How to co-exist with China’s rare earth oxide monopoly in a shared world
Now I’m back in Australia, TMS2013 over and catching up on chores around our lovely Tasmanian property, I was hit by a revelation. It concerns the message being delivered by almost everyone in the ROW (rest of the world) REO (rare earth oxide) space. It is around their China strategy. Almost all of the potential producers are out to REPLACE China production. That is, they see it is their strategy to be able to produce into a supply chain instead of that particular supply chain being fed by China REO. Now when you consider that this objective can only be fully met with individual non-China REO separation, individual non-China value add to say metals for example, further non-China processing to magnetic alloys, non-China magnet fabrication, and into hi-tech non-China final products; that’s an awful lot of new plants to be constructed outside of China. It must be highlighted that North America, for example, has no spare separation capacity, no metals plants any more, no alloy plants any more, and no magnet fabrication any more. So in this case, the end user must really need all of his supply chain outside of China to justify the capital cost. North America does not simply need mines and processing plants to meet this strategy, it also needs metals plants, alloy plants and magnet plants. So I will postulate that REPLACE China production can only work when looking at a Country’s strategic needs. Obviously, defence applies here, but also any hi-tech industry that a country simply must have full supply chain control over. Deep pockets are needed. Large corporates or Governments must be involved. It can only be seen that only very strategic hi-tech can support this strategy.
Another China strategy could be to SUPPLEMENT China production. That is add to; compete with; be part of a global free trade in REO either as intermediates, oxides, metals or where ever you want to compete with China. This means that costs of Capital and Operating need to be comparable with FOB China. A difficult competitive position since China is now many years advanced in terms of plant design, product quality, process control and very importantly, operating knowledge and trained human resources. This is the market space that Lynas, Molycorp and Great Western are operating in. They are providing a choice of REO supply. That choice is obviously non-China, but it is a choice that will be measured against a competitive quality and pricing structure. I am sure, knowing a number of the people in the big 3 that the SUPPLEMENT space challenges are known and plans are in place to be able to compete with China on an FOB basis. Not so sure about other possibles and their aspirations.
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A logical third China strategy is to COMPLEMENT China production. That is to be part of the supply chain that China cannot provide for itself, particularly into the future. Now I look here very much at the heavy rare earths, particularly dysprosium and yttrium. Various analysts have identified that China is limited in HREO (heavy rare earth oxides) and that imports will be required sometime in the future. When, is an interesting question? It is claimed that the southern ionic clays are reasonably bountiful and will last China for many years. That may be so in the South of China but what about the North? What are the supply side implications of an ever expanding value add to REO that is legend in Baotou? Where will the dysprosium come from? If not from Baotou, a LREO (light rare earth oxide) district, then from COMPLEMENTary sources. Will intra-Province value add competition between North and South influence HREO movements? And what of the many value add opportunities in the East of China? The shortage of HREO issue is not only outside of China but within as well. It is the far reaching implications of these competitive tensions and supply side demands that clearly demonstrate why the HREO space is seen as a very lucrative space to be in.
It seems to me that there is way too much emphasis on REPLACE as a strategy for ROW REO supply. It is too small a volume, too capital intensive, too expensive and therefore very difficult to justify. That is unless big Corporates and/or Governments see the need and respond with assistance in the required funding needed.
SUPPLEMENT is the free trade strategy. It is the common market situation. Compete on price! A space I would suggest that only works for big operators, high grade and low (to very low) operating costs. A space where final margin is the critical metric.
COMPLEMENT in my view is a strategy that is being over-looked by many. How do you co-exist with China in a shared world? It was very interesting to see TDK forming a JV in China to produce magnets. Very much a COMPLEMENT strategy, but from an end user. I expect to see a number of such ventures into the future as budding REO producers see value in working with China, not against it.
Mr Mackowski is a qualified engineer in mineral processing with over 30 years technical and operational experience in rare earths, uranium, industrial minerals, nickel, kaolin ... <Read more about Steve Mackowski>