GAO Briefing on Rare Earth Materials in Defense Supply Chain

“Rare earth” denotes a group of 17 chemically similar metallic elements¹. Rare earth materials are used in a variety of commercial and military applications, such as cell phones, computer hard drives, and DOD precision-guided munitions.

China Has Most of the Capabilities to Process Rare Earth Materials

GAO states that while rare earth ore deposits are geographically diverse, current capabilities to process rare earth metals into finished materials are limited mostly to Chinese sources.

The U.S. previously performed all stages of the rare earth material supply chain, but now most rare earth materials processing is performed in China, giving it a dominant position that could affect worldwide supply and prices.

Based on industry estimates, rebuilding a U.S. rare earth supply chain may take up to 15 years and is dependent on several factors, including securing capital investments in processing infrastructure, developing new technologies, and acquiring patents, which are currently held by international companies.

Defense Systems Dependent on Materials by Lower-Tier Subcontractors, China

Government and industry officials have identified a wide variety of defense systems and components that are dependent on rare earth materials for functionality and are provided by lower-tier subcontractors in the supply chain.

GAO found examples of components in defense systems that use Chinese sources for rare earth materials and are provided by lower-tier subcontractors. For example, the DDG-51 Hybrid Electric Drive Ship Program uses permanent-magnet motors using neodymium magnets from China.

GAO states that defense systems will likely continue to depend on rare earth materials, based on their life cycles and lack of effective substitutes.

DOD to Complete Study on National Security Risks in Sept 2010

DOD has not yet identified national security risks or taken department-wide action to address rare earth material dependency, but expects to consider these issues in its ongoing study expected to be completed by the end of September 2010.

Efforts of DOD and Other Agencies to Limit Reliance on Rare Earth Materials

Some DOD components, other federal agencies, and companies are taking initial steps to limit their reliance on rare earth materials or expand the existing supplier base. For example, DOD has been involved in efforts to transform the National Defense Stockpile so that materials not produced domestically will be available to support defense needs.

DOD’s Industrial Policy also has existing criteria in the Defense Acquisition Guidebook for when program offices should elevate supplier base concerns. These are when an item is produced by a single or sole-source supplier and meets one or more of the following criteria:

(1) is used by three or more programs;

(2) represents an obsolete, emerging, or enabling technology;

(3) requires 12 months or more to manufacture; or

(4) has limited surge production capability.

(A 2009 National Defense Stockpile configuration report identified lanthanum, cerium, europium, and gadolinium as having already caused some kind of weapon system production delay and recommended further study to determine the severity of the delays.)

¹The 17 elements are: lanthanum, cerium, praseodymium, neodymium, promethium, samarium, europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, ytterbium, lutetium, scandium, and yttrium.

(See ITT’s Online Archives or 10/29/09 news, (Ref: 09102930), for BP summary of the President signing the FY 2010 National Defense Authorization Act into law.)

GAO briefing, entitled “Rare Earth Materials in the Defense Supply Chain” (GAO-10-617R, dated 04/01/10) available at http://www.gao.gov/new.items/d10617r.pdf