Running the Gauntlet: Rare Earths, Specialty Metals and Turf Wars Inside the Beltway – Part 2

This is the second in a four-part series of articles on the current scrutiny being given to rare earths by the US Congress and US Department of Defense, in the context of national security considerations.  The first part can be accessed here. The full white paper can be downloaded as a PDF file from here.

Strategic Materials and the Law – Continued

In the subsequent report on HR 2647 that accompanied the original bill, the HASC criticized the SMPB’s re-definition of the term “strategic material”, claiming that this new definition undermined the purpose of the SMPB’s existence. The report was particularly scathing of the SMPB’s omission of any reference in these definitions, to the “range of materials that Congress has designated as critical to national security and, as such, has provided significant protection or domestic preference in DoD policy and in statute” [11] i.e. the specialty metals defined at 10 USC §2533b.

These comments from the HASC were made despite the fact that the first and second SMPB reports did indeed make reference to specialty metals – and despite the fact that the aforementioned Institute for Defense Analyses study noted that “the sponsor of the study [i.e. the SMPB] has defined a strategic material as the specialty metals included in Section 2533b of Title 10, United States Code” [9]. The true root cause of the HASC’s irritation was most likely with the key finding of the second report, which was that “specialty metals, as defined in 10 U.S.C. 2533b, are not ‘materials critical to national security’ for which only a U.S. source should be used; and there is no national security reason for the Department to take action to ensure a long term domestic supply of these specialty metals” [6].

To add insult to the HASC’s injury, the SMPB report went on to state that the incorporation of specialty metals into a DoD system did not, by definition, make a material critical to national security. As the authors astutely noted, “[i]f incorporation alone was sufficient, every type of material from plastic, to rubber and glass, would be a critical material. More discriminating criteria are needed to distinguish critical materials from the larger set of strategic materials” [6].

The final straw for the HASC was the last piece of the report, which stated that the SMPB had determined that there was a grand total of one material deemed to be critical to national security, namely high purity beryllium. This did not go over at all well with the HASC, with it commenting that it did “not find this conclusion to be plausible” and that it expected that the SMPB would “swiftly revisit” the definition of “materials critical to national security”, in order to ensure that “it is able to identify gaps in our domestic defense supply chain and provide the President, the Secretary of Defense, and Congress with information, analysis, and advice on strategic materials which are critical to the operations of the Department of Defense” [11].

Clearly then, these findings were not what the HASC had been expecting. In recent years, sourcing restrictions associated with specialty metals have become ever more complex, as competing lobbyists representing a variety of entities have successfully managed to introduce ever more convoluted language into the annual NDAA bills, in the interests of self-preservation on all sides. In this report from the DoD’s SMPB, the HASC and associated special interests were now confronted with the DoD’s considered opinion that, for all intents and purposes, these restrictions no longer made sense, despite best efforts to show otherwise. In a further footnote in the report, the authors cannily noted that “Congress has placed no domestic source restrictions on the ores and other basic materials that are the precursors to specialty metals. However, for truly critical materials, reliable sources of supply for such ores and other basic materials also may be necessary” [6].

It wasn’t just the HASC that publicly took exception to the SMPB report. While there was little media attention at the time of its publication, some observers did weigh in on the report’s findings. Laurence Lasoff, a lobbyist for the Specialty Steel Industry of North America, said that “[w]e believe there is no legal basis for the conclusion that strategic materials are not critical because DoD is not the pre-eminent customer. There is no legal basis whatsoever for a definition of ‘critical’ based upon the fact that DoD has to be the principal customer” [12].

Individuals working for congressional leaders who drove the creation of the SMPB were even more incredulous. Jeff Green, Policy Counsel to the HASC at the time that Duncan Hunter was its Chair, was among a number of staffers who played a key role in the creation of the SMPB and other legislation concerning specialty metals. According to Green, the conclusion in the SMPB report represented a “fundamental failure to comply with congressional intent”. He went on to say that “[n]ot identifying the issue of rare earths in high performance magnets [coming from China] totally misses the mark. The technical inaccuracies in the report are astounding” [12].

Green’s comments on high performance magnets related directly to language in the HASC’s report that accompanied the NDAA for FY2008, in which the HASC urged the DoD and SMPB to “consider the critical contributions to national security made by the domestic high-performance magnet industry, especially during consideration of any past or future domestic non-availability determinations, and to ensure the continued availability of these items from domestic sources”. The HASC further encouraged the DoD and SMPB to “consider protections for certain classes of high-performance magnets, such as rare earths and ferrites, which are commonly used in Department of Defense weapons systems, but are not currently protected in statute” [13].

Green now lobbies Congress from the private sector, with current clients including a handful of domestic permanent magnet material producers [14]. He recently noted that Congress put the DoD on notice of their concern about rare earths as early as May 2007, specifically requesting that the SMPB review the issue. Green stated that the “DoD’s own definition of ‘critical’ materials includes a review of potential ‘significant and unacceptable risk of supply disruption’, yet the DoD did not review a market where China controls over 96% of rare earth resources. To me, that is a situation of great concern and the type of scenario the [SMPB] was designed to review. Rare earth components are found in all sorts of defense systems and until the [DoD] gets a handle on the usage of these materials and their availability, the intent of the [SMPB] won’t be met” [15]. Green also noted that the DoD was making strides in their review of rare earths, but that a final analysis was not expected until at least 2010.

The final version of the NDAA for FY2008 included amendments to the specialty metals provision at 10 USC §2533b and its applicability to commercial items. It included specific language which restricted certain aspects of the procurement of high performance magnets for DoD projects [10]. The specialty metals provision is implemented via the Defense Federal Acquisition Regulation Supplement (DFARS). In July 2009, the DoD issued a final ruling on the implementation of changes to the DFARS, pertaining to specialty metals [16].

The final ruling included commentary on the definition of “high performance magnet”, noting that it meant magnets that derive the “majority of their magnetic properties from rare earth materials”. By definition, this excludes ferrites and alnico magnet materials, although alnico magnets would still be considered specialty metals by virtue of their cobalt (Co) content. The definition of “high performance magnets” now includes neodymium-iron-boron (Nd-Fe-B) magnet materials, in addition to samarium-cobalt (Sm-Co) magnet materials which were already considered to be specialty metals due to their Co content. The DoD did note in this final ruling that Nd-Fe-B magnets do not normally contain specialty metals and would thus not be subject to the specialty metals clause.

It is important to reiterate that Sm-Co magnets are at present considered to be specialty metals for reasons other than their rare earth element content. However, definitions can change. As noted above, per the NDAA for FY2008 there are two ways to designate a metal or alloy as being a “strategic material”, with the subsequent associated scrutiny on procurement: either the SMPB defines it as such, or the specific metal or alloy gets listed as a specialty metal in the specialty metals provision within 10 USC §2533b and DFARS. In the former case, ultimately the DoD makes the determination; in the latter case, simple language from Congress would do the trick.

Since at present, there is no large-scale production of rare earth materials in North America, a scenario where rare earths are added to the specialty metals list would seem unlikely as it would make little sense. In the case of safeguarding domestic rare earth magnet production, for example, there is a single North American producer of Sm-Co, and there is at present no production of Nd-Fe-B magnet material at all.

However, the past 12-18 months have seen significant activity and interest in the revival of a once-thriving North American rare earth mining sector. Molycorp Mineral’s Mountain Pass mine in California is coming back into operation and there are significant deposits of rare earths elsewhere in the US and Canada, which are available for development, with the right investment and infrastructure strategy. Molycorp is promoting its “mine to magnet” strategy and in July 2009 announced its intention to create a joint venture with Arnold Magnetic Technologies, to produce rare earth magnets [17]. There have been numerous recent media stories on the proposed production of electric vehicles, and the significant quantities of rare earth-containing magnets and batteries that such vehicles would contain [18].

Late in the summer of 2009, a report that China planned to restrict and in some cases ban the export of rare earth elements [19], leading to a lack of access to such materials within 3-5 years, ignited a media frenzy, and once again put US strategic materials policies in the spotlight with regard to both defense and non-defense applications. It is entirely possible that, once Molycorp has its “mine to magnet” strategy in place, the calls for rare earths to be put on the specialty metals list will grow stronger.

The Findings in HR 2647 obviously readdressed the issue of safeguarding domestic access to rare earth elements for national security purposes, by requiring the SMPB to give consideration to rare earth materials. Given the outcome of the prior SMPB work detailed above however, and the usually non-binding nature of such Findings, proponents of the DoD formally defining rare earth materials as strategic materials, should probably not hold their collective breaths.

Article continues in Running the Gauntlet: Part 3.

References

6. Department of Defense Strategic Materials Protection Board, ‘Report of Meeting Held on December 12, 2008’, Office of the Deputy Undersecretary of Defense for Industrial Policy, 23 Feb 2009.

9. Scott Arnold et al, ‘Assessment of Industry Investment in U.S. Domestic Production of Strategic Materials’, Institute for Defense Analyses, Oct 2008.

10. Public Law 110-181, ‘ National Defense Authorization Act for Fiscal Year 2008’, Sec. 803, 28 Jan 2008.

11. US House Armed Services Committee, ‘Report on HR 2647: National Defense Authorization Act for Fiscal Year 2010’, House Report 111-166, 18 Jun 2009.

12. Richard McCormack, ‘Defense Department To The U.S. Specialty Metals Industry: We Don’t Need You’, Manufacturing & Technology News, Vol. 16, No. 6, 17 Apr 2009.

13. US House Armed Services Committee, ‘Report on HR 1585: National Defense Authorization Act for Fiscal Year 2008’, House Report 110-146, 11 May 2007.

14. Center for Responsive Policy, ‘Lobbying: JA Green & Co’, OpenSecrets.org Web site, last accessed 21 Aug 2009.

15. Telephone interview with Jeff Green, J. A. Green & Company, LLC, 24 Aug 2009.

16. Department of Defense – Defense Acquisition Regulations System, ‘Defense Federal Acquisition Regulation Supplement; Restriction on Acquisition of Specialty Metals (DFARS Case 2008-D003): Final Rule’, Federal Register 74:144 (July 29, 2009), GPO Access Web site, last accessed 2 Sep 2009.

17. Molycorp Minerals, LLC & Arnold Magnetic Technologies Corporation, ‘Molycorp Minerals and Arnold Magnetic Technologies Account JV to Manufacture Rare Earth Magnets in the US’, Press Release, BusinessWire, 13 July 2009.

18. Steve Gorman, ‘As hybrid cars gobble rare metals, shortage looms’, Reuters, 31 Aug 2009.

19. Ambrose Evans-Pritchard, ‘World faces hi-tech crunch as China eyes ban on rare metal exports’, The Daily Telegraph, London, 24 Aug, 2009.

Article continues in Running the Gauntlet: Part 3.

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- who has written 67 posts on Terra Magnetica.

Gareth is a Founding Principal at Technology Metals Research, LLC. He has expertise in a variety of magnetic materials, devices and applications, and their associated trends and challenges, particularly for renewable energy production. For more information check out his biography page. Don't forget to check out Terra Magnetica at Twitter too.

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