EDITOR: | September 30th, 2013 | 22 Comments

Lifton ‘Unchained’ (Part 1): The State of the Rare Earth Market

| September 30, 2013 | 22 Comments
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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.

Jack-LiftonIs 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.

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

Editor:

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>


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Comments

  • aurelius

    Hello Tracy:
    Great Western seems to fit the bill so perfectly in terms of resources and capacity. Could Mr. Lifton address that question and express his opinion on why the Steens project takes so much time to get financing. Thanks & regards.

    September 30, 2013 - 10:29 AM

  • hackenzac

    “Chinese participation in the ROW rare earth chain” There’s too much Chinese participation in the ROW rare earth chain as it is. The well stated goals for the ROW is to reduce Chinese participation in the ROW rare earth chain. Centralized tolling facilities for the ROW seem sensible as a means of spreading risk and capex but making the case that China has a reasonably vested interest in such projects leaves me skeptical. It’s still the same question. Why would they help their competition instead of building their own? They need more hrees but is that reason enough? They could scoop up a junior like GWM and build the already designed Rareco separation plant for less money and without shaking the hands of any Japanese, Russians or Americans. Centralized ROW tolling perhaps makes sense but for the Chinese? I’m not seeing it.

    September 30, 2013 - 1:39 PM

  • tek

    Around that time, 2009-10 ish , the Chinese were quite happy with their product and progress, and the subject of wastefulness was only whispered. However , now the facts of the wasteful and horribly polluting nature of the REEfining business in China is well known and documented.

    When the subject of other refineries in other parts of the world, especially North America, came up, the first issue was to design a system of operation that would mitigate the environmental damage and meet the necessary requirements of the Western world from ever increasing pollution. This would of course entail additional costs and a rise in price. Nevertheless it would have to be done.

    There is also the matter of “safe and stable” space in which to work. Given the worldwide increase in political tensions, and the rise of religious extremism, it would seem that North American locations would indeed offer more of a safe haven and stable political system than much of the world.

    These points may be peripheral to the internal Chinese system, but they are essential to the Chinese international interests of securing a stable and strong REE supply chain for the next few decades.

    September 30, 2013 - 1:53 PM

  • Jim S.

    Thanks Jack for promising a small nugget of an article only to provide the whole chunk of gold! Looking forward to part 2.

    September 30, 2013 - 4:20 PM

  • Louis F Pearson

    Presumably, the Chinese government allowed GQD to negotiate and do preliminary planning to do a joint venture with Great Western to build a separation facility in South Africa to toll process rare earth concentrate from the Steenkampskraal mine. Since Great Western would retain possession of the heavy rare earth oxides from the South Africa plant for use as feedstock to LCM, their permanent magnet alloy manufacturing subsidiary, this does not solve China’s future deficit of HREE’s. Why would China green light this arrangement and obstruct other possibilities for their companies to become involved in the world rare earth supply chain outside of China? If their technology is proprietary, these could be very profitable enterprises for Chinese companies. It seems like a win-win for everybody.

    September 30, 2013 - 4:37 PM

  • Lifton 'Unchained' (Part 2): The Driver for Global Rare Earth Demand |

    […] This is the second instalment in our five-part Lifton ‘Unchained’ commentary on the Rare Earth & Critical Materials Market by InvestorIntel’s own Jack Lifton. Every day this week you’ll get a daily dose of Jack and an in-depth understanding of what the man really thinks and why. And don’t worry, Jack doesn’t hold back — at all. In case you missed it, be sure to check out his first article in this series: “Lifton ‘Unchained’ (Part 1): The State of the Rare Earth Market”  […]

    October 1, 2013 - 12:12 PM

  • Sue Glover

    I just heard from Jack and here’s what he had to say: “I see in the first comments that there is out there still the idea that the Chinese becoming and being dominant in the rare earth space is a bad thing or a plot to conquer the universe. The writers don’t seem to understand that the driver for the development of the Chinese REE industry’s total supply chain was their ability ( real or virtual it may have been but it has been ACTUAL) TO LOWER THE COSTS!! If, and only if, a ROW company can deliver REE end-use products at a lower price than the Chinese can will then everyone buy from the ROW. The problem for the ROW is that there is little or no credibility in ROW REEs anywhere. Both MCP and LYC, for example, have made delivery and quality promises that they have not met for LREE chemical products. No one in the ROW has even delivered any nonChinese based commercial quantities to a customer specification of a HREE product for end-users. The Bay/Howe/Wall Street hustlers are way out of their depth.

    I note another little understood factor. The Chinese REE industry is not standing still or knee-deep in pollution. It is modernizing rapidly. The juniors who are busy scheming do not seem to notice that their target is getting leaner and meaner. The target they are aiming at is getting smaller and harder to hit.”

    October 1, 2013 - 12:30 PM

    • hackenzac

      There is scarcely anything in the world that some man cannot make a little worse, and sell a little more cheaply. The person who buys on price alone is this man’s lawful prey.

      John Ruskin

      October 1, 2013 - 3:09 PM

    • Tim Ainsworth

      Some hard realities there Jack but perhaps encouragingly Lynas announced Monday:

      “The Company has made progress in the customer qualification process, with 25 qualifications for products by customers achieved to date. Furthermore, the Company has had sales of each of its full REO product suite…”

      http://www.lynascorp.com/Announcements/2013/Operations%20Update_1260361.pdf

      Still some months off proving up the reliability of the mechanical process but encouraging news on customer acceptance and preliminary sales.

      Certainly will be very interesting to see what kind of RE market emerges from the disruptive last few years, particularly ROW.

      October 1, 2013 - 11:38 PM

  • Lloyd

    the 250 000 mt was the supply of REO for 2020 that Kingsnorth had offered up and not the demand. both the demand numbers and supply seem very high although we need to be positive about the industry if it is to grow beyond Lynas and MoylCorp. I wonder what the supply of 250000 t is made up of if we assume that China is 90,000+ and possibly growing slowly and Lynas and MCP are at full production of approx 60,000 t. Maybe some smaller heavies projects will start, but they are between 2000-5000 tpa. So what are the LRE projects that make up this supply? who are the winners.

    October 1, 2013 - 10:48 PM

  • Lifton 'Unchained' (Part 3): Forecasting Chinese Rare Earth Demand |

    […] at all. In case you missed them, be sure to check out Jack’s first two articles in this series: Part 1: The State of the Rare Earth Market and Part 2: The Driver for Global Rare Earth […]

    October 2, 2013 - 10:11 AM

  • Dudley Kingsnorth

    Jack,
    It appears with the passage of time your recollection of my presentation has failed you. So, for the benefit of the readers let us give a some background to my presentation:
    1. I was specifically asked by the hosts to address how China and ROW may co-operate for the benefit of the global rare earths industry. (I will forward a copy of my presentation to Tracy for her to forward to those who so wish to receive it).
    2. I had discussions with several Chinese rare earths industry personnel prior to the conference, so there were no real surprises.
    3. I have always been fully aware of the restrictions placed on the ‘export’ of Chinese RE technology. Often, to move forward we need to challenge current perceptions and positions – which is clearly what happened in the corner of the room in which you were sitting. With reference to one of the last slides in my presentation ,the idea that ROW may assist China with improving their environment management was met by ‘shock and horror’ by a couple of ROW people who saw the presentation after the event. Accordingly, my goal to stimulate debate was achieved. Time will tell if such co-operation does occur.

    Accordingly, there was no impassioned plea, just an identification of how ROW and China could work together to the potential benefit of the global RE industry. The forecasts may be out-of-date but I would stand by the content of that presentation given the context in which it was presented. We cannot let our personal prejudices get in the way of rational debate; all options need to be identified and assessed.

    No further correspondence will be entered into. Tracy’s readers are more interested in developments that may impact on their assessment of the rare earths markets.

    Jack, I would never quote comments made to me by others essentially confidence. So I will not respond to the quote you offered and the implied naivety of my presentation. I will leave that to others.

    October 3, 2013 - 12:44 AM

    • hackenzac

      Professor Dudley; I’m pretty sure that Jack was complimenting you for being prescient. Of course it takes him 5,000 words to get there. Are you sure that you weren’t gesticulating wildly during your presentation? There’s nothing wrong with being impassioned and those hand flourishes can really stick out in one’s memory you know.

      October 3, 2013 - 3:55 AM

      • Jack Lifton

        Hackenzac,

        You are exactly right. I am complimenting Prof Kingsnorth, for his foresight. I stand by my recollection of what was happening around me, and, in fact, I recently met the same gentleman in China who was sitting next to me that day. He and I and others were discussing the export of technology, and when I brought up the incident he just smiled enigmatically. He seemed totally scrutable to me.

        October 3, 2013 - 10:49 AM

        • Bill Keenes

          Pinocchio – everyone can see it was NO compliment !

          Looks to me like you have your nose out of joint because DK knew years before you that the next HREE producer would be Northern Minerals, whilst you were clueless.

          http://mobile.abc.net.au/news/2013-10-04/browns-range-rare-earths-project-promises-jobs/4999270

          October 5, 2013 - 4:51 AM

          • Veritas Bob

            I won’t comment on the cat fight, but Mr. Keenes, that’s quite a jump from {if the project gets built, 230 jobs could be created}, to {Northern Minerals will be the next HREE producer}.

            October 5, 2013 - 10:22 AM

  • Dudley Kingsnorth

    Jack,
    Read my forecast and get you facts right. I am not impressed by you continually misquoting me to drive your own agenda. I certainly did NOT quote future demand in 2020 as 250,000tpa REO. Read the article again and correct your incorrect assertion.

    What I said was that on the bases of a number of potential developments, that I clearly identified, demand in 2020 MAY BE 250,000t. You do yourself no favours and only lead to confusion when you fail to read a definitely written article that no-one else appears to have a problem in understanding.

    An apology would be appreciated, but I am not holding my breath.

    October 3, 2013 - 1:39 AM

  • Lifton 'Unchained' (Part 4): China is officially shifting focus to domestic consumer demand |

    […] them, be sure to check out Jack’s first three articles in his ‘Unchained’ series: Part 1: The State of the Rare Earth Market, Part 2: The Driver for Global Rare Earth Demand and Part 3: Forecasting Chinese Rare Earth […]

    October 3, 2013 - 9:25 AM

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    October 4, 2013 - 10:00 AM

  • Sunrrrize

    Mr. Kingsnorth, thank you for setting jack lifton straight. Someone needed to show him what time it is. His bombastic language on chinese history lessons and demeaning talk got old already. He is what we thought he is. Just an airhead who changes ‘facts’ everytime the wind changes direction.

    October 7, 2013 - 11:32 PM

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    October 11, 2013 - 5:41 PM

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