EDITOR: | October 2nd, 2013 | 7 Comments

Lifton ‘Unchained’ (Part 3): Forecasting Chinese Rare Earth Demand

| October 02, 2013 | 7 Comments
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jlu3

A worker at a rare earth smelter in China stands before piles of lanthanum, seen in the background.

This is the third installment in our five-part Lifton ‘Unchained’ commentary on the Rare Earth & Critical Materials Market by InvestorIntel’s own Jack Lifton. As promised, 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 them, be sure to check out Jack’s first two articles in this series: Part 1: The State of the Rare Earth Market and Part 2: The Driver for Global Rare Earth Demand

For the sake of winding up this discussion let me forecast what I think specific rare earth demands will be at the end of the next (the 14th) Chinese 5-year plan in 2020.  I am basing my forecasting on the actual growth of Chinese GDP and the actual growth of industrialized Asian GDP in general. I predict that the GDP growth in Asia will contribute the majority of the world’s GDP growth over the next 7 years and will in 2020 be at 4% to 5% after falling from today’s higher levels in China, India, and places like Malaysia. Obviously the overall regional GDP growth in terms of percentage of the total will remain in China. At 5% per annum GDP growth in the region the demand for critical rare earths would then increase by 40%. I am going to add a factor to take into account that the GDP growth in China will shift to consumer demand, so I will forecast that there will be a 50% increase in the demand for neodymium, terbium, dysprosium, and yttrium over 2013 consumption by 2020.

How then do we calculate the total production of rare earth elements in 2020 in order to satisfy  50% increases in the demand for the big four, neodymium, terbium, dysprosium, and yttrium? There are two large factors in this equation.

  • To calculate how much rare earth volume there must be in total produced in order to produce 37,500 tons per annum of just neodymium we have to determine how much neodymium is contained in the average currently produced rare earths. I am going to use a figure of 20% Nd in the total rare earths in an average currently produced light rare earth basket. To produce 37,500 tons per year of neodymium will therefore require the production of 185,000 metric tons of light rare earths. Note: The ICRE meeting I just attended in China was addressed by a manager from the world’s largest light rare earth total supply chain operation, Baotou Steel Rare Earth (Group) Hi-Tech Co. Ltd., who said that there is expected, by his company in 2015, a surplus of 30,000 tons of cerium. I would say that unless there is an unexpected breakthrough in the use of cerium-I am very skeptical of the future of cerium as a waste treatment chemical-then by the year 2020 cerium surpluses will have accumulated to more than 100,000 tons and cerium will be essentially worthless.
  • The heavy rare earth distribution in the Chinese adsorption clays is similar to that found in the mineral xenotime, but the grades are very, very low by the standards of hard rock mining.  Assuming a maximum grade of 0.1 % for the ionic adsorption clays, which is probably high, means that 1000 tons of such clays have to be processed to produce just one ton of total rare earths. 

Using a figure of 12,000 tons of total HREEs production and, in the case of the HREEs, demand for 2013 would mean, if all of this were linear, that I would forecast a production of 18,000 tons of HREEs for 2020. There is however a problem with this figure if the sole source is to be China’s adsorption clays. As far as I understood from the presentations I heard in China last month there now exists in southern China a total of 38 SX based rare earth separation plants with a capacity of 60,000 tons per year of TREEs. Note that the ionic adsorption clays, if you include yttrium, and begin counting with terbium, element number 65, are comprised of 80-85% (!) of HREEs. Therefore if the southern China SX plants are running just ionic adsorption clay PLSs they have a capacity of 50,000 tons per annum, or 4 times the present global production and even 3 times my forecast production in 2020.

jlup32

Neodymium at the Baotou Steel Rare Earth Hi-Tech Co. factory in China.

China doesn’t need seem to need additional HREE separation capacity at all, now or ever for the foreseeable future.

China is however using some of this same capacity to process more than 20,000 tons per year of rare earth permanent magnet scrap from industrial processing residues and end of life industrial products. Note that even if we just use the 20,000 ton recycling figure for Nd-Fe-B magnets this adds 6,600 tons per year of Nd to China’s total production or the equivalent of the Nd produced in total by both Molycorp and Lynas running at 20,000 tos of TREEs per year.

It’s also likely that the amount of dysprosium and terbium recovered by Chinese rare earth permanent magnet recycling is as much as 500 tons and 200 tons respectively. These figures for legal recycled material are, for their respective rare earth elements, very large components of their yearly global production, and I do not know if they are counted in the official totals for new Chinese production that are published-Can someone who is fluent in Mandarin and who reviews the Chinese literature please help me out here? 

The presentation, mentioned above, that Australia’s Dudley Kingsnorth recently gave in China at the annual Metal-Pages Rare Earth Conference makes some demand forecasts for the rare earths collectively and individually. The period he covers is 2016-2020, which is essentially the period covered by China’s next 5-year plan. This is not a coincidence. For anyone who has not kept up with world economic affairs during the last 50 years or so let me explain that China is governed by a single party, the Chinese Communist Party, which has implemented a command economy (production targets as well as chosen products and services are established by the central government, or, at least, approved by the central government), and it, the Party, has a national “Industrial Plan.” This last means that the central government has a long term plan for specific industrial development in order to achieve a targeted increase in the nations’ gross domestic product. China operates by developing 5-year plans to further these goals. Towards the end of each 5-year period, since 1949, anyway, China reviews how well the plan has gone and then uses that data to determine the detailed goals of each part of the economy for the next 5-year plan. All producers of goods and services are given growth targets. Failure to meet the targets usually means career failure for high ranking managers. 5-year plan targets are therefore taken very seriously by Chinese managers.


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

  • Daniel McGroarty

    A great close look at every aspect of the REE picture… Thanks, Jack. Look forward to the final installments

    October 2, 2013 - 1:17 PM

  • hackenzac

    Again, if China has all of the hree separation capacity it needs now and well into the future, why collaborate on a ROW tolling separation facility? Why not just import cleaned up mixed hree concentrates? Why would they bother to collaborate with Great Western in South Africa for an SX plant? As a template, Conglin buying up Northern Minerals seems like their plan for the ROW ie. buy the hree skewed mines they like and then bring the concentrates they desire to China. Jack, would you care to comment on Molycorp’s ability to separate hrees at Mountain Pass? Since they don’t have much in the way of hree’s there, doesn’t it seem like they could be planning a tolling operation or at least grabbing a hree junior? Also, would you care to comment on the potential for solid phase extraction to upend sx as the dominant technology. Ucore, if it proves out, will be doing their own separation using it and it seems that REE, Namibia Rare Earths and Texas Rare Earths are all looking at it as well.

    October 2, 2013 - 3:11 PM

    • Lou

      Hackenzac: It is probably presumptuous of me to address some of the questions you raised. But if I understood Jack’s comments in his recent interview with Tracy, I gather that the economics aren’t there to justify the capex and opex investment to mine rare earths if the only profit to be had comes from selling concentrate into China. Mines will need to participate in the downstream profits to justify their investments.

      As for Great Western’s arrangement with GQD to build a separation plant in South Africa to toll process the output from the Steenkampskraal mine, the JV contract and some preliminary planning already exists. The Chinese government has not required GQD to abrogate its contractual arrangements with Great Western. The bigger question might be why the Chinese government did not stand in the way of this arrangement. My guess is that it is partly because the output from Steen is a very small part of the world market. Also, it somewhat inoculates China from accusations of WTO violations. If the Chinese government were to force an abrogation of the Great Western – GQD contract, it would send a very bad signal to others wishing to make contracts with Chinese firms. GQD’s motives are simple. Making money.

      It seems to me that the ownership participation and the tolling fee profits written into the Great Western – GQD contract would be a great template for other Chinese separators to partner with ROW developing mines. IMHO.

      October 2, 2013 - 6:07 PM

  • Veritas Bob

    Jack,

    1. It appears that you have estimated GDP growth for Asia, and assumed (approximated) that demand for the big four, neodymium, terbium, dysprosium, and yttrium, will increase at the same rate. However, GDP growth for the entire world (i.e., GWP), will likely be lower, and since a large portion of current Asian (Chinese) REE demand is for manufacture of end products to be sold outside of Asia, then this does not appear to me to be a good basis for estimation, even accounting for the prospect for Chinese manufacturing to be going increasingly toward end domestic consumption. I think however, that you could adjust your methodology to account for differing Asian vs. ROW growth and end consumption rates (unfortunately with a few more economic parameters requiring estimation) and improve your forecast.

    2. I asked this over on the recent Kingsnorth article, but do you have a view on the possibility and timeframe for cerium-based magnets coming onto the market, and what that would do to cerium (increase) and neodymium (decrease?) demand?

    3. Do you see cerium becoming so worthless, that it is not even worth the shipping cost to use in low value-add situations? Would you still be gloomy on Molycorp’s SorbX (cerium-based water treatment product) if it were priced commensurate with cerium at only two or three dollars/kg (after allowing for lengthy customer acceptance processes, etc.)?

    October 2, 2013 - 3:39 PM

    • Alex

      At the Conference in Shanghai Dadly stressed that his estimations of growth demand will be correct only if safaty supply chain will be occur. It means that safaty supply have to be build before investors will decide to use REE in future applications !
      If China GDP will growth – it means that chinese will use their own REE, they told that they has 300 000 tones possibility to produce.
      The price in China 25% low that export price for ROW because of export Tax.
      I have not see reason why demand in ROW will grow up/ The 60% of demand is from Japan – do you think Japan economy grow up 50% ?

      October 3, 2013 - 5:50 AM

  • Rare Earths & Critical Minerals Week-in-Review: Texas Rare Earths (+25%), Frontier Rare Earths (+17.72%), Canada Rare Earth (+16.67%), Montero (+11.11%) & Pele (+10.98%) | InvestorIntel

    […] out: Part 1: The State of the Rare Earth Market, Part 2: The Driver for Global Rare Earth Demand, Part 3: Forecasting Chinese Rare Earth Demand, Part 4: China is Officially Shifting Focus to Domestic Consumer Demand, and Part: 5: The Future […]

    October 8, 2013 - 10:04 AM

  • David Mortimer

    The Chinese are currently trying to steal the license for heavy rare earth mine Kutessay 11 in kyrygstan from Stans energy nice people.

    October 8, 2013 - 6:37 PM

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