EDITOR: | January 6th, 2014 | 17 Comments

Jack Lifton’s Analysis and Forecast for the Rare Earth Sector in 2014

| January 06, 2014 | 17 Comments
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investorintelreport.png.xarToday, December 31, 2013, at least 80% of the demand for the light rare earths, in the form of ore concentrates, is in  and from the domestic Chinese market. Essentially 100% of the demand for the heavy rare earths, as ore concentrates or in process leach solutions, PLS, comes from that same, domestic Chinese, market.

I strongly believe and therefore maintain that so long as the majority of the demand for each of the individual rare earths, in raw material configurations, comes from mainland China, the Peoples’ Republic of China,( the PRC ), then the only logical business model for a rare earth mine or a rare earth junior miner is one that first of all emphasizes and targets  the demand for its products in the PRC, and creates an ability to market there, in competition on price, with domestic Chinese rare earth producers of the exact same products. Such an ability, of course, would make a rare earth miner or junior miner a sure winner in the non Chinese market, since its delivered prices would be much lower than those of its Chinese competitors.

I am writing these sentences on December 31, 2013, and unless the business model outlined in bold italics above  is followed by ventures outside of China in the next twelve months, and unless total rare earth supply chains, competitive, both inside and outside of China, with existing Chinese total rare earth supply chains are created, or planned and funded  outside of China in that same twelve months, then the overwhelming majority of demand for each of the individual rare earths in raw material configurations as of December 31, 2014, will again be in the domestic PRC market. This situation will remain static until and unless a competitive total rare earth supply chain is established outside of the PRC.

This, of course, means that the pricing for rare earths in raw material configurations will continue to be determined by the PRC’s domestic market, the demand for the supply of rare earths into which is the pricing driver. So long as foreign rare earth producers can produce only the light rare earths, all of which the Chinese market has in surplus from domestic sources, they, the foreign sources, will be only successful if they can sell at a profit into the Chinese domestic market competitively. As of this moment domestic Chinese prices are such that there is no driver at all for Chinese rare earth processors or end users to import light rare earths individually or in combination from the universally higher cost foreign producers.

There will always be a small market outside of China for light rare earths produced outside of China where the buyer is factoring in a security of supply component of the cost, but this is not likely to be a large market or any market at all until there is a total rare earth supply chain outside of China especially in the cases where the customer requires high purity separated individual rare earth such as for the production of rare earth permanent magnets.

The heavy rare earths’ market is the one to watch and the one in which to invest…To read and receive the full copy from Jack Lifton’s Analysis and Forecast for the Rare Earth Sector in 2014click here to subscribe


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

  • hackenzac

    What’s this pay wall horse dooky? Gotta monetize it right Tracy? Your piece is gonna get 15 hits instead of the usual 15 thousand. There’s more than one kind of currency you know. The real value is in the widest influence and not a few subscriptions.

    January 7, 2014 - 4:02 AM

    • Tracy Weslosky

      Thank you Hackenzac for your feedback. Most of our content is free. For the last 5 years, I have supplied premium content for free, and will continue to do so. This said, occasionally we want to get a little more edgy and share more details….so you still get our great content, but with InvestorIntelReport – you get the sizzle before all of the sites that repaginate our content, steal it for free. Now we have a firewall…but as you know: all truths eventually are freed. Always enjoy your comments, and keep them coming…

      January 7, 2014 - 1:59 PM

  • Tim Ainsworth

    Jack, are you including autocat & FCC markets? Certainly the lower value end but representing 23% by total volume with CAGR’s of 6% & 8% respectively, and established ROW supply chains to the 60+% demand outside China.
    As I understand it Lynas have been talking price in terms of China domestic “with a premium” for some time. Certainly they identified China’s dominance in four of five key demand segments back in Nov 12: http://www.lynascorp.com/Presentations/2012/Roskill_Presentation_14_Nov_2012__FINAL.pdf
    A recent comment I extracted (talking REO for metals) was to the effect “who else are you going to sell it to?”. They are maintaining LAMP1 production is fully committed so perhaps some answers will be forthcoming, particularly the projected 2700t Nd/Pr oxide.

    January 7, 2014 - 8:55 AM

    • Jack Lifton

      Tim,

      I spoke with Lynas at length in December, and I was told that LAMP1 is scheduled to run at capacity in 2014, but that LAMP2 production will not be scheduled until there is sufficient demand.
      I think that the autocatalyst wash coat market outside of China is covered predominantly by Solvay/Rhodia from France. I know that prior to Lynas’ startup Solvay/Rhodia was buying feed stocks entirely from China (I don’t know if Solvay/Rhodia ever bought anything from Molycorp). Because of Solvay/Rhodia’s dominant position in the autocatalyst washcoat business, and because of the tight specifications required by Solvay/Rhodia I don’t consider the demand for this product line to be competitive for new suppliers.
      As to FCCs there are multiple manufacturers outside of China and I know that Lynas is supplying some of them, and I suspect that Molycorp is also. Remember that FCCs use La/Ce not Pr/Nd.
      Here’s the kicker: There is no demand for didymium (Pr/Nd) to be made into metal for magnet alloy outside of China/Japan (90/10), so unless the LREE producers sell didymium salts to China/Japan they have no market.

      I have come to the conclusion that the generic Wall Street investment house to this day does not understand the rare earths’ industry at all. The amount of money wasted on exploration companies and share price manipulation dwarfs what is needed to construct a total rare earth supply chain outside of China that would have the breadth and capacity to supply ALL of the non-Chinese market.

      Thanks for the thoughtful questions

      Jack

      January 7, 2014 - 10:15 AM

      • Tim Ainsworth

        Jack,
        I’m certainly supporting the thrust of your comments, I was in the room along with Gareth when Nick Curtis first made that presentation I pointed to showing the contraction of demand into China, and distinctly remember the sinking feeling. Point is Lynas have been aware of this for some time.
        I raised the issue re catalysts as it is at the volume end of the business, Ce/La, for the LRE producers and one where ROW retain 60% or so, with one of the healthier growth profiles. Lynas’s foundation offtake agreement LAMP1 was to Rhodia for both the autocat & phosphor suites, the third to BASF for FCC and two other subsequent autocat contracts, recent information would suggest Japan. Advice from last November’s AGM presentation was “Based on current customer agreements and negotiations, Lynas currently expects to sell its annual Phase 1 production ” so I feel it’s a reasonable assumption that the bulk of the above remains intact.
        As to the metals suite it gets a little more interesting as you suggest above. The earlier details of Lynas offtake showed three magnet/battery contracts and while not identifying specific locations China was clearly not one of them. Skip forward to last November’s Annual Report presentation and there is an interesting graphic pages 6&7 (I have had an indication as to its substance), note particularly the metals route to market: http://www.lynascorp.com/Annual%20Reports/Lynas_Annual%20Report_2013%20FINAL%201272078.pdf
        Easy enough to dismiss as speculation at this point but I’d suggest at the least that a good deal of work has already gone into dealing with the issues you raise above, configuring the business on a domestic “with a premium” basis. Perhaps the TfS audit detailed in the CEO report might be precursor to a little of that premium: http://www.lynascorp.com/Presentations/2013/ASX%20Release%20-%20CEO%20Address%202013%20AGM%20291113%201283373.pdf
        I’d suggest Lynas have been planning for some time to meet the challenges you outline above (incl news of a very preliminary application for an Nd/Pr & La metals pilot), and as they become more apparent punters might start to query all the nominal FOB “baskets” plastered thru the various scoping & feasibility studies out there.
        Predominantly ROW pricing for Ce/La & China domestic for the metals suite (incl La) has some interesting financial impact that has not been considered to date in the recent LRE v HRE fad.
        BTW, the Lynas update yesterday suggested Phase 1 may be ramping behind schedule but “some Phase 2 downstream assets, such as product finishing units and tunnel furnaces, to optimise its customer product range.” Will be an interesting year.

        January 7, 2014 - 12:18 PM

        • Tim Ainsworth

          SB, “have started using some Phase 2 downstream assets,…………”

          January 7, 2014 - 12:23 PM

          • Tim Ainsworth

            Jack,
            Just thinking thru your comments further and linking the creeping Chinese equity/influence (not limited to mainland Chinese) in at least four Australian wannabes I’m wondering how much of those realities are sinking into the respective boardrooms. Begs the question as to whether this equity is positioning for LT security of supply or whether they see a clear current path (2/3yr) thru the matrix?

            January 8, 2014 - 3:46 AM

  • Venture capitalist

    It is disappointing to see authors on Investorintel being able to outright promote companies who pay them (amongst them very questionable pink sheets like TRER), and leave out other top dog juniors for no good reason. So far for objectivity and quality from mr. Lifton.

    January 7, 2014 - 12:17 PM

    • Tracy Weslosky

      Dear Venture Capitalist; All of our editors have freedom of speech and are allowed to express their opinions. We have written more copy on more rare earth companies than any other site in the world, which I am very proud of. Jack’s opinions are his own, and may or may not reflect the rest of the writers on our team. In this piece that you reference, we do NOT publish his opinion here — but on a private subscription only site: http://www.InvestorIntelReport.com — so clearly you read his content. May I ask how you saw his content as you are not a subscriber…yet? Let’s not complain when you were privy to copyright protected text that you have managed to secure a free copy of. Call me if you would like to discuss further — happy to get your feedback as we have some notable changes occurring on InvestorIntel, which should dazzle our harshest critics.

      Tracy 416-581-0177 x107

      January 7, 2014 - 1:53 PM

      • Sunnyvale

        Perhaps VC is referencing the TRER alert sent out this morning. I got this alert because I signed up at the TRER website for news. This alert was titled “TRER positively mentioned in InvestorIntel report”. The content was JL’s views of 2014 REE sector.

        January 7, 2014 - 3:38 PM

    • Anthony Marchese

      Venture Capitalist:

      I find your comments characterizing TRER as “very questionable…..” offensive, as well as your insinuation that Jack Lifton, a director, commented positively about TRER because he is affiliated with the Company. I suspect your criticism stems from the fact that his views differ from yours with respect to the investment merits of certain rare earth companies. Jack is an outstanding independent thinking board member whose views are supported by facts and not sentiment. Feel free to contact me directly if you wish to learn more about Texas Rare Earth Resources and the great team we have assembled. I suspect you will change your mind.

      Anthony Marchese
      Chairman
      amarchese@trer.com

      January 8, 2014 - 9:46 AM

  • vacuum

    as I read comments on the site beginning this year, I notice a tremendous surge in conflict energy. (esp the article about GWG).

    This is definitely different than what it was like the latter half of 2013. I was always amazed by the decorum.

    So, I would suspect that this mirrors some kind of phase shift, cycle change occurring now within the REE sector at large. I would guess that 2014 will witness the last ones standing, and therefore a lot more clarity in the nonChina REE space going forward.

    fwiw

    ps. Forget about the pikers who never pay for information and then complain about everything.

    January 8, 2014 - 1:31 AM

    • Tim Ainsworth

      Lol vacuum, trace back the earlier commentary on that GWG thread, always reminds me of Python’s “Black Knight”: http://www.youtube.com/watch?v=-6VTci1Bunk
      Certainly agree it’s a cyclical thing so possibly heralds the end of the “my HRE is bigger than yours” chapter and may just focus some attention downstream.
      Clear lesson of the past decade or so is that a paywall will survive (and hopefully prosper) on the quality of it’s content. Tracy & her team have done much to enlighten the rather opaque RE & graphite spaces (my interests) but if they can add a fresh downstream intelligence (IMO cutting edge as Jack suggests) we should wish her every success.
      Hopefully her timing is on the money.

      January 8, 2014 - 4:50 AM

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