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China Gives Birth to Rare Earth Giants

Commodities / Metals & Mining Jun 07, 2012 - 07:39 AM GMT

By: Anthony_David


Best Financial Markets Analysis ArticleChina, the largest producer of rare earths in the world, has been restricting the export of its rare earth minerals through a quota system for some years now. Reduced rare earth exports from China have forced many global companies to setup production facilities in China to ensure access to a steady supply of raw materials.

In an attempt to ensure “reasonable exploration and orderly production”, China announced that it would consolidate Chinese Rare Earth producers to create rare earth giants. Notwithstanding China’s claims that export quotas and consolidation of rare earth producing companies is being done to check the poorly regulated industry and to balance out concerns of environmental degradation, the U.S., EU and Japan who are major consumers of rare earths, view these policies as muscle flexing. Earlier this year they lodged a protest at the WTO against China’s unfair practices.

According to recent developments, China has issued additional quotas to companies that passed the government’s environment assessment norms. Companies that fail to meet the prescribed environment protection standards by July 31, 2012 would not be allowed to export rare earths. China allocated 10,546 tons in the first round of export quotas for this year. This month an additional 10,680 tons was allocated as part of the first round of quotas for 2012.

The situation today is not totally unexpected. For some years now, companies around the world have been taking steps to reduce their dependency on Chinese rare earth exports through strategic alliances and joint ventures, new rare earth exploration projects outside China, research and development of alternatives to rare earth, and more recently reclamation of rare earth metals by recycling batteries. In the current market scenario the stocks of rare earth companies are in great demand, and investors are queuing up to cash in on the critical demand for rare earth minerals.

With the completion of Phase 1 of Molycorp’s Mountain Pass expansion project in Q3 2012, the facility will be producing at an annual rate of 19,050 metric tons of rare earth oxides. On completion of Phase 2 of the project by the end of 2012, the mine’s annual production capacity will be 40,000 metric tons, thereby effectively increasing the availability of rare earths in the market outside China.

According to Molycorp, it will provide around 7%-12% of its production from the Mountain Pass mine to Neo Material Technologies for processing. This material in addition to Neo’s supply from Chinese feed stocks, which the company currently receives, will enable Neo to achieve higher production capacities at its currently under utilized facility.

The Molycorp – Neo Materials deal will reportedly enable Molycorp to gain access to China’s domestic rare earths supply. Neo Materials makes specialty metals from rare earths in factories that are located in China and Thailand and buys its feedstock from China. However some observers are skeptical about the deal, because the competitive Chinese market from which Neo sources its raw materials, at the lowest of prices, will now be replaced by China’s consolidated rare earth ‘giants’.

Other significant developments in the rare earth space outside China include Great Western Minerals Group’s alliance with a Chinese company to build a rare earth oxide separation facility in South Africa. The U.S. Geological Survey reported that the U.S.A is home to one of the largest rare earth deposits in North America – in Bear Lodge, Wyoming. The current expectation of this resource is approximately 7 million tons of high-grade ore averaging 3.75% REO (Rare Earth Oxides) and this value is expected to increase as more assaying work and feasibility studies are carried out. Mining at Bear Lodge could start as early as 2014.

According to Lynas’ website, China’s export price for eight rare earth metals found at the company’s Mt. Weld project in Western Australia fell to $92.2 per kilogram in Q1 2012. China’s price for the same metals was $147.96 in Q4 2011. The price then fell further on May 28, 2012 to $62.01.

Industry observers expect that following Molycorp’s strategic alliance with Neo, more mergers and joint ventures are expected. With many new high-potential rare earth exploration projects already underway and new production facilities coming online, the rare earths market is expected to stabilize and prices will fall further. In the long term, research into alternatives for rare earth metals and production from mines outside China is expected to normalize the rare earths market.

By Anthony David

The mission of the Critical Strategic Metals Web Site

is to serve as a monthly compass for those who take a fundamental view of investment regarding the Molybdenum, Manganese and Magnesium metals markets, are concerned with the emerging critical under-supply of these strategic metals to Western nations and wish to profitability chart their course. Each month we will research and provide, in as short and concise a manner as possible, the most applicable information available on resources that will have the biggest impact on our day to day lives. Click here to sign-up for our FREE monthly report.

© 2012 Copyright  Anthony David- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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