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Japan to test rare-earth seabed sludge near remote island

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World-first mission part of drive to diversify supplies

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China tightening supply of minerals vital for industry

By Yuka Obayashi

SHIZUOKA, Japan, Jan 12 (Reuters) - A Japanese mining

ship departed on Monday for a remote coral atoll to probe mud

rich in rare earths, part of Tokyo's drive to curb its reliance

on China for critical minerals as Beijing tightens supply.

The month-long mission of the test vessel Chikyu near

Minamitori Island some 1,900 km (1,200 miles) southeast of

Tokyo, will mark the world's first attempt to continuously lift

rare-earth seabed sludge from ‌6 km (4 miles) deep onto a ship.

Japan, like its Western allies, has been reducing its

dependence on China for the minerals vital to the production of

cars, smartphones and military equipment, an effort that has

taken on urgency ​amid a major diplomatic dispute with Beijing.

"One of our missions is to build a supply chain for

domestically produced rare earths to ensure a stable supply ‍of

minerals essential to industry," Shoichi Ishii, the head of the

government-backed project told reporters last month, ahead of

the vessel's departure ⁠from the port city of Shizuoka ⁠on a

bright sunny day, with a snow-capped Mount Fuji in the

background.

REDUCING RELIANCE ON CHINA WON'T BE EASY

China last week banned exports of items destined for Japan's

military that have civilian and military uses, including some

critical ‌minerals. The Wall Street Journal reported Beijing has

also begun restricting rare-earth exports to Japan ​more broadly.

Japan has condemned China's dual-use ban but declined to

comment on the report of a broader ban, which China has not

confirmed or denied. Chinese state media, though, have said

Beijing was weighing the measure.

Finance ministers from the Group of Seven industrial powers

will discuss ⁠rare-earth supplies at a meeting in Washington on

Monday, sources familiar with the matter ‍told Reuters.

Japan is no ​stranger to facing China's wrath over rare

earths. In 2010, China held back exports following an incident

near disputed islands in the East China Sea.

Since then, Japan has reduced its reliance on China to 60%

from 90% by investing in overseas projects like trading house

Sojitz's ( SZHFF ) tie-up with Australia's ‍Lynas Rare Earths

, and promoting rare-earths recycling and manufacturing

processes that rely less on the minerals.

The Minamitori Island project, however, is the first to

attempt to source rare earths domestically.

"The fundamental solution is to be able to produce rare

earths inside Japan," said Takahide Kiuchi, executive economist

at Nomura Research Institute.

"If this new round of export controls ends up covering a lot

of rare earths, Japanese companies will again make efforts to

move away from China, but I don't think it will be easy," he

said.

For some heavy rare earths, such as those used for magnets

in electric- and hybrid-vehicle motors, Japan is almost totally

dependent on China, analysts say - a major risk for ​its key

automotive industry.

LONG-TERM ‍PROJECT

Since the 2010 scare, the Japanese government and private

companies have built stockpiles of the minerals, though they do

not disclose volumes.

At a New Year's party for Japan's mining industry on

Wednesday, several executives said they were better prepared

than before to cope with the potential disruption, citing

Japan's diversification efforts ​and stockpiles.

But Kazumi Nishikawa, principal director of economic

security at the trade ministry, said the government had to

continually remind companies to diversify their supply chains.

"Sometimes, you know, some event happened, then the business

reacts, but the event finishes, the business forgets. We have to

maintain continuous efforts," Nishikawa said on the China Talk

podcast this week.

The Minamitori Island project, into which the government has

sunk 40 billion yen ($250 million) since 2018, is also a

long-term play.

Its estimated reserves have not been disclosed and no

production target has been set. But if it succeeds, a full-scale

mining trial will be conducted in February 2027.

Mining the mud was previously viewed as uneconomical due to

high costs. But if supply disruption from China continues and

buyers become willing to pay higher ​prices, the project could

become viable in coming years, said Kotaro Shimizu, principal

analyst at Mitsubishi UFJ Research and Consulting.

China is keeping a close watch. When the ship was conducting

surveys around the island in June last year, a fleet of Chinese

naval ships sailed nearby, Ishii said.

"We feel a strong sense of crisis that such intimidating

actions were taken," he said. China said its actions were in

line with international ‍law and called on Japan to "refrain from

hyping up threats".