence on China.”

His successor, Joe Biden, ordered in March 2021 a review of critical minerals and rare earths supply, as realisation dawned that reliance on imports from potentially hostile foreign nations like China creates a national security risk.

Rare earths are a key input in electric vehicles, battery making, renewable energy systems, consumer electronics, computers, communications and defense systems. The minerals’ major usage is in permanent magnets, which form part of phones, computers, cars, wind turbines and missile guidance systems. To add to the scare and scarcity, the semiconductor industry too relies on rare earths.

Experts say rare earth mining is straightforward, while separation of concentrate to oxide is not, as the process involves technical and environmental challenges. Hence, a vast majority of Light REE separation is done in China, and almost all Heavy REE separation is done in China. The monopoly on separation has led to China’s domination of downstream metal, alloy and magnet making.

In December 2021, China merged three state-owned rare earth mining companies, and the newly-formed entity is slated to have such an extensive range in rare earths, it has been dubbed “aircraft carrier” by the Chinese media.

An example of rare earths stronghold playing out in the diplomatic arena: A decade ago, when a Chinese fishing boat rammed two Japanese coast guard vessels in the waters of the East China Sea, the Japanese wanted to put the fishing boat’s captain on trial, whereupon the Chinese government retaliated with a threat of an embargo on rare earth sales to Japan, which would have impacted Japanese car production as REEs are integral to catalytic converters in engines.

How did the United States, which has an abundance of rare earth, and was a key player in the 60s mainly due to deposits at Mountain Pass Mine in California, become an importer? In 1997, Magniquench, America’s leading rare earths company, was sold to an investment consortium which included two Chinese state-owned metals firms. Magniquench was shut down in the United States, relocated to China, and reopened in 2003.

Molycorp, the last remaining major rare earths producer in the United States, collapsed in 2015 when China continued to drop prices to the extent others could not compete. In the last few years, prices of many rare earth oxides have risen 500% when China capitalized on its dominant position and began restricting exports. Steadily, Chinese companies have been purchasing rare earth resources in other countries. In 2009, China Non-Ferrous Metal Mining Company bought a majority stake in Lynas Corporation, an Australian company that has one of the highest outputs of rare earth elements outside of China, and the Baluba Mine in Zambia.

If you are at ease reading about setbacks faced by US companies, damage control measures by Uncle Sam, or cornering of the metals and rare earths market by China, it’s time check our own backyard. In India, the strategy works in reverse through undue focus on companies in the metal production category in which foreign countries wish to gain dominance.

Modern-day coercion is so tactical and subtle, you no longer require a military threat, geographical intrusion or political move to achieve an objective. Use a toolkit loaded with missives such as environment pollution or health hazard, ensure that the accused appear guilty until proven innocent, turn your own countrymen against progress, and the regress benefits the tactician.

The next time a manufacturing facility is announced, next time someone calls for an agitation against an industry in operation, we need to ponder before endorsing the protest in person or on paper. Because we may be playing the role for free, or you could be aiding a group alongside raising slogans for a fee.

Last year, our Prime Minister, Shri Narendra Modi, announced a path-breaking initiative, ‘AatmaNirbhar Bharat Abhiyaan’ to propel the Nation towards self-reliance, with focus on enhancing manufacturing capabilities in 10 key sectors, which include electronic / technology products, automobiles and auto components, telecom products, renewable energy and specialty steel.

The issue is, if we have to import the refined metals or products essential to achieve self-reliance, the objective becomes self-defeating. Copper for example is key to most products listed above, and the irony is India’s largest copper smelter is shut for the last three years, which has turned the country into a net importer.

Let’s switch from copper to COP 26, the UN Climate Change Conference held in November 2021. World leaders gathered at Glasgow pledged to cut use of fossil fuels to fight greenhouse gas emissions. Which means investment in EVs and clean energy systems which require four to six times the copper used by conventional sources. If India were to increase production of green energy systems by using copper imported at high price, the cost increase will slow down their deployment and we are back to fuming at thermal energy.

What could be the solutions that the Indian Government could look at? Here are a few:

• Create an “essential elements” list and incentivize the segment.
• Place metal products essential for green energy on par with defence manufacturing.
• Name and nurture companies that can take us faster and closer to our carbon neutral goal.
• Monitor such companies, their plants and processes month on month for adherence to Environment, Social and Governance Goals through a body of experts.
• With above checks and balances in place, block any attempt to drag the producers into a prolonged legal tangle. This will keep hidden sutradhars at bay even if they continue their ventriloquist bray.

A well-known Chinese idiom 臥虎藏龙 on which a blockbuster film was based, denotes a place or situation full of unnoticed masters. Our scrutiny of the global metals trade has revealed a strange similarity to the axiom in the marketplace. Permit me to explain:

In India, we pride the Tiger as our national animal. Courage is intrinsic to our DNA. As a country revered by superpowers for grit and intelligence, we must not go on the defensive.

Recent media reports on frequent unrest at organisations manufacturing globally competitive products indicate that the foreign hand is no longer speculative but operative. If such elements must be unearthed, we can look for revelation, enlightenment and inner meaning in the idiom’s English translation, which sounds innocuous yet sums up the plot: “Crouching Tiger, Hidden Dragon.”

(The writer is a communications specialist, columnist and former journalist. Views expressed are his own.)