Japan sets sail on rare earth hunt as China tightens supplies

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 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.