EDITOR: | April 21st, 2014 | 13 Comments

Baotou — with an eye on WTO appeal — signals tough times ahead for Chinese REE producers

| April 21, 2014 | 13 Comments
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Woody Allen made the now famous quip that, if you want to make God laugh, tell him your future plans. For “future plans“, substitute “rare earth forecasts”.

Back in the 2011 frenzy that sent REE prices to the stratosphere, could you have imagined an analyst writing the following in April 2014: “In reporting diabolical first quarter results, the world’s largest producer of rare earths, the Chinese group Baotou, warned that fears of the World Trade Organisation ruling which could lead to unrestricted exports from China could drive prices down even further”?

First quarter 2014 revenues for Baotou fell 52% and profits tumbled 72% as compared to the same period in 2013. The quote in the previous paragraph comes from Roger Bade who works out of Whitman Howard in London. According to the Xinhua news agency, Baotou attributed the sharp decline to both falling sales and prices in what it termed a lacklustre market. A company spokesman said it was feared that the WTO ruling that China’s export restrictions on rare earths violate global trading rules — a ruling China is appealing — would force the country to export more REE and thereby force down prices even further.

How has it come to this? (Of course, it is self-serving of Baotou to make this argument, given what China stands to lose if its appeal is unsuccessful. But there seems little doubt the company is doing it tough.)

So let us travel back in time to 2011 when, on the forerunner of Investor Intel, your correspondent was reporting the forecasts then being made that, by 2015 — now only just over eight months away — China was set to be a net importer of rare earths. By then, I went on, “if this proves to be correct, then the various emerging rare earth mines outside China stand to do very well as tightness of supply forces prices beyond even the extraordinary levels (at least for some of the HREE) of today“. [Fortunately, having been left looking silly by previous confident forecasts, I added the rider that “let me state right at the outset that I don’t know what is going to happen in this regard, except that — knowing China — everyone will probably be proved wrong to some extent. In fact, both sides might be partially right: China may, for example, indeed be short of one or two REE but not most; or vice-versa“.]

The then chairman at Great Western Minerals Group Gary Billingsley was quoted in news reports saying he thought the net-importer-by-2015 was likely, but made sure that he used the word “perhaps”. Back in that 2011 posting, Molycorp’s Jim Sims, then director of public affairs at the company, was quoted making a similar prediction. Both men cited the growth in applications depending up REE, like wind turbines along with electric cars and bikes. “This argument makes a great deal of sense,” I felt justified in adding.

The well-known Australian REE expert Dudley Kingsnorth, in his 2011 response to my query about this 2015 scenario, was not having a bar of it. “The idea that China will not be able to meet its own rare earths needs in the near future is fanciful nonsense,” he writes. His case was that the country had between 30 million and 50 million tonnes of REO reserves; it had between 200,000 and 250,000 tonnes a year of processing capacity (admittedly 50 per cent of which was presently shut down but the equipment was there and available).

Furthermore, said Kingsnorth, cash-rich state-owned enterprises had announced multi-million dollar REE expansion plans, with Fujian province unveiling a $US905 million project based on its HREE reserves. From calculations he had done, it appeared that between 20 million and 30 million of reserves had suddenly been “lost” in a year when prices had tripled. For him, the figures clearly did not compute. And he concluded: “Above all, China’s policies are driven by the need for social harmony, so believe me they will find the rare earths needed to sustain the high technology manufacturing industry that is dependent on rare earths and employs millions of people”.

So there it is: the yawning gap between what, three years ago, we thought was going to happen and what actually eventuated. Keep this in mind when reading upcoming forecasts (some, no doubt, reported by your correspondent).

And here’s something else: if Baotou is right, and REE prices are forced down further, this is going to make the more grandiose plans seem a little less realistic. I think immediately of the Japanese efforts to exploit large REE deposits under the sea floor. And now we have reports in Applied Geochemistry that German scientists have come up with a way to leach REE — specifically yttrium, dysprosium and praseodymium — from ferromanganese nodules on the sea floor by using Desferrioxamine-B, a solvent the journal says binds strongly with the REE (but not other metals, so leaving the unwanted ones behind).

Finally, in the “whatever-happened-to” department, back in 2011 The People’s Daily reported that the Zhejiang Provincial First Geological Team had discovered what it called a “mammoth” scandium deposit worth $70 billion. Anyone heard any more about that?


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Comments

  • vacuum

    well done, Robin. Excellent reporting as usual.

    about all I can try to add is that usually it is true of markets that extreme bearish stories occur coincident with market bottoms.

    Shall we look no further than natural gas. For example, we had been told throughout the recent presidential campaign that the USA had petroleum and gas reserves (and production) in such abundance that it was not unlike what is said of Chinese REEs today. However, since the inauguration, crude oil and natural gas futures are decidedly higher.

    April 21, 2014 - 3:20 AM

  • Jack Lifton

    Robin,
    Let ma add a specific example of my own “punditry” and then, even so, make another forecast.
    This morning (April 21, 2014) I got a private inquiry from a long time reader who asked me if I still agreed with my (2011?) statement that the dysprosium market was “in balance” and that it would grow by 8% a year. I do NOT.
    But this change in my opinion is not due to my having a John Kerry moment. It is due to the fact that I have found Chinese natural resource supply reporting to be very “fluid.” In Ningbo two months ago I was told that while the official dysprosium production is reported at 1500 mt/year the actual amount is as much as double that with the difference coming from illegal (in China) activities and recycling. I have seen the massive investment in recycling that the Chinese have made, and I have seen a report by a Japanese agency on the level of illegal activity (estimated by them at 40% added to “official” production figures), and these in combination make me believe my Ningbo confidant.
    However I must again point out that no one recycles if new material is available at a lower price. I still think (and have been told in China) that new dysprosium and yttrium production are not high enough to support China’s domestic current and future demands.
    Finally I must note that it is refreshing to hear that Baotou adheres to the law of supply and demand-more supply at constant demand equals lower prices-but you need to inform your readers that the domestic Chinese prices for the light rare earths, which are presumably what Baotou is referencing are today between USD$4 and USD$8 per KG. This is far below the COST of Molycorp and/or Lynas production.
    Excuse me my Ouija board is vibrating I have to get ready to make some forecasts.

    April 21, 2014 - 10:26 AM

  • Daniel

    Is Desferrioxamine-B environmentally safe? Does it damage sea ecosystems?

    April 21, 2014 - 11:29 AM

    • Jack Lifton

      Daniel,

      Here’s a more direct question: Can this compound be made available, economically, in the quantities needed to produce commercial amounts of the selected rare earths? It wouldn’t be used in the sea; it would be used in a land based facility that would extract the mixed concentrate as a solution compatible with this reagent. It would not and could not be used in the sea.
      In fact a reagent like this would probably be used in an SX system or as a pretreatment for an SX system.
      There are lots and lots of reagents such as this one. The issues are cost and availability and practical chemical engineering. For the next few years everyone needs to concentrate on what we can do with the chemical engineering and separation science that we have instead of looking for new quick cheap solutions. The distance from the laboratory to the household is usually decades and even centuries.
      Jack

      April 21, 2014 - 1:02 PM

      • Daniel

        Thanks Mr Lifton.
        Had some concerns when the article mentioned on the sea floor.

        April 21, 2014 - 1:26 PM

  • hackenzac

    I’m supposing that you all saw the BBC report the other day that 20% of all arable land in China is contaminated with industrial pollutants especially in the all important river delta areas so by extension, we can assume that their water is in as poor condition and we’ve all seen what the urban air can look like as well. Based upon the acute seriousness of the situation and the potentially associated threat to the central government on issues relating to pure food, water and air, can’t we assume higher domestic demand for magnetic materials than is currently being figured by western punditry AND further crack down on overly polluting domestic extractive industries than is being assumed? They have 1.1 billion environmentalists to deal with and that’s a big wild card. They’re having a Minamata moment except it’s nation wide. All those 2 cycle motorcycles in Beijing are going to need replacement by electrics for the simple reason that simply can’t breathe. Try factoring that into your calculus. On a side note to Tracy: Aggregating germane general news such as the BBC report would make this site better since nobody here has discussed it yet it looms a little larger than Baotou’s cash flow issues as to what the real demand trends must be in China if they are to protect and secure themselves. In other words, they need all of their magnets and can’t afford to export them unless they’re OK with dying in their own excreta like common yeast.

    April 21, 2014 - 1:26 PM

  • David Mortimer

    What does this mean for HRE juniors like Ucore do they still have viable assets in Alaska ?

    April 21, 2014 - 5:50 PM

    • Nick

      Yes I am also wondering if Mr Liftons comment was a reference to Ucore:-

      “The issues are cost and availability and practical chemical engineering. For the next few years everyone needs to concentrate on what we can do with the chemical engineering and separation science that we have instead of looking for new quick cheap solutions.”

      April 21, 2014 - 6:10 PM

      • David Mortimer

        Well we know Ucore have a industry leading technology for separating metals from the waste .

        April 23, 2014 - 6:41 PM

  • vacuum

    http://www.dailymail.co.uk/sciencetech/article-2609740/How-make-supermaterial-sink-Scientists-dishwashing-liquid-BLENDER-used-make-graphene.html

    it’s moments like this^^ which show that Jack’s mountains can rather suddenly become molehills when it comes to strategic elements processing.

    April 21, 2014 - 8:35 PM

    • hackenzac

      We need a “like” button around here. That some clever shizz and so simple.

      April 21, 2014 - 9:21 PM

  • Tim
    April 21, 2014 - 9:27 PM

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