Lifton ‘Unchained’ (Part 1): The State of the Rare Earth Market
Foreword from Tracy Weslosky, Publisher & Editor-in-Chief: It is with great pleasure that I would like to officially welcome Jack Lifton as a Sr. Editor for InvestorIntel. Jack will graciously provide InvestorIntel with a weekly column on various topics surrounding rare earths and critical materials — a regular commentary, which when we made this agreement, it was to be a 600-750 word submission. He instead (of course) responds by emailing us a 4,400 word submission late Sunday evening. We have broken this first submission into a 5-part commentary for your morning coffee this week, and allow me to take this opportunity to remind everyone that all of the editorial contributors on InvestorIntel express their own opinion and analysis, which may or may not reflect — mine. So welcome aboard Jack, and thank you for your first of many commentaries.
Is there already overcapacity in the rare earth total supply chain? The issue of Commodity Production Overcapacity is currently a hot topic in the world of resource economics. How does this affect the rare earth sector? The story is complex, because there are geographic, and geopolitical overcapacity issues in the processing of both light and heavy rare earths that are directly affecting the creation of regional production capacities for both of these segments of the rare earth demand market. I will try to explain the issues and the solutions over the next few weeks.
Your personal and institutional investment decisions with regard to the rare earths’ space must take into account the segmented and yet interconnected production overcapacity in one place, China, which also has processing overcapacity before you decide to invest in a current are earth producer or an in-development junior. The key factor to keep in mind is that China probably now does not have sufficient new heavy rare earth production capacity to meet even its own domestic needs. This is not an issue of resources or reserves. It is much more complex.
It was just last week, as reported yesterday on InvestorIntel, that Dudley Kingsnorth, one of the most highly quoted rare earth industry analysts in the world, told a roundtable in China sponsored by Industrial Minerals that he forecast that the global demand for rare earths in 2020 would be 250,000 (metric) tons. Among specific drivers he used, he stated, were a decrease in demand for phosphors and an increase in demand for cerium for waste treatment purposes.
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I disagree with this forecast in general although not in all of its reported details, and I note that the devil is, in fact, in the details as well as the semantics.
First let me tell you a story about Dudley Kingsnorth’s ability to predict the future. As I recall Dudley and I were both speakers at the 3rd International Conference on Rare Earth Developments and Applications of the Chinese Society for Rare Earths in 2010. I remember Dudley as the last speaker at the plenary (opening) session, and I remember being very surprised when he concluded by figuratively begging the Chinese rare earth processing (separating and refining) and fabricating industry to “help” the rest of the world (ROW) rare earth industry revive and expand. The audience was Chinese; there were perhaps a dozen non-Chinese in the room, and the only junior rare earth mining company present was Great Western Mineral Group.
As Dudley made his plea I noted that the Chinese around me wore looks of puzzlement and cynicism. The English speaking Chinese gentleman next to me who had been photographing the presentations slide by slide: “You try and get a presentation copy from this outfit,” he said to me when he noticed I was watching him-remarked to me that he thought this guy (Dudley) was crazy. “Why,” my Chinese row-mate said, “would any of us want to help a competitor even one of our own?”
Now, three years later, just a few weeks ago, as I listened to the presentations at the 7th International Conference on Rare Earth Developments and Applications, sponsored now not only by the CSRE but also by the newly organized Association of the Chinese rare Earth Industry (ACREI) and the Chemical Metallurgical and Materials Division of the Chinese Academy of Engineering, I noted that I was one of just 7 non Chinese attendees. I was again a plenary speaker, but, my topic was one that Dudley-who wasn’t there- might have predicted in that 2010 rather impassioned speech of his. My topic was “The Case for a Non Chinese Central Toll Refinery for the Rare Earths.” I realized that, in fact, I was not only making the case for some of the situation that Dudley had proposed in 2010, but I was also being listened to raptly by an audience I had thought, when I proposed this topic, would be at the very least hostile. The talk was very well received, and everyone laughed in a friendly way when I offered at the end to “buy, either to operate here in a duty free zone, or to move to the USA any 1000-3000 ton per annum capacity heavy rare earth capable separation plant that was available.”
I was besieged after the talk by Chinese businessmen telling me that they wished they could accommodate my interest in such a purchase, but that government policy for the time being would not allow it. I was invited right away to meet with many of the leading lights of the local (Ganzhou) heavy rare earth industry to exchange ideas about the benefits and liabilities of Chinese participation in the ROW rare earth total supply chain. No one was laughing at the idea anymore…stay tuned for Part 2 tomorrow…
Jack Lifton is the CEO for Jack Lifton, LLC and is a consultant, author, and lecturer on the market fundamentals of technology metals. Technology metals ... <Read more about Jack Lifton>