EDITOR: | September 13th, 2017 | 14 Comments

Rare Earths Alert: A correction but not a reversal

| September 13, 2017 | 14 Comments
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Prices over the last few months have continued to rise, giving international investors and prospective producers some much needed relief. However, in China, this sharp rise has caused consternation among Chinese authorities. This somewhat unexpected reaction from the Chinese certainly gives credence to the adage that “one man’s meat is another man’s poison.”

Ironically, China is concerned that if prices are not cooled, we could see a repeat of 2011. What I find remarkable is that the rest of the world believe that the 2011 price surge was a triumph for China and no doubt, if market forces were to let this happen again, that it would be yet another Chinese triumph. But China has to move on with respect to its long-term goals and has aspirations of going from a “dig and deliver” economy to a formidable hi-tech force that offers a vertically integrated, modern and enviable rare earth industry. If prices are allowed to continue unabated, this could destroy the profitability of Chinese downstream industries and thwart China’s plans.

To this end, the Association of China Rare Earths (ACREI) has proposed that China cease stockpiling rare earths and actually release those stockpiles back into the market earlier than originally intended. To date there has not been any comments on this proposal, but the National Rare Earth Office (NREO) has approached the six rare earth giants, urging them to maintain production levels so as to ensure that prices don’t surge any higher, especially in light of the fact that clampdowns on illegal rare earth production and poor-quality output is set to continue thus removing this capacity from the market.

Turning to the US, Rare Earth Salts has successfully commissioned the first commercial separations unit in Nebraska. The company intends to ramp up production to 18tpm using feedstock from recycled fluorescent bulbs.  Going forward the company has entered into an agreement with Medallion Resources and Minera BioLantanidos to treat their feedstock from 2019.

With respect to end-user markets, our last few issues have focused on the fact that China has been focused on the fact that China has been rolling out various policies with the aim of developing is New Energy and Electric Vehicle market. Two months ago, the Ministry of Industry Information and Technology (MIIT), lifted the restriction that a foreign automaker was only allowed a maximum of two JV’s with Chinese companies. As such, we have seen a number of new alliances forming, the most recent being the deal between Renault-Nissan Alliance and Dongfeng Motor Group.

Furthermore, China has stipulated that automakers need to ensure a minimum percentage of their car sales are new energy vehicles in order to ensure that they receive credits. Companies that fail to collect sufficient credits will have to buy additional credits from other automakers. The logic here is that it would encourage more and more joint ventures in China as those car makers with insufficient credits seek out Chinese partnerships, giving China the traction it needs to become a global player of choice in the market.

For those bulls calling a market that will be forever increasing, we expect some price correction over the coming two months. The one thing we have come to know about China, is love them or hate them, they set their goals and stick to them. If they say they intend to cool the market, trust me, cool the market they shall. I don’t believe that there will be a full price reversal however as crackdowns on illegal mining is set to continue for the duration of 1H17. Rather watch the price correction closely and use this as an investment strategy to buy into the dips.

Note: The Core Consultants Rare Earth Report is the first rare earth report to be written by a Western Company. It presents exclusive market information, provides analysis of key trends and get to the essence of what is happening in the rare earth industry since 2010. To subscribe, click here


Lara Smith

Editor:

A Sr. Editor and Analyst for InvestorIntel and Managing Director and Founder of Core Consultants, Lara is an internationally recognized expert in the field of ... <Read more about Lara Smith>


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Comments

  • Alex

    Do you think Chinese ban for rare earth supply for Tramp treats or sanction for North Korea is realistick ? May be some Buyers just want to increase their stocks ?

    September 14, 2017 - 5:18 AM

  • Jim Backus

    I’m not certain the Chinese control the market any longer. As you write, it suffers from illegal production and poor quality. Environmentally, Chinese rare earths production is a disaster and no one will want to buy 90% pure REOs for use in top quality products.

    Additionally, dropping the price of REOs to stifle competition has adverse effects. The Chinese government does not have the financial wherewithal to pay for cleanups as has already been proven. Obviously the Chinese are learning a serious and expensive lesson on not using technologically proven/environmentally proven methods to purify REOs. Near the Mongolian border Chinese farmers are paid to grow rice and then burn it due to the high uranium content in the rice. That’s progress as people were once allowed to eat the rice not realizing it was contaminated.

    Should the world learn of the environmental damage being done, the loss of life caused by down stream pollution from rare earth processors I suspect the world might stop buying from China or people would have to admit they are hypocrites environmentally.

    Might doesn’t make right in China’s case; it makes it a bully and it is and will work against China. The interesting thing is Chinese companies buy from Lynas when quality is needed. Half of Lynas’ output is sold to Chinese companies. Chinese companies buying outside of China!

    Realize that China is not a land of creativity; the political system does not allow for individual thinking. Therefore, China steals technology by requiring companies willing to use lower purity REOs to have factories inside China. Chinese engineers or others then begin the copy process but there are no modern, efficient REO manufacturers in China from which to steal technology so processes suffer and individual companies companies go offshore for ROEs.

    What China may soon realize is that it can drop the price of REOs but without the quality to sell the price will have little affect as even Chinese companies will pay the premium for quality. “Made in China” means exactly as it says, made in China. Quality is never mentioned.

    If you want quantity, buy Chinese REO! If you want price then buy Chinese REO. If you need quality, call Lynas!! Even the Chinese endorse Lynas through its purchase of Lynas REO oxides.

    September 14, 2017 - 6:09 AM

  • Alex

    Jim seems you are far from Rare Earth bussiness. HREE produce only Chinese and Japanese. Lynas sale NdPr to Japanese because they need only this product . as for La-Ce Lynas sale it to China because they have no other Buyers and prices are too low – 1-2 USD per kg
    The Chinese can produce La and Ce oxides with better quality then Lynas ,

    September 14, 2017 - 7:46 AM

  • JJBeswick

    Alex, seems you need to read some source material, such as Lynas’s last half yearly, to catch up with the market.
    The greatest La/Ce demand on Lynas is ex-China, in particular for catalysts & catalytic converters.
    Lynas is also working towards ultra pure 5N production for these and other markets. I believe there are several new applications including PVC ultraviolet stabilisation, where light RE are replacing the likes of Lead salts.
    Lynas are producing through tolling enough HREE and Eu to meet all of the ROW demand, now that the phosphor market is depressed and Dy reduction is well established for the magnet sector.
    Lynas’s main sales into China are Nd/Pr oxides, especially for ROW magnet manufacturers who demand a clean and accountable raw materials supply chain. As the world’s biggest Nd/Pr supplier to the market they can supply ROW and a fraction of the Chinese market from present production.
    Also the Japanese use quite a lot of Ce for glass additives and other purposes.

    September 15, 2017 - 11:26 AM

    • Alex

      Thanks , I’ll check Lynas improvements if there are so.

      September 15, 2017 - 11:29 AM

  • Tim Ainsworth

    Alex, one of the key factors underpinning Lynas survival was the support of foundation contracts LaCe with Rhodia & BASF, with all the hype currently around NdPr few stop to consider the key economics of LRE process, to the point LaCe described as ‘rubbish” here.
    Go check the ACREI website, you’ll find high spec La & Ce value reported currently US$6kg, and given recent mark up base prices that is likely to head higher near future.
    Lynas appear to have traded off some LaCe volumes @ LAMP in order to produce a higher quality product “in process” at incremental cost. Not so difficult to factor the impact of higher recoveries of sunk cost, particularly as markets are developed for the higher value product.
    LAMP still far from optimised, but reads like all the pieces are largely in place, two ways to build margin, sales price & cost.

    BTW, principal HRE demand might be 1500tpa, with +1200tpa valued well under $200kg, why would you bother?

    September 16, 2017 - 10:16 AM

    • Tim Ainsworth

      Lol, hot off the press “Chinese battery grade LaCe mischmetal producers raise prices [09-15]”.

      September 16, 2017 - 10:21 AM

  • Alex

    Tim Do you know Lynas can produce 5N CeO2 and La2O3 with 1-2 ppm of Fe ?

    September 17, 2017 - 8:29 AM

    • Tim Ainsworth

      Alex, I know they can produce multiple streams to specific customer specifications, as in a “product”, far more relevant in the commercial world.

      September 17, 2017 - 8:35 AM

  • Tim Ainsworth

    Lara, with the opening of Nth RE’s 12ktpa magnetic metals plant last month Beijing is well on the way to realising the current 5YP objective of directing 90% of NdPr production down thru the now largely consolidated, vertically integrated SOE’s, perhaps just 2ktpa might be available in future to independent Chinese & Japanese metal & mag makers, easily verifiable via the mismatch in H1 primary product vs separation quotas, given a basic understanding of suite values by SOE.
    In that context I struggle to understand how you can write a summary NdPr > NdFeB without even a passing reference to the near 6ktpa NdPr Lynas now makes available to independent mkts in & out of China? But then the significance does tend to escape most.

    September 17, 2017 - 8:32 AM

  • Lara Smith

    Tim Ainsworth thank you for your knowledge, insight and commentary on this article, it is highly appreciated. The Core Consultants’ Monthly Rare Earth Report analyses the events of the month, in this case, 1-31 August as the report was released on 2 September. I take your point, but the report itself deals with a number of current issues and the summary is exactly that, a 350-500 word summary of some of the report highlights. Regular subscribers to this report, since 2010 have been kept well informed about the developments of the market and any potential supply risks. When summarising a balanced and independent report in minimal words, one needs to pick what one includes, ensuring that we give our readers an overview of the main developments without at the same time giving away the entire content so that they can still enjoy the read.

    September 17, 2017 - 11:04 AM

    • Tim Ainsworth

      Fair enough Lara but I don’t believe a monthly report to be of great value without an awareness of the underlying macros, and in the case of RE they haven taken multiple years to develop rather than months.
      The greatest supply risk is clearly outlined above, Beijing value adding c90% of the critical NdFeB precursors NdPr down thru its vertically integrated SOE’s. The completion of the massive Baotou magnetic materials plant last month was a key event, although two Japanese metal/mag makers have already walked from Chinese JV’s and consolidated back to Japan in advance.
      Should your readers wish to invest in alternate NdPr supply to existing supply chains there is clearly only one choice at any volume of consequence, and highly probable it will remain that way for many years, not months.

      September 17, 2017 - 3:26 PM

  • Lara

    Tim Ainsworth I again agree with you, as an intelligent investor, understanding the macros of any industry is paramount, which is why first and foremost myself and my company, Core Consultants are top down analysts, highly focused on the fundamentals. Our commodity reports, be they monthly, long term, feasibility studies or customised consultancy projects all reflect this.

    Have a good evening.

    September 17, 2017 - 3:36 PM

    • Tim Ainsworth

      Well Lara, if we’ve learnt anything RE past 7 yrs it’s the fact that this tiny industry is demand driven, bottom up, witness phosphors and DyO, uneconomic end product, Beijing again testing economic thresholds via supply constraint, this time with far greater control, given consolidation and vertical integration.

      BBQ on Dalmatian coastline, doesn’t get much better.

      September 18, 2017 - 4:27 PM

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