EDITOR: | January 10th, 2015 | 16 Comments

China tightens control on the world’s supply of rare earths in 2015

| January 10, 2015 | 16 Comments
image_pdfimage_print

January 10, 2015 — In a special InvestorIntel interview, Publisher Tracy Weslosky speaks with Jack Lifton, Founding Principal of Technology Metals Research, LLC and Sr. Editor for InvestorIntel discuss the impact of the recently announced heavy rare earth licensing policy by the Chinese and the unprecedented interest by the Global1000 corporations in 2015.

Tracy Weslosky: I’m here today with our number one, most read columnist on InvestorIntel for 2014 — Jack Lifton. How are you today?

Jack Lifton: I’m great Tracy. Thank you.

Tracy Weslosky: I’ll tell you, there’s so much in the news right now, even The Wall Street Journal is covering rare earths again because of what’s happening with China. Do you want to explain to our audience what’s happening?

Jack Lifton: What’s happening is that the Chinese have orbed their quotas into an export tax system. Actually, in my opinion, it’s got more prohibitive export of rare earths, not less. Somehow or another The Wall Street Journal and the Financial Times, two newspapers which I really understood the space, seem not to. The InvestorIntel writers are much more attune to what’s actually going on (click here) them then those hallowed publications. Let me point out that the Chinese are tightening their control of their rare earth production. In particular, they are so over capacitated in light rare earths they don’t know what to do with the stuff. That you can have. It’s the heavy rare earths, which they began restricting at the end of the first decade of the century which are now coming under much tighter control. Since there is no production of heavy rare earths outside of China you can bet that they’re always going to be more available and cheaper to Chinese domestic producers then they ever could be to the tiny number of the non-Chinese who actually use raw materials at this time.

Tracy Weslosky: Jack, you most recently wrote, I thought a brilliant article about how some of the largest corporations in the world are now looking at actually investing in rare earth ventures. Can you tell me a little bit more about this?

Jack Lifton: As I’ve said before, because of my non-disclosure agreement with many companies, I can’t really be specific. Let me tell you that I’ve seen more activity by Global 1000 corporations getting involved in the rare earth space at the anchor point, the mine, to develop the mineral deposit development then I’ve ever seen before in my life. I think I hit on in the article what’s going on. They are no longer interested in the Wall Street, Bay Street ups and downs with very little regard to actual supply and demand. What’s happened is, as we mentioned a little bit earlier in this interview, the Chinese are really tightening up on the critical rare earths. The time has come now when non-Chinese users of these materials, for things that cannot be manufactured in China, don’t tell anybody, military cannot depend on the Chinese. They never wanted to. Now they actually can’t. This is a new world. Very large corporations with strong defense issues, you know, contingents are looking very hard at this. In fact, some them are already investing. I said in my article forget about the alliances and the groups where large corporations…to hear the rest of the interview, click here

Disclaimer: Jack Lifton sits on the Board of Directors for Texas Rare Earth Resources Corp. (OTCQX: TRER), which he mentions in his discussion of Eric Noyrez joining the Board at the end of the interview. And Texas Rare Earth Resources is an advertorial member of InvestorIntel.


Tracy Weslosky

Editor:

Tracy Weslosky is the CEO of InvestorIntel Corp., a company formed to provide investor relations in 2001 that today now provides online media marketing, social ... <Read more about Tracy Weslosky>


Copyright © 2017 InvestorIntel Corp. All rights reserved. More & Disclaimer »


Comments

  • JJ Beswick

    Thanks Jack.
    I’m a little confused; I see some apparent contradiction in your comments on CRE, LRE and HRE..
    You talk about Critical REs and Heavy REs essentially interchangeably.
    For example you comment on China being comfortable with exporting LREs.
    What’s your opinion of the LREs Nd and Dy? Are they non-critical LREs or are they CREs? If the latter, is their export likely to be restricted by China, contradicting your opinion that it’s the HREs in that category?
    Would appreciate some further clarification.

    January 10, 2015 - 9:47 AM

  • Lid

    Jack ever defined CRE in one of his article, he outlined that not all LRE’s are equal, and not all HRE’s are equal also. those are in high demand and critical, no matter is LRE or HRE should group as CRE. CRE is more precise that both LRE and HRE.

    January 10, 2015 - 3:17 PM

  • Jack Lifton

    JJ,

    Sorry for any confusion. The light rare earths, cerium and lanthnaum, make up at least 75% of all of the rare earths found in nature and also of all of the rare earths produced. Cerium, the most commonly found rare earth, is in vast oversupply and there is more lanthanum, the second most commonly found rare earth, produced than world markets demand. Of the “light rare earths,” neodymium, the third most abundant rare earth, is the most important, because its electronic properties are critical for the production of the most common and most useful of the rare earth permanent magnets. Praseodymium has similar properties and since it is the next most commonly found rare earth after neodymium it is usually just produced along with and mixed with neodymium as “didymium,” which is used to make commercial rare earth permanent magnets with relatively broad specifications.
    China has been overproducing the light rare earths lately soa s to be able to produce more didymium.
    At this moment I call the following rare earths “critical:”

    Neodymium (praseodymium)
    Europium
    Terbium
    Dysprosium
    Ytterbium
    Yttrium

    I do not think that Europium will remain critical much longer, and Ytterbium may also drop off of my list if a credible regular supply of it cannot be created outside of China.

    The confusion is in terminology. Materials are not critical or strategic forever or even everywhere on earth at once.

    As to your question: I think that China has already and will continue to restrict the exports of the rare earths listed above as it develops a consumer driven economy and as it goes forward to build a world class military.

    Jack

    January 10, 2015 - 3:22 PM

  • Jack Lifton

    Mea Culpa,

    My colleague Gareth Hatch has informed me that when I say “export tax” in this interview I should really be saying “Export License” regime. he is absolutely correct. China is now allowing anyone who wishes to export legally produced rare earths to do so PROVIDING they can get an Export License for the lot of material to be exported. This is a time honored way to slow down, stop, or at the very least control exports. The Chinese invented bureaucracy and they are very good at using it both as a scalpel and as a meat ax. Note that export license fees are assessed on the value of the material to be exported and are not insignificant. Isn’t this a tax, says simple Simon? No, says Mr Government, It’s a fee.

    Jack

    January 10, 2015 - 3:35 PM

  • Mr.Jimmy

    This is an excellent interview. Very informative.

    My pick for the year is GeoMegA. Their PEA should be a doozy and I can’t wait to hear you talk about it sometime in the future Jack.

    Cheers and Best of luck in 2015…..and keep up the great interviews Tracy !!

    J

    January 10, 2015 - 5:55 PM

  • JJ Beswick

    By the way, meant Nd and Pr (NOT Dy) in the above.
    Thanks for the clarification Jack.

    January 10, 2015 - 8:51 PM

  • Tim Ainsworth

    Jack, “export license fees”? I’ve not seen any details on these?

    My understanding is the tariffs remain in place, unchanged. Word is until May when the much rumoured production tax change to a value based percentage will take place.

    I really doubt the “export licenses” can be discussed meaningfully without reference to the ongoing domestic vertical integration and the likely impact on illegals.

    January 11, 2015 - 7:33 AM

  • Jack Lifton

    Tim,

    Very few Chinese rare earth producers of any kind have export departments. Up until now the quota has been distributed among 28 selected exporters-whose business is trading. The government now says that anyone who wants to export a rare earth for downstream manufacturing or processing can do so but must first have an export license specific to the material by quantity and type. The purpose here is to monitor, regulate, and CONTROL the outflow of these materials. It is part of the genuine crackdown on illegal activities more than a reaction to any western capitalist global rule makers. As an export-import trader of metals myself I can tell you that export license fees can be onerous and in foreign countries usually go only to favored groups and individuals. Who do you think gets export licenses for oil in the Arab countries-just regular guys trying to make a living?? Come on. Export license authority is absolute in China as it is in the USA. Ask anyone here who has tried to legally export electronics to Iran. The Depts of Commerce and Treasury have all of the say (over there its the Ministry of Mines and Industry and the Treasury)

    Jack

    January 11, 2015 - 1:51 PM

  • Michael Roat

    I believe this is the beginning of another rare earth hype cycle. I disagree that LREE are obsolete. For future producers, yes because Molycorp has plenty of capacity, although once companies begin restocking prices for ndpr and la will go back up and Molycorp will succeed. Where will the heavy rare earths come from? There will be a true shortage of dysprosium and terbium.

    January 11, 2015 - 6:08 PM

  • Jack Lifton

    Michael,

    Actually I see 2015 as the end of the hype cycle for rare earths. This year will be brutal for those of the remainder of the juniors that have some combination of poor distributions of rare earths; no economical metallurgy; no downstream products; and poor administrative, financial, and/or marketing management. Hype was all that was holding them up.

    Look for (in alphabetical or regional order)
    Rare Element Resources;
    Texas Rare Earth Resources;
    Ucore Rare Metals;
    Tasman Metals,
    Northern Minerals; and
    Namibia Rare Earths

    to be all within 12-24 months of PRODUCTION by the end of 2015.

    These all have excellent management and boards and have the best plans to go forward to development at the right scale.

    The rest will be gone or will have moved on to some other product mix that will never be developed either.

    I also think that:

    Lynas may survive because it is well placed in the world’s largest market for rare earth demand, South Asia, and

    Molycorp will probably go bankrupt and its parts sold off to re-establish Neo Materials and perhaps a much smaller light rare earths producer.

    January 11, 2015 - 7:09 PM

  • Dean H.

    I would add Avalon Rare Metals-as it remains the MOST advanced large HREE project outside China (feasibility completed, environmental assessment approved, a separation solution involving Solvay, and early works construction permits)

    January 11, 2015 - 8:57 PM

  • Joe o

    Quest has no chance?

    January 11, 2015 - 9:23 PM

  • Alex

    There is minimum price of the goods at Chinese Custom , so the licence will get only companies which will have the price bigger then middle price.
    For instance , if 5 companies export Nd metal , their middle price is using by Chinese Custom as minimum, so if you want export goods from China you have to have price in your contract bigger. To decrease price is very hard.

    January 12, 2015 - 2:10 AM

  • Jack Lifton

    Alex,

    Thank you very much for that information.

    Jack

    January 12, 2015 - 6:59 AM

  • Tim Ainsworth

    Jack, Hongpo provided us a list of last years approved quota recipients: http://investorintel.wpengine.com/rare-earth-intel/chinas-rare-earth-exports-quota-first-half/
    Reasonable assumption an “Export License” would be approved along similar lines, and no doubt at similar cost given the the export tariffs remain on a percentage basis until May.
    Perhaps production taxes by percentage have been held off pending completion of the amalgamation & vertical integration of the domestic industry. Raises the interesting question of whether there would be any rebates, similar to VAT, as the material moved downstream domestically.
    Should the production taxes provide an effect paper trail to reduce illegals, and using Dudley Kingsnorth’s figure of 15ktpa illegal NdPr currently, that would suggest the potential to take 30ktpa Ce & 15ktpa La illegal production out of the market.
    That would begin to make things interesting.

    January 12, 2015 - 7:34 AM

  • Jack Lifton

    Tim,

    A colleague of mine in the rare earth industry, Paul Zink of Rare Element Resources, who has an in-depth knowledge of commodities trading raised the issue of VAT rebates in a conversation we had just last Saturday. He pointed out to me that a rebate of VAT for material sold domestically could effectively raise the price of exported goods and still be within the “rules” of the WTO.
    Dr Chen (Zhangheng) of the CSRE has publicly stated many times that illegal production may account for even another 40% of production above “offcial” figures, so that the crackdown could have a dramatic effect on prices.

    This is going to be a transformational year for the global REE markets.

    As a last comment let me say that even though the favored 28 are officially “disbanded” I am certain they will be “advising” any of their former suppliers who want to export directly. The more things change….

    Jack

    January 12, 2015 - 8:05 AM

Leave a Reply

Your email address will not be published. Required fields are marked *