Javier Blas on China's Rare Earths Dominance
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Hello, and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal. And I'm Traci Allaway. Traci, we're in London. Yes.

How do you like it? I love it so far. I'm having a great time. You know what I realized? I always make the mistake. So I lived in London for a long time. I went to university here. I met my husband here and I stayed here for like over a decade. But I realized whenever I go back, I always make the mistake of doing it on that one glorious spring day where the temperature is like 75 Fahrenheit, like 21 Celsius, and everything's blooming in central London and it's sunny and it's beautiful. And I think,

Wait, why did I leave? But then the next day, it's gray. Yeah, okay. There is that. But I need to come back in like January when it's dark at 3 or 4 p.m. and remind myself that there are in fact some downsides of living here. But it is very nice to be back for a visit. This is actually my first time being in the city, right? Because I haven't really stayed in this part of the city before. It's really nice. All the history and everything.

Despite being here, we have no choice but to continue covering various repercussions, fallouts, updates, ongoing development in the trade war or whatever we're calling it, the tariff war.

Whatever. You would rather be thinking of actual war history and going to the Imperial War Museum or something like that. So on my one free day here, I did the Boomer thing and I went to the Imperial War Museum and I saw a lot of things that I only read about, referenced in books. Anyway.

all kinds of dimensions in the trade tensions and everything. But one thing that's going on is big impact on commodity markets. We've seen the price of oil plunge as recession fears get priced in. And there was this headline in the New York Times about China halting export of rare earth metals as a retaliation.

And I just have to say, I've been reading about China halting exports of rare earth metals and retaliation for my entire life. It never seems to matter. It never really seems to be a thing, but it always is a really scary headline that

But I've never actually, nothing as far as I recall ever gets shut down or grinds to a halt from these supposed export restrictions. This is one of the greatest branding exercises of all time. It's because it has the word rare in the title. Everyone can really easily apparently make the case that these are rare and you really need to snap them up, get the exposure before China starts limiting exports and we all have to pay through the nose for these things. But yeah, it's never happened. And the rare as...

I don't know if we've ever discussed on this show, but certainly other people have discussed it at various points in time. The rare actually isn't that rare. It turns out there's a lot of them out there. It's just no one really likes getting them out of the ground that much. So since we're here in London, we can never talk to him enough about commodity things and because they're commodity things going on.

I'm thrilled to be in person with our colleague, Bloomberg opinion scribe, Javier Blas, who knows everything about all things commodities. Javier, can you just rant for a couple of minutes about rare earths? I'm not even going to ask you a question. Just go on a rant about headlines. Wow.

China limiting rare earth exports. What's the deal? Go. Go. Joe, Tracy, thank you for having me. You have been listening to these headlines and getting very scary. There's going to be a shortage of rare earths, all for a long period of my professional life, which is beginning to be more than 25 years. And it's so great to prove it.

I have to, a deal with editors will come to me and say, rival publication is saying XYZ Red Earth Metals panic. No, it's great for clicks, so I get why editors like it. And then my editors will say, should we be writing something about it? And my default answer has been, no, there is not going to be a shortage. And if there is a shortage, the consequences are not going to be nearly as material as people think that they're going to be. So a couple of numbers. Okay.

The United States imported last year in 2024, according to U.S. government data, a grand total of, give me the theme music, $170 million of rare earth metals. Not a billion, million, $170 million. I'm pretty sure that the United States imported more olive oil from probably Spain. I like that olive oil is your baseline for measuring value. That's the benchmark.

And how much is that? That's the second number we are going here. How much is 170 million if you compare that to total trade between the United States and China? That is 0.03%. So it's not a lot. And

The United States could face, say, a 10 times increase in the price of rare-earth metals and it still will have no impact whatsoever on the American economy or the global economy. And then

What really drives me mad is that you are writing about rare earth metals. Look, they are important and they obviously, for some very niche applications, you really need rare earth metals. But prices could go higher and those applications will just pay the price.

But typically, a writer like myself, you want to sex up a bit of the story. You will say rare earth metals critical for the weapons industry, for missiles and high tech application. Do you know where every one of us have some rare earth metals at home? They are used in super permanent magnets.

And therefore, on that absolutely critical instrument of economic warfare, which is called the vacuum cleaner. I will say I sympathize with editors not wanting headlines about vacuum cleaners versus, you know, military equipment and all of those important strategic things. I just in mind the story.

the price of rare earth metals may increase and making vacuum cleaners a bit more expensive. Okay. I don't know you're going to click. Okay. Not to get all Judy Blume on everyone, but rare earths,

They're not as rare as the name would imply, but walk us through where they actually come from. A lot of them come from China. About 80, 85% of the world's rare earth metals come from China. It's a question of digging them out of the ground and then processing. The big difficult part

is processing because it's very polluting. And there's a reason why all the processing has moved from everywhere else in the planet into China, because no one wanted to deal with how nasty the process is. And here is also the other question. You want to do red earth metals processing in particular outside China, what you need is

much higher prices. If anything, the problem today with rare earth metals, and if we want to develop an industry of rare earth metals outside China, is that prices are too low. We need much higher prices and then everyone will do rare earth metals. The other thing that will happen is that if the price goes to a level that incentivizes everyone taking a bit of care, well, a lot of engineers in the vacuum cleaning industry will find ways to do it without rare earth

metals. And also people will actually collect the vacuum cleaners and recycle the magnets for other use. But if rare earths are, they're such a small component of something like a vacuum cleaner, I imagine the prices would have to go up absolutely astronomically for that even to be a consideration for a company making these things. And most of the time the prices don't go nearly as high. Prices are beginning to rise

again now, but prices stay relatively low compared to where historically prices have been. And we have had the latest headlines about Red Earth metals and export restrictions. We have some similar headlines for other category of metals that we call critical minerals, another fantastic exercise of labeling. I mean, like if you want to sell something, call it

critical minerals. And we have, you know, people were really concerned because China was imposing some export restrictions on tungsten, tellurium, bismuth, molybdenum, and indium. This sounds to me like high school chemistry. And you will think, oh my God, what is happening with the price of all of these? I mean, this was not announced yesterday. This was announced a couple of months ago and prices moved

And yes, the price of, say, Indian moved to $345 per kilogram. And you will say, well, is that a lot? Look, yeah, it's 20% increase from where we were at the end of last year. But

About 10 years ago, that is cost today, $345 was worth $800 per kilogram. And did you notice 10 years ago that it was a crisis on the Indian market and everyone was a bit worried about it? Because I didn't. I didn't notice. You know, we're still going to give this a provocative headline, even though, you know, then people will listen to the episode and reveal that there's...

Why everyone's talking about the rare earth shortage. Javier Blas on the truth about the rare earth. You know, we'll still make it exciting. You know, what I want to say also is, look, yes, it's a serious issue. And yes, I mean, depending by 80% of a single country is never a good idea. But there is an element of

panic every time. And look, a lot of this panic comes from the handful of miners and processors of rare earth metals outside China. And you as a consultant on the rare earth metals industry,

Is this something that we should be caring about? Well, the answer is going to be, yeah, hell yes. Yeah, right. Timoth, by the way, says he has access to rare earth minerals. He's invested in some companies, so we're fine. That fits so perfectly with this entire thing. ♪

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You'll love the presentations you can easily design with Canva. Your clients and coworkers will, too. Love your work with Canva presentations at Canva.com. You did an amazing video the other day. I really, I think it was true art, actually. Whether we're talking about rare earth metals or, quote, critical minerals, unquote, what are the economics of getting them in Greenland?

Okay, let me just put my polar outfit and so on. No, there are no natural resources in Greenland, period, unless we are just mining ice. Yes, there are some small...

concentrations of rare earths in the south. There is a bit of uranium here and there. There is this and that. But the concentrations are very low and the cost of mining in Greenland is prohibitively expensive and you are not going to develop anything of even...

medium-sized mining operation in Greenland. I think that, here is the exaggeration, but you have better chance of finding some minerals on the

on my back garden in West London that you have in Greenland. Now I'm fearing that I'm going to become the 55th state. That's fine. Joe's embraced his middle-aged man destiny of becoming a military historian expert. So there's that. That's why he's at the Imperial War Museum. So no shame, no shame. But since we're talking strategy approaches and maybe acquiring Greenland could be one of them.

The thing I don't understand is if we agree that rare earths, rare minerals are of some strategic importance for the U.S. and they are something you would want access to. But on the other hand, we actually have plenty of them. It's just we don't necessarily historically want to get them out of the ground. Would the better approach not have been to just build massive inventories of these things? Just get them on the cheap from China. Let China tear up its countryside and we could buy it.

those things from China. And then once supply starts running out or if relations really start to deteriorate, then we could start our own industry. Or is that difficult? What's the startup process like for something like that? No, and that's what some companies, I mean, governments have not done the stockpiling, but some companies have done the stockpiling themselves. They are Japanese high-tech companies that they are running more than a year worth of their demand for rare earth as a stockpile. And again, that's

This in certain ways makes sense because if you think about Japan, a country that probably imports $50 to $75 million a year of red earth metals, importing and stockpiling, say, a year or a couple of years worth of the stuff is not that expensive. I mean, for Japanese companies, this is going to be like completely random error on their huge balance sheet. So we have seen a bit of a stockpiling and companies that they really require a

some particular rare earth metals for a very particular application, they will have done it. And then governments, what they can do is say, look, this is critical. We are going to support our domestic industry. The United States has rare earth accumulations. There is a mine called Mountain Pass. We can develop that. The government can get into the business on developing that.

The price is going to be that we need higher prices. So you are going to have to protect either you effectively. I mean, here is the irony. The best way to develop an industry in the United States and develop the local mining supply of rare earth will be to impose

some huge tariffs on red earth from China so the Chinese don't dump their red earth into the market. We need protectionism. I mean, this might be the vision more or less across a range of industries, which is sort of like take a wrecking ball to a lot of, you know,

elite things or comfortable jobs in government and finance and media, et cetera, and send, you know, free up that workforce to mine molly denim. We're all going to be working in the mines. I mean, this is kind of kind of the vision. All right. Let's talk about something that may actually be real and substantive now that you've convinced me not to worry too much. And also, like if it were ever a crisis, government could just come door to door and demand your vacuum cleaner.

Right? Absolutely. Like for the missiles and whatever, like at the end, they're like, all right, we're going to confiscate your vacuum cleaner if it's really that. How you call the manual, the broom. So the government comes, knocks at your door, you return your fancy Dyson vacuum cleaner, and they give you a broom. The government will pry my Dyson out of my cold, dead hands.

Just saying that right now. Let's talk about a commodity that really actually is real significant. We've mentioned this a couple of times on the show. Secretary of the Treasury Scott Besson had, in the run-up to the election or post-election, talked about his 3-3-3 plan, get the budget deficit down to 3%, grow GDP by 3%, and increase 3 million more barrels of U.S. oil per year. It seems like we're going in the opposite direction of that.

of that. Yeah, at current prices, certainly we are likely to see lower American oil production than Heiger. I mean, Secretary Vespa was quite clever on the way that he expressed it. He talked about growing 3 million barrels a day of energy.

He didn't say specifically oil. I mean, when you talk about barrels, you think that he's talking about oil, but he means barrel equivalents. So you could put anything there. At the moment, the administration is already including natural gas in that three. I have been hearing some officials in the administration saying, look,

Energy is energy. So we are growing electricity. We are growing uranium. We are growing coal. You put it on a basis of oil equivalent and there you get. I would not be surprised if we are also growing more Californian olive oil and we are adding it into the barrel. But look, West Texas Intermediate, the U.S. oil benchmark, is trading close to $60 a barrel.

You are there borderline where it's economical for shale, on average for shale companies to drill new wells. So we should start to see a significant slowdown in the growth rate of the U.S. oil industry. And if prices to continue at this level or lower, that slowdown soon will be turning into a contraction and we will see lower American oil production.

Yeah, I mean, even if we think the administration was talking about energy units rather than just oil per se, it does seem clear that there are a lot of people in the energy patch itself, which seem to have had a different idea, right? They thought the administration was going to be very, very friendly to the shale industry. And instead, Joe and I have mentioned this a few times before, but we've seen

Anecdotally, some, you know, some statements from the Dallas Fed's energy survey where people are going like, this is not what we signed up for. At $50 per barrel oil prices, this is not only bad for increased investment in the industry, but could potentially be a sort of existential threat. So absolutely. I mean, Chris Wright, the Secretary of Energy, is a

an oil person. He founded and ran his own oil company, service company called Liberty Energy. And a lot of people in the industry thought that, you know, to quote an executive I spoke recently in Keystone,

he thought, or the industry thought, that Chris Wright was our guy. He was one of ours, one of us. And these executives said, like, what we have come to realize is that he's not one of us. He is Trump's guy. And that is a big difference. And yes, the comments in this anonymous Dallas Fed survey were quite shocking. And you talk in private to executives in the oil industry,

I almost have to pinch myself at times. It's like, hold on a second. Is Biden still in the White House? Because you guys seem to really dislike everything that's going on in Washington. You could replace Trump with the word Biden and it would make sense. It's like when I was reading that series of comments from the Dallas Fed, I joked that

You have been sleeping for six months and wake up, you will think that the Democrats are still running the White House and Congress and etc. I mean, this was a dream for the oil industry. It is a Republican at the White House, the Secretary of the Treasury is a Wall Street hedge fund manager, and the Secretary of Energy is the founder of an oil company. And here we are,

Everyone in the oil part, perhaps because of this, is absolutely mad with the administration. KPMG makes the difference by creating value, like developing strategic insights that help drive M&A success and embedding AI solutions into your business to sustain competitive advantage or deploying tech-enabled audits to deliver more accurate and transparent insights.

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You'll love the presentations you can easily design with Canva. Your clients and coworkers will too. Love your work with Canva presentations at canva.com. I have a really dumb question, and I'm going to ask a real question. Why do we call it the oil patch? I don't know. Oh, sorry. I didn't mean to stump you. No, this is, can I use Google? Oh, sorry. We can cut this. Can we keep this in?

I stumped Javier. Can we keep this in? Yeah, absolutely. Okay, we're going to keep this in. I don't know why it's called the patch. Poetic license? I don't know. Wow. I thought for sure. Okay, wow. Oil patch, it kind of sounds, speaking of gardening, it kind of sounds like, you know, you're growing vegetables on your oil patch except it's like liquid carbon. There are some things on the oil patch like,

The pipe that you use to drill is called OCTG, Oil County Tubular Good. - Oh yeah, yeah. - I have no idea why. - I'm proud of myself. - My oil county, but it's oil patch, oil county, it's the oil place. - All right, I have a real question now. - The oil place. - The oil place.

The oil place. I'm going to start calling it that. We're all going to go down to the oil place. Let's go down to the oil. See what people are talking about. Some comments from the oil place. Okay, I have a real question, a substantive one, which is one of these sort of like booming export industries for the U.S. was natural gas and this sort of LNG terminals. And I think Biden put a pause on them and that pause is,

I don't know if it's been lifted, but it will be lifted almost certainly. Construction of new ones. With the trade war, have the economics of LNG export changed at all, or with the decline in oil prices? Have any dials moved down that front? No yet, and potentially yes, because one big buyer of American LNG was China, and China has not bought any LNG from America in a long while.

And also, if oil production starts to decline, when you drill for oil, you usually get a mix of hydrocarbons out of the ground. You will get oil, you will get gas. So I'm wondering, so if you have fewer wells, yeah. So you have fewer oil wells

wells, you're going to have fewer gas wells. So the input cost of gas is going to go higher and you may have a bit of lack of demand on the other side from China. So far, all is good because the European Union and the UK still need a lot of natural gas from the United States. The big expansion of Qatar is still about 12 to 18 months

away and Russia is fighting with Ukraine and it's not supporting what they used to. But in a year's time, that could be a big deal. The other, to me, very important topic in trade and oil is that

Oil used to be almost the largest component of the American trade deficit in goods. If you go to 2008, the US trade deficit was running around $800 billion a year. Of that, nearly $400 billion was oil. Today, we are in a surplus for oil.

Hmm. How times have changed. I have one more question just on oil specifically, but one of the hallmarks of the Trump administration is they tend to promise everything to all people. And arguably that's been a big component of their success. And I think when it comes to energy policy specifically, one of the promises was we're going to be good for the energy industry, for oil specifically.

And at the same time, we're going to be good for inflation. We're going to bring down prices. You're not going to have to pay, you know, these exorbitant dollar amounts at the pump. Is there any way, you know, let's assume that the tariffs start working.

maybe growth expectations start to pick up. Is there any way that the Trump administration can end up fulfilling its various policies when it comes to energy to everyone involved here? Is there a way where eventually maybe they, you know, make up with the oil industry, the shale industry, and maybe somehow they, I don't know, encourage energy from other sources and inflation still, you know, comes down? What's the best case scenario here? I think that

The best case scenario, you're putting me here on the spot. But I think probably something like, let's call it, I mean...

Let's call it the Goldilocks, the middle ground, what, you know, the oil patch will love and a mainstream will be happy. Say $75 a barrel. $75 a barrel is not breaking the budget of any middle class family or working class family when it comes to gasoline in the United States. And $75 a barrel, the American oil industry is making money.

No problem whatsoever. Whoever is complaining at 75 probably doesn't have a very, very good business case. The main problem is to make everything work at 75. And just for the sake of the argument, let's say that the magic number is 75. You cannot get that running unless you get OPEC.

on board and they keep restraining production and losing market share. Because $75 a barrel means that the consumers are happy and they continue to consume, but also that the US shale industry continues to grow.

At some point, someone needs to produce less. So you can, even if that magic number existed, and I think that 75 probably is about right, you need OPEC to play ball and accept that they're going to lose market share forever and ever. And I don't think that they're in that business. So last question for me, but how has Trump

Maybe his tariffs and his provocative actions towards literally or virtually every country in the world. How is it interacting with OPEC specifically?

I think on one side, the Trump administration is putting quite a lot of diplomatic pressure on OPEC countries to increase production. And we saw Saudi Arabia increasing production. Secretary of Energy is in Saudi Arabia right now, and he's discussing mostly nuclear affairs about the Saudis want American technology for nuclear civilian. Yeah. Wow.

at least severely, unquote, unquote, nuclear technology. So there are a lot of things that the Saudis may want from the United States and the United States want the Saudis to increase production, to put prices down. But just by large, if I can summarize what is the feeling of my OPEC sources right now, I think it's very similar to what

know the bankers and traders that you guys are talking every day probably are saying it's like what on earth is going on here because no one really knows i mean how do you plan you are an open country and you are trying to decide

oil production policy for the next three months. How do you plan that? You don't really know what tomorrow morning or maybe tonight brings. Yeah. And even if we assume that this, you know, this was it, nothing else was going to change now, that uncertainty premium is in the markets and...

regardless of what Trump actually changes from now on, we know that it looks like global growth is going to slow, right? So you're asking OPEC to basically boost production into a slowing global economy. I mean, that is, to me, that was because...

Every other asset class was dealing effectively with one shock, and that was a demand shock. Everyone was just like assuming, OK, we are going to slow down. Oil was dealing simultaneously with a demand shock and what I will call a supply surprise. I'm not going to, I mean, the increasing of PEG production is not yet enough to

call it a shock, but let's call it a supply surprise that can very quickly became a shock. So, you know, that is why oil prices went down so much. And that's also why oil equity is really absolutely tank. Javier Blas, always great catching up with you. So great to do it finally here in your home court. Appreciate it. On his home patch. Yeah, on his home patch. Thank you for having me. And I'm going to be Googling now oil patch. Okay, great.

♪♪♪

That was fun. I can't believe I got to stump Javier on an energy-related question. Yeah, okay, fair enough. That's a highlight of my week. But I strongly suspect that's just like a literary term that someone came up with, and it sounds kind of nice. It sounds kind of down-home-y Texas. It sounds down-home, down in the oil path. And people went with it. But I do think there's so much going on. Can I say, U.S. only importing $170 million worth of— That is a very good stat, by the way. Everyone should stay listening. Hopefully they're listening—

Oddlots listeners can now repeat this. Like that is one of those good stats that like Oddlots listeners can repeat at parties. It's good party trivia for Oddlots listeners, assuming that they're actually getting invited to parties with chat like that. They are, they are, they are. Did you know? Did you know? Actually, we should. Because we all know that they're not rare. Like that part we knew at this point. I did not quite realize how small the scale of the importance was. No, if a guy came up to me at a party and said, did you know, in fact, that rare earths

were not in fact that rare. I would be, what's that, you know, that meme of the guy like whispering into a girl's ear. That would be my face. I'd be like, whatever. What if you followed that up with the vacuum cleaners part though? Yeah, that's mildly more interesting. That's what I'm saying. There's a little something there. Although then I would be like, why are you talking to me about vacuum cleaners? Do you think this is something that I'm especially interested in? Well, anyway, lots to talk about. I'm sure we will continue our spate of basically daily episodes at this point.

But should we leave it there for now? Let's leave it there. This has been another episode of the All Thoughts Podcast. I'm Tracey Alloway. You can follow me at Tracey Alloway. And I'm Joe Wiesenthal. You can follow me at The Stalwart. Follow our guest, Javier Blas. He's at Javier Blas. Follow our producers, Carmen Rodriguez at Carmen Armit, Dashiell Bennett at Dashbot, and Kale Brooks at Kale Brooks. And thank you to our producer, Moses Andam, who is here with us in studio in London. For more All Thoughts content, go to Bloomberg.com slash All Thoughts.

where we have all of our episodes and a daily newsletter that you should subscribe to. And you can chat about all of these topics 24-7 in our Discord, discord.gg slash outlaw.

And if you enjoy Odd Lots, if you like it when we talk about the oil patch on Javier's home patch, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad-free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening. ♪

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