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The demand shows no signs of abating. In 2015 the world's industries are forecast to consume an estimated 185,000 tons of rare earths, 50 percent more than the total for 2010. So with China holding tightly to its reserves, where will the rest of the world get the elements that have become so vital to modern technology?

Although China currently monopolizes rare earth mining, other countries have deposits too. China has 48 percent of the world's reserves; the United States has 13 percent. Russia, Australia, and Canada have substantial deposits as well. Until the 1980s, the United States led the world in rare earth production, thanks largely to the Mountain Pass mine."There was a time we were producing 20,000 tons a year when the market was 30,000 tons," says Smith. "So we were 60-plus percent of the world's market."

American dominance ended in the mid 1980s. China, which for decades had been developing the technology for separating rare earths (not easy to do because they're chemically so similar), entered the world market with a roar. With government support, cheap labor, and lax or nonexistent environmental regulations, its rare earth industries undercut all competitors. The Mountain Pass mine closed in 2002, and Baotou, a city in Inner Mongolia (an autonomous region of China), became the world's new rare earth capital. Baotou's mines hold about 80 percent of China's rare earths, says Chen Zhanheng, director of the academic department of the Chinese Society of Rare Earths in Beijing. But Baotou has paid a steep price for its supremacy. Some of the most environmentally benign and high-tech products turn out to have very dirty origins indeed.

Rare earth mines often also contain radioactive elements, such as uranium and thorium. Villagers near Baotou reportedly have been relocated because their water and crops have been contaminated with mining wastes. Every year the mines near Baotou produce about ten million tons of wastewater, much of it either highly acidic or radioactive, and nearly all of it untreated. Chen maintains that the Chinese government is making an effort to clean up the industry.

"The government has already made strict regulations to protect the environment and weed out the backward techniques, equipment, and products," Chen wrote in an email. "Those factories without abilities of environmental protection will be closed or merged with bigger companies."

The Chinese government may eventually be able to regulate the large rare earth mining industry around Baotou. But some of the smaller mines in southern China will be more difficult to control—because they're operating outside the law to begin with. Violent criminal gangs run dozens of heavily polluting—and profitable—rare earth mines in Jiangxi and Guangdong Provinces. Xinhua, the official Chinese news agency, has reported that criminals smuggled 20,000 tons of rare earths from the country in 2008, nearly a third of the total rare earth exports for that year. If you own a smart phone or a flat-screen television, it may contain contraband rare earths from southern China.

"People don't understand how totally corrupt the system in China is, with local party people aiding and abetting criminals in a very substantial way," says Alan Crawley, CEO of Pacific Ores Metals & Chemicals, a trading company in Hong Kong. Crawley speaks from experience. One of his colleagues was murdered 11 years ago by Guangdong gangsters. "The Hong Kong police can't do anything," he says. "The killers fled back to the mainland."

The world is now scrambling to find other sources of supply; the development of rare earth mines in the U.S., Australia, Russia, and other countries may eventually cut into the smugglers' business. Molycorp intends to produce 3,000 to 5,000 tons of rare earths from stockpiled ore at its Mountain Pass mine this year and has big expansion plans. "The current U.S. demand is somewhere between 15,000 and 18,000 tons per year," says Smith. "In principle, Mountain Pass could eventually make the United States independent in rare earths." According to Chen, China's present dominance of the market is not in its own long-term interests. "This situation is obviously not sustainable," he noted, "for China's rare earth industry and for the world's high-tech industry."

Tim Folger wrote about the changing climate of Greenland in the June 2010 issue.
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