Japan goes hunting for rare earths, while China tightens supplies

By Yuka Obayashi

SHIZUOKA, Japan, Jan 12 (Reuters) – A Japanese mining ship set sail for a remote coral atoll on Monday to probe mud rich in rare earths, part of Tokyo’s efforts to reduce its reliance on China for essential minerals as Beijing tightens supply.

The month-long 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 raise seafloor mud from 6 km (4 miles) deep on a ship.

Japan, like its Western allies, has reduced its reliance on China for minerals vital to the production of cars, smartphones and military equipment, an effort that has become urgent 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 minerals essential to the industry,” Shoichi Ishii, head of the government-backed project, told reporters last month before the ship departed from the port city of Shizuoka on a sunny day with snow-capped Mount Fuji in the background.

REDUCING DEPENDENCE ON CHINA WILL NOT BE EASY

China last week banned exports of items intended for the Japanese military that have civilian and military uses, including some critical minerals. The Wall Street Journal reported that Beijing has also begun to restrict rare earth exports 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. Chinese state media, however, said Beijing was weighing the move.

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

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

Since then, Japan has reduced its reliance on China to 60 percent from 90 percent, investing in overseas projects such as the tie-up between trading house Sojitz and Lynas Rare Earths in Australia and promoting less mineral-based rare earth recycling and manufacturing processes.

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

“The fundamental solution is to be able to produce rare earths in Japan,” said Takahide Kiuchi, executive economist at 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 engines, Japan is almost entirely dependent on China, analysts say – a major risk to its key auto industry.

LONG TERM PROJECT

Since the 2010 scare, the Japanese government and private companies have built stockpiles of the mineral, though 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 deal with possible disruption, citing diversification efforts and Japan’s stockpiles.

But Kazumi Nishikawa, senior director of economic security at the Trade Ministry, said the government must continually 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 maintain continuous efforts,” Nishikawa said on the China Talk podcast this week.

The Minamitori Island project, into which the government has sunk ¥40 billion ($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 it succeeds, a full-scale mining process will be carried out in February 2027.

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

China is watching closely. When the ship was conducting surveys around the island last June, a fleet of Chinese naval vessels 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 exaggerating threats”.

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