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The new Spice War: China, Japan and rare metals

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In Brief

During the eighteenth and nineteenth century, there was a great deal of competition between European powers, such as Britain and the Netherlands, to expand their influence and control in Southeast Asia. The region provided many economical advantages including the highly lucrative spice trade. What is unique about spices is that only a little amount is needed to preserve and improve the taste of food. However, with the advent of refrigeration, demand for spices decreased as new and more effective methods of food preservation were found, in consequence spices became less valuable.

Currently, there are signs that a new ‘spice war’ is on the horizon.

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However, the possible coming conflict is not over cloves, pepper, or nutmegs. Instead, this time round, the contested commodities are rare metals such as lithium, platinum, dysprosium and terbium – spice metals used in minute amounts but highly important in various high-tech industries. These rare earth metals, which are used in batteries, fuel cells and wind turbines, literally power a large part of the new global and greening economy, and the new protagonists in this competition are Japan and China.

Japan is at the forefront of developing hybrid technology in cars. However, the weakest link in hybrid technology is conventional nickel-hydride batteries that do not hold much charge, which then seriously limits the range and practicality of the car. On the other hand, lithium-ion batteries hold a greater amount of electrical charge and this quality allows hybrid cars to have a longer range on a single charge.

Most of the world’s known reserves of lithium, over 90 per cent, are located in South America. Bolivia has the single largest reserves while Chile, Brazil and Argentina are the other major producers of this metal. With a limited and concentrated supply and increased demand for hybrid cars expected to increase exponentially in the near future, a serious shortage looms. In order to ensure a stable and continual supply of lithium Japan announced a very generous aid package to Bolivia earlier this week. Japan’s objective is to ensure that its automotive industry retains its competitive advantage by securing preferential access to this rare metal. Right now, China is the world’s third largest producer of lithium, but with access to the lithium mine in Salar de Uyuni, which has the world’s largest untapped lithium reserves, Japan is now less dependent on China for lithium supplies. It remains to be seen what the Chinese reaction would be in light of this recent development and whether it would now step up its charm offensive in South America to secure its supply of lithium, rather than to draw down its own reserves.

The same could be said for platinum, which is the main component for fuel cells in electric vehicles. With the emphasis on reducing reliance on traditional petrol and diesel vehicles, electric vehicles are becoming increasingly popular. The increasing global demand for platinum has seen the price more than double since April, 2008. Right now, most of the Chinese demand for platinum is accounted by the jewellery market, and not by the automotive industry. However, it is possible that China does not want to draw down its own lithium reserves. Instead, it may import platinum to manufacture electric cars, which would then increase demand and price for this precious metal. In this context, it would be significant to observe Chinese and Japanese overtures to South Africa, which is the world’s largest platinum producer.

In this emerging competition for spice metals, China is not always the price-taker held hostage by the market. After all, China is the world’s largest producer of dysprosium and terbium, which are needed in the manufacturing process of permanent magnets utilised in electric and hybrid vehicles, as well as in other green technology such as wind turbines. How China manages its supply of these rare metals, such as restricting commercial access to rivals such as Japan, may provide some insights into how it will further conduct its bilateral relations with other states when it is in the dominant bargaining position.

The competition in resources between Japan and China is no longer limited to traditional commodities such as oil, coal and natural gas. Such competition is still present, but it is important to note that new fronts have been opened, and in geographical regions that are not geopolitically stable. This emerging competition may not be that apparent to Australia because it exports mostly ‘traditional’ resources such as coal and natural gas to China and other states. Nevertheless, it is necessary for policymakers to be aware that a new ‘spice war’ is already underway, and that it could lead to tension between China and Japan, which would then affect the East Asian region as well.

Ming Hwa Ting is a Doctoral candidate at the University of Adelaide.

One response to “The new Spice War: China, Japan and rare metals”

  1. Good observations or speculations.

    People, firms and countries are all rational and intelligent enough to maximise their interests in a given environment or even change that environment to do it if they can.

    Whenever there is market power, they will use it to their advantages.

    Why not and who will not. Haven’t we seen that happens in oil, or other raw materials like iron ore in the international market?

    But they are also rational enough to develop reasonably cooperative arrangements to maximise the interests of the greater whole.

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