EDITOR: | September 17th, 2015 | 4 Comments

Lifton on why invest in process innovations for technology metals

| September 17, 2015 | 4 Comments
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Why invest in separation and purification process innovations for Technology Metals?

Theories in economics must always remain just that, theories, because no one, or no entity, not even governments, can purposely isolate or create a representative baseline case economy; then identify and isolate a total set of driving forces; and then finally vary those forces in a controlled way and observe the results to derive “universally applicable” empirical laws. The main impediment to such experiments, besides the sheer magnitude both of the task and authoritarian control necessary to accomplish it, is the moral aspect of such an endeavor. I doubt that economists and politicians are ready now or ever to try to accept, without judgement, the base economic instincts that drive mankind, among them would be pride, nationalism, greed, and jealousy.

Notwithstanding the limits placed on our ability to understand (test) economics, and these limits are practically and basically “simply” those of trying to identify, isolate, normalize (create a baseline) and measure the influence of universal basic factors there are actually some factors that seem to stand out as fundamental even with our limited understanding or ability to deconstruct our society dispassionately.

Investors in technology metals right now have an advantage in that they can observe one of the most important of these factors, the base-line prices for all technology metals and materials. Devices, the functioning of which is enabled by and therefore critically dependent upon technology metals and materials, find their overwhelming demand coming from mass-produced consumer goods. And the desire for such goods is as close to a universal desire of all mankind no matter what form of government they live under as are the desires for basic shelter, safety (security), and health. Intriguingly to me these last three desires are what causes us to have government yet most politicians do not see how vital technology metals and materials are for fulfilling our civilizations fourth, as it were, driver, the desire for mass produced consumer goods.

As we enter the fourth quarter of 2015 we, the small investors, have a unique opportunity. World GDP is essentially flat, so global demand is flat and I think that we can look upon current prices for technology metals and materials as lowest-case baseline prices. Prices as low as they can go. This means simply that if prices go lower than the base-line then producers will not have sufficient reserves of capital or credit to continue production at all, since all such additional production would be for inventory in speculation upon a return of demand at higher prices.

Some prices, such as those for the rare earths, are now artificially low, because rare earths are mainly produced as by-products of more common metals or from low grade deposits today requiring exceptional and expensive technologies to legally recover them. Interestingly enough it was the stockpiling of the rare earths in the recent past due to the extraordinary availability of essentially free money (open credit) in the Chinese economic experiment (Capitalism with Chinese characteristics) that has caused the decline in rare earth prices being experienced today to remain operational (this is masking the fact that the baseline for rare earths is much higher than current prices). “Smart” buyers are buying up rare earths at these depressed prices, so that when demand returns they will have a sharp competitive advantage in costs against those buyers for whom the rare earths are critical components of manufactured goods but who traditionally buy only as needed.

Also keep in mind that although the rare earths are viewed as an entity; they are not. It is only in their supply that the rare earths are closely linked and even interconnected; the demand for the rare earths consist of a market for each of the rare earths separately. And even then the demand for some of them such as neodymium and dysprosium is linked by the technologies of the moment not by destiny. This is a complex demand picture. A misunderstanding of the demand drivers underpins much of the current analysis of the global are earths’ markets.

The current slump in world demand for metals and materials in general gives us a rare opportunity to discover the “base line of demand” for all metals and materials. The complexity of the intra-action and dependency between common metals production and the production of the less common metals is now becoming more visible. It is becoming obvious that cost-reducing separation and purification technologies are powerful drivers for the supply of the less common metals. Thus these technologies are excellent investments when they accomplish the simple goals of being not only cost reducers but are also able to be used to treat low grade materials such as consumer scrap economically. In that way, more than in any other, such technologies lessen the need for new materials and thus lessen the dependency for the production of less common metals upon the production of common metals.

[Special thanks to Ucore Rare Metals for the above photo]


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

  • Alex

    generally demand on neodymium and disprosium was generated by state dotation in development of green energy and now when the prices on oil fall down the demand on those magnets have to fall down.

    September 17, 2015 - 1:56 PM

  • Jack Lifton

    Alex,

    Actually the single largest industrial use for rare earth permanent magnets is in the OEM automotive industry to lessen the weight and thus improve the efficiency of internal combustion fossil fueled power trains. Although this industry is mature (i.e. steady but not growing overall) in the west it is anything but that in Asia and Africa.
    Light weighting is also critical, perhaps even more so, in the global aircraft industry, which is also fossil fueled for internal combustion power trains. The numbers of aircraft of all types, civilian and military, on order worldwide is the largest it has ever been outside of wartime. Not only does and will this drive demand for neodymium (praseodymium), dysprosium and terbium but it also drives demand for yttrium, ytterbium, and scandium for lightweighting structural alloys and high temperature exhaust management.
    You are right though about alternate energy demands for rare earth permanent magnets. China’s plans for wind energy to service its off the grid “frontier” areas, if actualized, would absorb several years of the total production of neodymium and dysprosium. if the direct drive permanent magnet type of generators were used across the board.
    I see in any case today’s apparent non-shortage as an artifact of the economic chaos of the global economy. It will not last.

    Jack

    September 17, 2015 - 2:24 PM

  • RareEarthKing

    Jack, what are the best ways for retail investors to invest in these innovations?

    Thanks,

    REK

    September 20, 2015 - 9:20 PM

  • Janet

    Interesting article and a great question REK … one I would like to see the answered as well.
    Janet

    September 21, 2015 - 10:42 AM

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