Look out for France and Brazil; they’re on a quest for critical resources as China raises the stakes again
Tracy Weslosky, Editor-in-Chief and Publisher of InvestorIntel and Jack Lifton, Founding Principal of Technology Metals Research, LLC talk about the latest Chinese measures to control the rare earth market. Tracy cites a report showing China’s rare earth exports by volume, differentiating between Light (LREE) and Heavy (HREE) rare earths. More significantly, perhaps, suggests Tracy, China has decided to raise taxes on rare earths. The European Union, meanwhile, has issued a list of critical materials, which also follows the LREE/HREE differentiation: for the record, HREE are placed at the very top of the list of most critical materials.
Jack suggests the Chinese have been “listening and taking notes and now they’ve come in with a full bore reaction.” He is not surprised that the Chinese have raised export taxes, because that’s the best strategy to deal with the WTO ruling that prevents them from limiting exports: “The Chinese are going to use export taxes to try to put a floor on the price and try to beat the price when they can. That is the purpose; they’re not going to be dissuaded and no decision by court of European aristocrats in Brussels, enjoying themselves in the square having a lobster is going to change their mind about revenues for the government.”
The result of the WTO hoopla, then, says Jack, is that “we’re going to see a floor and an increase in prices!” the other major point emerging from the Chinese reaction is that the European Union – which Jack says is “much more awake than the US government” – considers heavy rare earths as just about the most critical materials there are, “way up at the top of most at risk materials”. Tracy adds that all evidence suggests that China does, in fact, plan to raise rare earth taxes; LREE will face a 15% increase while HREE will face an additional 25% duty in order “to prevent people from stockpiling”.
Jack suggests that in the current five-year plan the Chinese have revealed they are actually worried whether or not there is a limit to how much rare earths they can produce. In 2010, there were rumors that China was considering ceasing, rather than merely limiting, exports of rare earths entirely. The Chinese government dropped the idea because of the shock it caused; but, the idea was never actually forgotten. Jack says the fact that HREE are already priced several times higher than LREE adds much more bite to the 25% tax than expected and it is nothing short of an impediment to allow China to preserve these resources. What does this mean in the end? Jack says that, clearly, it’s going to force prices to go way up along with “much more pressure to move HREE processing”.
Tracy and Jack agree that the European Union is far more aware of the critical nature of HREE and the fact that several thousands of job depend on reliable supplies of such critical materials. Jack says that Europe is quite aware of its limits; they have very few mines even if they have processing capabilities. The problem is that without mines “to anchor the supply chain, they are in danger.” Jack says that he has noticed Europe having become very focused on the raw HREE resources – that is on the mining – during his recent visits. Jack says he was very surprised to have heard the French foreign ministry promoting France as a “mining friendly” jurisdiction. Interestingly, France lacks many of the critical resources that the world is after; it has no rare earths, no graphite and no lithium; however, the Francophone world, made up by the former colonies such as Gabon or Ivory Coast – or even Quebec in Canada for that matter – and many others have plenty of critical resources from graphite to HREE. Anything that French companies extract in the former colonies, when imported to France, is considered as a French ‘domestic’ product. France is a bit of a dark horse on a quest – unbeknownst to everybody else focusing on China and Korea or Japan – for technology materials so they can once again become resource independent. Jack also suggests the world should pay attention to Brazilian mining, which has been vastly underrated by the American investors. Brazil’s Serra Verde deposit is said to have the potential to rival Chinese HREE resources. Ultimately, Jack advises that everyone should be looking well beyond the resources they read in their local financial news.