Japan begins rare earth hunt as China tightens supplies

By Yuka Obayashi

SHIZUOKA, Japan, Jan 12 (Reuters) – A Japanese mining ship left on Monday for a remote coral atoll to mine mud rich in rare earths, part of Tokyo’s effort to curb its dependence on China for critical minerals as Beijing tightens supply.

The one-month mission of the Chikyu test vessel near Minamitori Island about 1,900 km (1,200 miles) southeast of Tokyo, will mark the world’s first attempt to continuously lift rare earth seabed mud from 6 km (4 miles) deep onto a ship.

Japan, like its Western allies, is reducing its reliance on China for minerals vital to the production of cars, smartphones and military equipment, an effort that has taken on urgency amid a major diplomatic row with Beijing.

“One of our missions is to build a supply chain for domestically produced rare earths to ensure a stable supply of essential minerals for the industry,” Shoichi Ishii, the head of the government-backed project told reporters last month, before the ship’s departure from the port city of Shizuoka on a bright sunny day, with snow-capped Mount Fuji in the background.

REDUCING THE DRIFT ON CHINA WILL NOT BE EASY

China last week banned exports of items destined for Japan’s military that have civilian and military uses, including some critical minerals. The Wall Street Journal reported that Beijing has also begun to restrict exports of rare earths to Japan more broadly.

Japan condemned China’s dual-use ban but declined to comment on the report of a broader ban, which China has not confirmed or denied. However, Chinese state media said Beijing was weighing the measure.

Finance Ministers from the Group of Seven industrial powers will discuss rare earth supplies at a meeting in Washington on Monday, a source familiar with the matter told Reuters.

Japan is no stranger to facing China’s wrath over rare earths. In 2010, China withheld exports after an incident near disputed islands in the East China Sea.

Since then, Japan has reduced its dependence on China to 60% from 90% by investing in foreign projects such as the link of the trading house Sojitz with the Lynas Rare Earths of Australia, and promoting the recycling and manufacturing processes of rare earths that rely less on minerals.

The Minamitori Island project, however, is the first to attempt to find rare earths domestically.

“The fundamental solution is to be able to produce rare earths inside Japan,” said ‌Takahide Kiuchi, executive economist at the Nomura Research Institute.

“If this new round of export controls ends up covering a lot of rare earths, Japanese companies will again make efforts to move away from China, but I don’t think it will be easy,” he said.

For some heavy rare earths, such as those used for magnets in electric and hybrid vehicle motors, Japan is almost totally dependent on China, analysts say – a major risk for its main auto industry.

LONG TERM PROJECT

Since the 2010 scare, the Japanese government and private companies have built up mineral stocks, although they do not disclose volumes.

At a New Year’s party for Japan’s mining industry on Wednesday, several executives said they were better prepared than before to cope with potential disruption, citing Japan’s diversification efforts and stocks.

But Kazumi Nishikawa, principal director of economic security at the trade ministry, said the government had to constantly remind companies to diversify their supply chains.

“Sometimes, you know, an event happened, then the business reacts, but the event ends, the business forgets. We have to keep continuous efforts,” Nishikawa said on the China Talk podcast this week.

The Minamitori Island project, into which the government has sunk 40 billion yen ($250 million) since 2018, is also a long-term play.

Its estimated reserves have not been disclosed and no production target has been set. But if successful, a full-scale mining trial will take place in February 2027.

Mud mining was previously considered uneconomic due to high costs. But if supply disruptions from China continue and buyers become willing to pay higher prices, the project could become viable in the coming years, said Kotaro Shimizu, principal analyst at Mitsubishi UFJ Research and Consulting.

China is keeping a close watch. When the ship was conducting a survey around the island in June last year, a fleet of Chinese naval ships sailed nearby, Ishii said.

“We feel a strong sense of crisis that such intimidating actions have been taken,” he said. China said its actions were in line with international law and called on Japan to “refrain from raising threats”.

(Reporting by Yuka Obayashi in Shizuoka; Katya Golubkova and Tim Kelly in Tokyo; Writing by John Geddie; Editing by William Mallard)