EDITOR: | December 7th, 2015 | 21 Comments

Lifton on Chinese illegal rare earths and the impact of the IMF yuan ruling

| December 07, 2015 | 21 Comments
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December 7, 2015 — In a special InvestorIntel interview, Publisher Tracy Weslosky speaks with Jack Lifton, Sr. Editor for InvestorIntel about Rare Mettle author Ann Bridges positioning rare earths as “sexy and fun”. Addressing his recent InvestorIntel column on Professor Kingsnorth’s presentation on how the rare earths industry is “plagued by illegal production in China”, Jack goes on to explain how the intended impact of the WTO ruling has failed. Citing the recent IMF approval of the Chinese yuan to its basket of reserve currencies, Jack explains why this not only “makes a lot of difference” but will be a game-changer to the pricing of technology metals.

Tracy Weslosky: Well Jack, in lieu of you being jetlagged I’m going to start by asking you about the column we just published on InvestorIntel by Ann Bridges. She describes rare earths as both sexy and fun. Now Jack, would you like to comment on this? Do you feel that rare earths are sexy and fun?

Jack Lifton: No, but of course, she’s probably about 50 years younger than I am. She might have a different perspective then I do.

Tracy Weslosky: Well, our stocks would all be moving north if we were indeed marketing them this way. So let’s move from sexy and fun to Professor Dudley Kingsnorth because that’s an obvious segue here. I know you and Professor Kingsnorth had several conversations in Singapore. He did a presentation called, “The Global Rare Earths Industry Today Plagued by Illegal Production in China”. How about you start by telling us what you think this presentation was all about.

InvestorIntel_Lifton_JackJack Lifton: Dudley is pointing out that we have to live with so-called illegal production because in fact it seems to be sort of winked at by the Chinese authorities and they have to have it. There is not enough official legal production to meet the demands of the rare earth industry without this so-called illegal production. It’s not just a matter of language. It’s a matter of culture. The Chinese are doing everything they can, of course, to increase employment, make Chinese people richer, have a better standard of living. Anything you do in China to do that is considered to be okay. I think that Dudley pointed out, it’s obvious to me there’s a whole lot of little places doing illegal mining even refining and maybe metal making that are sort of not exactly on the radar, but they provide jobs and security for people and nobody is just arbitrarily stopping this. See I’ve always looked at this as some more insidious thing, like people evading taxes and destroying the land, but in fact Dudley’s position, and he’s probably right — is that this is really just the way things go on in China. Even though the Chinese government would like to regulate everything and know everything that’s going on, they’re more practical than that. They know that there’s a limit to how much they could know and you can’t just stop things without consequences. So this is going to be a long drawn-out affair in this reduction of illegality. It may never happen, but we have to learn to live with it and stop worrying about it because it’s the way it is. When you work out how much material the Chinese are producing you have to add this material in there. The real problem here is we really don’t know exactly how much is being produced, who’s producing it or what it’s selling for. Other than that we’re right on top of this.

To access the complete interview, click here


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Comments

  • Asher Berube

    Jack, Thank you for sharing your insights on the rare earth industry

    Excellent Video

    December 7, 2015 - 5:58 PM

  • Jeff Thompson

    Yes, and interesting was the way the IMF not only added the yuan, but that they hopscotched right over the Japanese yen in terms of weighting at more than ten percent. I had expected it would start off smaller at under five percent.
    Jack’s point about the cleaner refining techniques being an advantage the American companies got me thinking, with all the industrial espionage constantly going on, I hope Ucore and Texas Rare Earths and their respective refining partners all have very good computer security, or else the Chinese are going to swoop in and pilfer their trade secrets like they’ve done to so many much larger American companies, with no real (military) consequences beyond someone wagging a finger at them.
    Thanks for the interview.
    Jeff Thompson

    December 7, 2015 - 11:50 PM

  • Alex

    The illegal production important question.
    First question – Demand for this production from Japan, Europe or China ?
    Dadly calculate it as Nd/Pr disbalans but ND/Pr is LREE product which produce as by-product at Baotou metallurgical plants.
    Only HREE ionick clays can be mined by illegal miners.
    Something wrong with 10-15 000 tones additional demand Nd/Pr at the market.
    Molycorp this case have to sale his products ver easyinstead of bancrusity

    December 8, 2015 - 2:10 AM

  • Tim Ainsworth

    DK’s 2015 supply estimate is 105KT production quota PLUS 45/55Kt “illegal” mining, that is most definitely NOT “a whole lot of little places doing illegal mining even refining and maybe metal making that are sort of not exactly on the radar”.

    With 80%+ of production now consolidated into 6 silos, most of them SOE either national or regional, clearly the only difference between “legal” & “illegal” production is a piece of paper, called a production quota.

    Given estimates of 2015 supply: 155KT LRE, vs 17KT Sm, Gd & Y vs < 5KT balance, logical that "illegals" are in similar proportion driven largely by NdFeB demand.

    One major avenue of 'washing' outside quota production appears to be via the "recycling" industry, which perhaps in turn explains its "viability" inside China, and the volumes. Been a number of references, incl Hongpo here, but this recent article from ACREI re Ministry of Industry "rectification order" appears to spell it out in some detail.

    http://www.ac-rei.org.cn/portal.php?mod=view&aid=4234

    Unfortunately Google translate robs some clarity, perhaps someone can offer better, but the intent seems clear. Each region, and no doubt SOE, has a number of wash shops or "recycling" operations whose primary purpose is the processing of large volumes of material outside production quotas.

    "under the guise of recycling poaching ' Black RE 'still repeated, indeed rampant excessive, shocking. Currently, this black industry chain is still a serious impact on the already fragile rare earth market."

    "According to statistics, a total of rare earth comprehensive recycling business 50 over, including Jiangxi, 40 more than in Jiangsu 5 home, Inner Mongolia 3 family, Shanxi 3 family, Henan, Shandong, Guangdong, Zhejiang, Yunnan, each 1 home. Integrated waste recycling in the country overall production capacity, including NdFeB waste 15 million tons of waste phosphors 2.3 million tons of polishing powder waste 2.2 million tons, waste 4,000 tons. Experts pointed out, but some companies are still illegal comprehensive recycling rare earth ore separation of activities carried out."

    Seems China can identify major volumes of "illegals", do they have the will to restrain it, most particularly with NdFeB driving demand out of balance to the LRE suite?

    December 8, 2015 - 8:18 AM

  • Tim Ainsworth

    Jack, re Singapore, I have to ask your impression of the JL Mag presentation, particularly the detailed data leading up to the graphic representing a 50% reduction in Dy demand 2014/2019?

    Much of the detail echos that already in the public domain from the Japanese manufacturers, and of course claims by Siemens.

    Other than the need to remain cost effective why else would a high end NdFeB manufacturer sitting inside a Sth China vertical with a 9000tpa HRE quota make such projections?

    Perhaps the surprising thing is that Chinese manufacturing has caught up so rapidly with Grain Boundary Diffusion and other ROW innovation.

    December 8, 2015 - 9:00 AM

  • Jack Lifton

    Tim,
    The Chinese mantra has been Locate, Replicate, and Innovate across the board for decades, just as was Japan’s before them. Chinese students, magnet researchers, and magnet manufacturing engineers have been moving back and forth between China and the West for many years. We, of course, ignore the fact that Chinese “students” and “researchers” are not welcome in Japan.
    What I find amazing is the fact that most Americans think and believe that if the Chinese only had access to our “way of life” they would soon learn that they are on “the wrong side of history.” Its amazing because so many Chinese who have spent considerable time in the USA go back thinking that it is Americans who are on the wrong side of history.

    Jack

    December 8, 2015 - 10:51 AM

  • Janet

    Thank you Ms. Weslosky and Mr. Lifton for this great interview. I really appreciate this information and find Mr. Lifton’s videos to be informative and easy to understand. Thanks for making this complex subject, interesting. You do great interviews here. I find myself watching them even when I am not in the particular ‘game’ that the person being interviewed is. Always learn something and I appreciate that.

    December 8, 2015 - 1:27 PM

  • Steve Mackowski

    If ~40% of the ROW LREO usage is sourced from illegal mines, this means that ~40% of the purchasing officers who source ROW LREO are somewhat suspect. Rather than the ROW blaming the Chinese government, perhaps our efforts would be better directed at “locating” those purchasing officers.

    December 8, 2015 - 5:09 PM

  • Tim Ainsworth

    Lol Jack, you forgot reLocate, as in the case of Magnequench: http://aheadoftheherd.com/Newsletter/2012/Magnequench-Has-Left-the-Building.html

    But back to the primary Q, your impressions of JL Mag’s projection of a 50% decline in Dy demand 2014/19?

    Certainly appears to support data from ROW alloy producers such as Showa Denko already in the public domain: http://www.showa-denko.com/news/showa-denko-develops-dysprosium-free-magnetic-alloy-for-factory-automation-applications/

    December 9, 2015 - 5:20 AM

  • Tim Ainsworth

    Lol Jack, you forgot reLocate, as in the case of Magnequench: aheadoftheherd.com/Newsletter/2012/Magnequench-Has-Left-the-Building.html

    But back to the primary Q, your impressions of JL Mag’s projection of a 50% decline in Dy demand 2014/19?

    Certainly appears to support data from ROW alloy producers such as Showa Denko already in the public domain: showa-denko.com/news/showa-denko-develops-dysprosium-free-magnetic-alloy-for-factory-automation-applications/

    December 9, 2015 - 5:22 AM

  • Tim Ainsworth

    Even in a country the size of China it would be rather difficult to hide 45ktpa of “illegal” RE mining AND processing. Increasingly obvious it’s similarly sourced, just the portion that fits the quota branded “legal”.

    As to PO’s, the dapper Dr from Rohstoff Allianz clearly told us: “Das ist verbotten”, could impact their incentive structure apparently.

    Not sure anyone is going to stir ROW consumer anxiety around catalysts, 90% balance third or fourth hand componentry, best of luck tracking the provenance.

    December 9, 2015 - 6:46 AM

  • Jack Lifton

    Tim,

    My “take” on dysprosium thrifting, substitution, and discontinuation is that there are many applications for which dysprosium/terbium additions are critical-one cannot achieve the desired properties without them. We have to separate the demand for Dy/Tb therefore into at least two segments:
    1. Those for which dysprosium is optional, and 2. Those for which dysprosium is critical. I do not know of such a study, but I would like to find one. In the meantime I cannot guess which of the above usage segments is larger. My gut tells me that it is the one where dysprosium is not replaceable. But when you look at the available data from China the picture gets even murkier. How much dysprosium is produced “legally;” how much dysprosium is produced “illegally;” and how much is recycled??? The same for terbium. I feel sorry for the quants with their graphs and tables and statistics that in the end are actually based on data that we are totally unable to verify.
    So, what I am saying is that your guess and mine are a bit more reliable than most, but we are just really making (educated) guesses.

    Jack

    December 9, 2015 - 9:12 AM

  • hackenzac

    New applications for dysprosium are always possible such as in audio systems. Have you heard of Terfenol-D? It’s a new terbium-iron-dysprosium alloy which “promises to revolutionize audio” they say.

    December 9, 2015 - 9:58 AM

  • Ann Bridges

    Great discussion, all. Regarding the cultural norm of China, remember that the very concept of a black market is new. Bribery is a way of life, and won’t be stopped by a centralized government edict. If there is a way to make a living by whatever means, someone will pursue it, and deal with the consequences in the usual way–graft. President Xi may posture about his corruption crackdown, but in reality it will take generations to affect a change, if at all. Many Chinese believe their way of doing business in more capitalistic than America’s, and it is hard to argue with them given the tight regulations many of our industries face. I try to get at the heart of this in my novel Rare Mettle so that readers can get a sense of the breadth of the global issue, and not get lost in the confusing names and nuances.

    December 9, 2015 - 11:16 AM

  • Jack Lifton

    Ann,

    Perspective is the route to objectivity, and so a novel is a better place to discuss these issues than a “fact” article, because a novel can expand on nuances and delve into human psychology as the true drivers of events. The non-fiction books so far on this topic are few and are specialist catalogs rather than attempts at explanations. The public needs to learn why the Chinese cannot see that they “must” do only those things that benefit the West, Korea, Japan, or the apostate Russians. The Chinese seem to think that what is good for China is good for the world. Silly them. We know that it is what is good for the WTO (read USA) is not only good for the world but best for the world. Can’t they see that???

    I look forward to your novel

    Jack

    December 9, 2015 - 11:50 AM

  • Janet

    Great conversation here, so glad I found this site and it’s amazing information. Ann, I really enjoyed your comments and agree it will be a few generations before we see a change in the corruption culture of China. Problem is that Western politicians are in it for a term with no long game and China plans decades in advance…. in the words of Robin Bromby in his article today on another topic, ” and the West is asleep at the wheel”.

    December 9, 2015 - 2:33 PM

  • Tim Ainsworth

    China now claiming NdFeB as there own:

    Global transfer trend rare earth permanent magnet industry – basically completed the transfer to China

    In recent years, due to the high cost of production in developed countries, while the international market price has been declining magnet, magnet production in these countries continue to have unsustainable, and therefore the United States, Europe, represented by the Western developed countries magnetics enterprises have carried out industrial restructuring, NdFeB industry to make major changes in the international situation has undergone.
      ◆ sintered magnet
      Prospect Industrial Research Institute released the ” 2015-2020 China’s rare earth permanent magnet materials industry Market Outlook and Investment Strategy Planning Analysis report “The data show that since 1990 since the global sintered NdFeB magnet production is growing rapidly, with an annual growth rate remained at 25% or so. The twenty-first century, despite the development of Japan, the United States, Europe and other developed countries, the rare earth permanent magnet industry stalled, but because of the extraordinary development of China’s rare earth permanent magnet industry, making the global rare earth permanent magnet industry continued to maintain a rapid growth trend. 2005 , the global production of sintered NdFeB 42300 tons, China’s production was 33,000 tons, accounting for world production of 78% , maintained a strong growth momentum. Japan sintered NdFeB magnets marking time, is to maintain the status. American sintered NdFeB magnets in 2004 after the demise of all.
      ◆ bonded magnets
      Bonded magnet, the global production capacity are concentrated in Japanese companies. A representative of the two companies, one is Seiko Epson, their production has all go to Shanghai magnetic magnetic devices Epson Limited; another Tatung Co. of Japan. In the computer’s hard drive ( HDD ) spindle motor applications, Datong and Shanghai Epson two companies will occupy the entire market share of 90% or more. 2002 end of the year, Zhong Ke San Huan shares of Shanghai Epson magnetic devices Ltd., 2004, in three months to further expand the stake, currently three rings already holds a 70 percent stake, becoming its largest shareholder. Advanced Technology 2003 on 3 March the company acquired Taiwanese Hain, its Shenzhen Hein MAG is a very high level of technology of bonded magnets factory, coupled with the domestic grew up in Chengdu Yinhe, a bonded magnet enterprises except Japan Datong , the other basic in China.
      Bonded NdFeB magnet production worldwide annual growth rate of 18% , keeping a steady growth trend. In 2005 , although the global Bonded NdFeB magnet production ratio in 2004 declined slightly in ( 1% or so), but China’s Bonded NdFeB production maintained a 11% growth. China Bonded NdFeB magnet production has exceeded global production by 40% , driven by the development of the global industry.
      Global transfer trend rare earth permanent magnet industry – basically completed the transfer to China
      21 Since the century, the developed countries due to the high cost of production of rare earth permanent magnet materials, while the market prices continue to decline, making the production of these countries unsustainable, so the Western developed countries in Europe and America as represented by magnetic enterprises have entered the industry to adjust.
      US NdFeB industry has moved from its former glory to all of today’s decline, Crucible closed, Ugimag close, Magnequench moved to China; 2007 , the German vacuum smelting company ( VAC ) acquisition of Finnish Neorem company, so in fact the only remaining European a sintered NdFeB company; NdFeB production, there are three major Japanese companies, including the world’s largest Neomax company and a veteran of the magnetic material manufacturer TDK , Shin-Etsu Chemical. In addition to both Europe and Japan, the world’s remaining sintered NdFeB production enterprises of all in China, where NEOMAX , TDK and Neorem in China have established processing base after the magnet; German vacuum melting company and Zhong Ke San Huan cooperation, the establishment in Beijing sintered NdFeB tricyclic Wacker China joint venture.
    Bonded NdFeB, the global production capacity are concentrated in Southeast Asia, in the hard disk drive spindle motor applications, Chase and Shanghai Epson Japan (Zhong Ke San Huan subsidiaries) two companies occupy the entire market share of 90% about. In the optical disk drive spindle motor applications, the main provider of bonded NdFeB magnets from Chengdu Galaxy, the day the (former George) and Shanghai Epson three companies.

    http://www.ac-rei.org.cn/portal.php?mod=view&aid=4501

    January 18, 2016 - 3:24 AM

  • Tim Ainsworth

    And sounds like they plan to keep it that way:

    “……the transformation and upgrading of the road Baotou rare earth permanent magnet industry”

    “Ministry of Finance approved the program, from 2015 onwards of 3 years, the state will give Baotou nearly 10 billion yuan of financial support.”

    “……reduce the cost of the permanent magnet 40 percent”

    Following on from JL Mag’s 65% Dy Free/Lite grades it doesn’t appear the Northerner’s consider Dy deletion a “myth” either:

    “……core competitive advantage – research and innovation, through the company’s unique research and development centers, the use of homemade key production equipment and unique manufacturing process of painstaking research and development of new energy automotive customers widely welcomed DDP ( HREE diffusion process ) and DFP ( zero / low heavy rare craft ) NdFeB products, which won the Japan, Europe and other heavyweight in the world automotive customer recognition”

    Smaller, lighter, more powerful, cheaper > more cost efficient > is 2016 the tipping point between mass reduction & demand volumes to broader employment?

    January 18, 2016 - 3:46 AM

  • Tim Ainsworth
    January 18, 2016 - 3:46 AM

  • Jack Lifton

    Tim,

    Thanks for the information. And thanks for being my conscience and keeping me honest. However I still think that China produces insufficient heavy rare earths for its planned conversion to a consumption led economy.
    The USA cannot fight the massive subsidizing by the central Chinese government of the Chinese rare earth industry nor should it. China’s current control of the global rare earth industry may have once been aimed at international dominance but I think that today it is but one arrow in the quiver of plans and projects to maintain China’s GDP growth.
    No matter that I still hold that the future of consumer technology availability outside of China is going to depend on a regional and national approach to local self-sufficiency in technology raw materials. The USA and Europe and Japan each need their own technology raw materials resources sufficient for their own internal demands. I predict that such sources will be protected by the return of tariffs on imports just as the Chinese protect their industries by tariffs (no matter what they are called) on exports of technology raw materials. What is an export ban but an infinite tariff?
    Neoliberalism in economics cannot compete with state capitalism if the goal of state capitalism is to increase the consumption of consumer goods. While our financial engineers increase their wealth by moving existing money into their own pockets with CDOs China’s state capitalists move money to where it creates jobs and increase wealth broadly. Unless the USA re-ignites our stalled engines of growth we are in decline. The Chinese see this and fear it far more than they fear terrorism or nuclear war. When will we wake up?

    Jack

    January 18, 2016 - 9:44 AM

  • Bill

    Thank you for the information Tim.

    Jack your views are very much appreciated.

    From what I can find these new no Dy permanent magnets are around 40% heavier

    Where weight is critical their appear to be no substitute to using Dy

    http://www.magneticsmagazine.com/main/wp-content/uploads/2013/03/Table1.jpg

    Tim, do you have any up to date information on the weight comparison of these new no Dy permanent magnets

    January 18, 2016 - 5:53 PM

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