Saturday, October 30, 2010

Pentagon Minimizes Rare-Earth Risks (Hopefully)

The U.S. Defense Department recognizes the implications of China's stranglehold on the rare-earth mineral market.  Officially, DOD believes the risks of Chinese dominance are minimal.  That's not reassuring.  Consider one very expensive example.  The Pratt and Whitney engines in Lockheed-Martin's F-35 fighter require a rhenium alloy.  Does United Technologies (Pratt and Whitney's parent) have long-term contracts lined up to supply the rhenium it needs?  The answer will prove crucial. 

The Pentagon study mentioned in the Bloomberg article admits that DOD's primary contractors don't track their use of rare-earths and consider them just another commodity to be obtained on the world market.  Planners in industry and government alike are just beginning to plan for politically-driven supply interruptions.  Sometimes security cannot be had at any price, as if it were available to any bidder in a free market. 

The F-35 STOVL variant just completed a high-temperature test.  Rhenium makes it possible for engines to perform at high temperatures without disintegrating.  DOD had better be sure that rare earth supplies won't be a problem.  Hope is not a method. 

Full disclosure:  Long put against LMT.  No position in UTX.