Why Manmohan Singh loves Japan

Rare earths is the next big thing. Prime minister Manmohan Singh is expected to sign an intergovernmental agreement with Japan if he travels to Tokyo in November. As an umbrella agreement, this is expected to start in earnest joint development of rare earths metals in India. But as a strategic move, it brings Japan even closer to India, becoming what Singh calls a “transformational” relationship. Japan’s internal politics and its election schedules, have, as a result, become a matter of deep interest in the Indian government, because, the only thing that could delay a PM trip is an election in Japan.

But notwithstanding frequent political changes in Japan, Singh has insisted on meeting every Japanese leader, because he believes the Japan relationship to be bigger than the current political party. Indian diplomats at the recent ambassador’s conference here in September were given detailed briefings on the DMIC __ an iconic Japanese investment project which could have massive long-term benefits for India. Its the new el dorado for Indian diplomats practising economic diplomacy, they were told.

Rare earths is an opportune marriage of economic and strategic imperatives. India, with 3.1 million tonnes of rare earths metals, is one of the world’s largest reserves. But in 2004, Indian Rare Earths Ltd, a DAE enterprise, stopped production of rare earths because China swept away the market __ India was producing REEs for $10 a kg, while China was doing it for $1.50. However, China’s decision in 2010 to curb the exports of rare earths metals, particularly to Japan, severely affected Japan’s high technology manufacturing industry. Rare earths are almost indispensable for touch-screen phones, flatscreen TVs, hybrid cars, laser and microwave equipment, fighter jets, cutting edge medical and cancer devices.

This year, China and Japan have been facing off over the Senkaku/Diaoyu islands, and in their more angry moments, China has threatened sanctions against Japan.

The Chinese action proved to be a windfall opportunity for India. A steering committee by secretary mines in 2010 started the process of bringing India back as a major global supplier of REE/ECEs.

It enabled India to re-enter the rare-earths industry. The India-US nuclear deal also helped to open access to some of the new-age technologies that India might need. A third reason for India’s renewed interest in rare earths and energy critical metals was the fact that India wants to get into high technology manufacturing.

Japan hotfooted it to India. Earlier this year, India decided to start a new plant to extract REEs and ECEs from monazite from the beach sands of Orissa, which is expected to be commissioned in December. IREL and Japan’s Toyota Tsusho are setting up a second 12,000 tonnes monazite processing plant. These plants are expected to produce high purity RE oxides, including neodymium, used in permanent magnets. In Orissa, the REEs to be produced include lanthanum, for hydrogen battery electrodes; cerium, used in catalytic converters etc.

Suddenly, Malaysia, Australia, Kazakhstan even the US were beginning to manufacture REEs and ECEs. A US-sponsored geological study of Afghanistan found it to be fairly rich in these metals. Rare earths are no longer rare, but it might be difficult for all these countries to replicate China’s enviable supply chain system. However, India is a beneficiary of a Japanese government decision to plough in $1.3 billion to fund alternative sources for rare earths, as well as look for rare earths subsidies. China’s market control activities therefore have had only a limited effect.

(Published in The Times of India, October 2, 2012)