July 28th, 2011
04:10 AM GMT
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China extracts and produces about 95% of the world's rare earth minerals, and since last year it has cut its exports. The World Trade Organization recently ruled China's export quotas on certain raw materials violate international trade laws. Japan, the EU and the United States have all contested that China's quotas drive up the price of products, while China argues that it's trying to protect the environment by foraging less land for rare earth minerals.

So why should you or I care about the global spat over rare earth minerals? I posed that question to American David O'Brock, the CEO of Molycorp Silmet AS, a rare earth processing plant in Estonia.

"Since the average person buys most of their household items, electronics and clothing from China, it directly relates to every aspect of their life," O'Brock explains.

The list of rare earth minerals and metals reads like a foreign language to me, so I asked O'Brock to explain the practical uses of some of them:

Didymium - mainly used in high strength magnets which are put into electronics that make noise or have a small motor in them - also is used in cars with electric seats and windows.

Niobium - used in MRI machines, rockets and atomic accelerators - is an element that's needed for super conductivity or high temperature applications.

Tantalum - used in chemical plants, aerospace turbines, glass coating and wire coating – helps keep our phones and laptops small because it has a very high surface area when it's made into powder form. It regulates the electricity flow without burning out the circuitry.

Because China has such a foothold in the rare earth industry, international companies find themselves forced to manufacture inside China to get around the export quotas. The European Trade Commissioner Karel de Gucht told CNN, "If they continue like this, we will not hesitate to take action and we will certainly consider retaliatory action... Losing jobs in the U.S. and E.U. is not acceptable. We are arguing there should be a level playing field."

But don't hold your breath. China plays hardball. Shortly after the WTO ruling, China released its export quotas for the second half of the year. There was virtually no change from the previous number. The Chinese government maintains it's cutting back on domestic production to control the immense environmental damage that results from mining rare earths. According to Xinhua News, the government has suspended issuing new rare earth mining licenses and announced more stringent environmental standards.

Read more about the secrets and shortcomings of China's mammoth industry

China's quotas have dramatically pushed up prices in the rare earth minerals market. While O'Brock has seen an enormous financial boom to his own business (US-based Molycorp acquired a majority share in his Estonian company in April), the price increases have squeezed his customers' profit margins. However, O'Brock is optimistic that the situation may improve over time. "I will wait and see what China does now. I am assuming that they are going to appeal the WTO decision which could take several years. By then, it may no longer be an issue as we trust there will be enough rare earth projects (in other countries) already online.”

Follow me on Twitter @paulinecnn

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