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”
The overall driver for global rare earth demand now and for the foreseeable future is a function of the evolution, nationally (i.e. domestically in China), regionally (i.e. in southeast Asia), and globally, of the Chinese Rare Earth Industry. It is the same for global rare earth supply. Thus rare earth pricing and its impact on Future Supply and Demand also is dominated by the Chinese rare earth industry growth and the Chinese industry’s deployment of short term tactics based on its long term strategy.
Based on what I know today, I think that:
1. There is sufficient developed light rare earth (lanthanum, cerium, praseodymium, neodymium) total supply chain capacity domestically in China to completely satisfy China’s domestic demand for the indefinite future. Thus the only markets available to non-Chinese light rare earth producers are those outside of China and these account today for at most 20% of global demand,
2. The same is most likely true also for China’s domestic total supply chain and demand for the SEG (samarium, europium, and gadolinium) rare earths,
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3. The total global demand for primary HREEs is today essentially China’s domestic manufacturing market,
However, from my own background knowledge and experience, and my personal research in China, I believe that China does not have sufficient economically practical (profitable) or environmentally safe to mine supplies of new HREEs (I define these as terbium, dysprosium, and yttrium) to satisfy even its near-term domestic (and currently the global) demand. It’s not that the Chinese ion-adsorption clays are played out; it’s that their continued legal production is likely to be dramatically reduced by environmental and regulatory restrictions in the new era in China of the nation’s switch from export and savings driven GDP growth to that of domestic consumption as the principal driver.
4. It is my further opinion that if it were not for the fact that the Chinese rare earth processing industry is already massively recycling HREE bearing waste streams from industrial processing and end of life industrial components there would already be a shortage within China of the HREEs. As it is, and as I stated above, I believe that new production of terbium, dysprosium, and yttrium from the Chinese adsorption clay deposits are diminishing due to the crackdown on illegal mining and on the issue of environmental pollution.
Thus the rare earth market is truly segmented. On the one hand the two large non-Chinese producing primary rare earth mines, Mountain Pass and Mt Weld, overwhelmingly contain and produce just the light rare earths. Those deposits that are relatively rich in the HREEs, and are today in operation to produce HREEs, are the very low grade “adsorption clays” in southern China. The HREE separation and refining market within China has or seems to have vast overcapacity.
This would seem to be an ideal situation for non-Chinese producers of mixed rare earth concentrates that have significant percentages of HREEs. But the issue is the rare earth total value chain not just the supply chain. Those without knowledge of either chain have been for the last several years simply assuming the they could ascribe the market value or a high proportion of it to their models of the values for the mixed rare earth process leach solutions derived from their mechanically beneficiated ore concentrates. The primary error in this reasoning is the assumption that the discount from “market pricing” would be “only” 40%. In fact the principle and majority OPEXs are incurred downstream of this point which involves processing the PLS all the way to the fabricated metallic forms or specified chemical blends required by the actual consuming industries.
Among other glossed over expenditures are:
- The costs added for removing and disposing of radioactive components from the PLS are not just CAPEX and OPEX chemical but must also include future regulatory costs, which are today purely speculative, at best,
- The costs of separating the “desired” rare earths from each other involve substantial initial CAPEX and OPEX but most of the juniors have even so vastly overestimated such costs while simultaneously trivializing the costs discussed in factor 1 above,
- The cost of obtaining the latest, most efficient and competitive, supply chain component technology, such as those for separation, purification, metal making, and alloy making,
- The cost in time and manpower (person-power) to bring a total supply chain or enough of its components into operation to make a rare earth venture profitable from the start, and
- The cost of finding the people for and setting up a marketing organization to convince end users that they should risk adding a vendor to their procurement profile. Note well that this process normally takes up to three years!
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>