Critical Materials: Present Danger to U.S. Manufacturing
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AN, KYLE BRADY C O R P O R A T I O N NATIONAL DEFENSE RESEARCH INSTITUTE Critical Materials Present Danger to U.S. Manufacturing RICHARD SILBERGLITT, JAMES T. BARTIS, BrIAN G. CHOW, DAVID L. AN, KYLE BrADY Prepared for the National Intelligence Council Approved for public release; distribution unlimited The research described in this report was prepared for the National Intelligence Council. The research was conducted within the RAND National Defense Research Institute, a federally funded research and development center sponsored by the Office of the Secretary of Defense, the Joint Staff, the Unified Combatant Commands, the Navy, the Marine Corps, the defense agencies, and the defense Intelligence Community under Contract W74V8H-06-C-0002. Library of Congress Cataloging-in-Publication Data is available for this publication. ISBN: 978-0-8330-7883-4 The RAND Corporation is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND’s publications do not necessarily reflect the opinions of its research clients and sponsors. R® is a registered trademark. © Copyright 2013 RAND Corporation Permission is given to duplicate this document for personal use only, as long as it is unaltered and complete. Copies may not be duplicated for commercial purposes. Unauthorized posting of RAND documents to a non-RAND website is prohibited. RAND documents are protected under copyright law. For information on reprint and linking permissions, please visit the RAND permissions page (http://www.rand.org/ publications/permissions.html). Published 2013 by the RAND Corporation 1776 Main Street, P.O. Box 2138, Santa Monica, CA 90407-2138 1200 South Hayes Street, Arlington, VA 22202-5050 4570 Fifth Avenue, Suite 600, Pittsburgh, PA 15213-2665 RAND URL: http://www.rand.org/ To order RAND documents or to obtain additional information, contact Distribution Services: Telephone: (310) 451-7002; Fax: (310) 451-6915; Email: [email protected] Preface This report describes the results of a study of the sources and reliability of the supply of imported materials on which United States manufacturers are dependent. It should be of interest to a broad spectrum of individuals and organizations in the materials and manufacturing sectors as well as government, private sector, and non-profit organiza- tions involved with or concerned about those sectors. This research was sponsored by the National Intelligence Council and conducted within the Intelligence Policy Center of the RAND National Defense Research Insti- tute, a federally funded research and development center sponsored by the Office of the Secretary of Defense, the Joint Staff, the Unified Combatant Commands, the Navy, the Marine Corps, the defense agencies, and the defense Intelligence Community. For more information on the RAND Intelligence Policy Center, see http://www. rand.org/nsrd/ndri/centers/intel.html or contact the director (contact information is provided on the web page). iii Contents Preface ................................................................................................. iii Figures .................................................................................................vii Tables .................................................................................................. ix Summary .............................................................................................. xi Acknowledgments ................................................................................. xvii Abbreviations ........................................................................................ xix CHaptER ONE Introduction ........................................................................................... 1 Recent Analyses of Critical Raw Materials ......................................................... 2 Our Approach .......................................................................................... 4 CHaptER TWO Concentration of Production of Critical Raw Materials ..................................... 5 CHaptER THREE China’s Role as a Controlling Producer .........................................................11 China’s Policies Cause Concern Among Its Customers ..........................................11 China’s Customers Pursue Relief at the World Trade Organization ............................15 CHaptER FOUR Tungsten: Case Example of a Critical Raw Material ..........................................17 Uses and Importance of Tungsten ..................................................................17 Tungsten Resources and Reserves ...................................................................18 The Tungsten Supply Situation ......................................................................18 Potential Impacts of the Tungsten Supply Situation ............................................. 28 CHaptER FIVE Conclusions and Response Options ..............................................................31 Increasing Resiliency to Supply Disruptions or Market Distortions ............................32 Diversifying Production ............................................................................33 v vi Critical Materials: Present Danger to U.S. Manufacturing Long-Term Actions to Increase Resiliency ......................................................33 Foresight of Developing Problems ..................................................................33 APPENDIXES A. Top Three Producers of the 41 EC Critical Raw Materials ...............................35 B. The World’s Largest Tungsten Deposits .....................................................41 Bibliography ......................................................................................... 43 Figures S.1. Percentage of Global Production (Mining) of Key Materials Within a Single Country ...................................................................................xii S.2. Concurrent Rise in China’s Market Share of Key Materials and the Number of Export Restrictions Applying to Them ...............................................xiii 2.1. HHI Index for the 41 EC Critical Raw Materials .................................... 6 2.2. HHI (Minus U.S. Production) Adjusted for Foreign Supplier Governance ....... 7 3.1. Growth of China’s Global Raw Material Production ...............................12 3.2. Chinese Export Restrictions and Market Share ......................................13 4.1. World Tungsten Deposits ...............................................................19 4.2. World Tungsten Reserves .............................................................. 20 4.3. Projected Years of Tungsten Supply Based on Production ......................... 20 4.4. Projected Years of Tungsten Supply Based on Consumption .......................21 4.5. World Tungsten Production ............................................................21 4.6. Schematic Representation of the Tungsten Supply Chain ......................... 23 4.7. Tungsten Raw Materials Supply Network ........................................... 24 4.8. Chinese Domestic Consumption and Exports of Tungsten ........................25 4.9. Tungsten Price Increases in 2010 and 2011 .......................................... 26 4.10. U.S. Tungsten Production and Dependence on Imports .......................... 27 vii Tables 2.1. Key Indicators of the Security of Supply for Important Raw Materials ............ 9 3.1. Chinese Two-Tier Pricing of Rare Earth Materials ..................................14 A.1. Top Three roducersP of the 41 EC Critical Raw Materials .........................35 B.1. The World’s Largest Tungsten Deposits ...............................................41 ix Summary Critical Materials: The