EDITOR: | October 3rd, 2013 | 15 Comments

Lifton ‘Unchained’ (Part 4): China is officially shifting focus to domestic consumer demand

| October 03, 2013 | 15 Comments

This is the fourth installment in our five-part Lifton ‘Unchained’ commentary on the Rare Earth & Critical Materials Market. In case you missed them, be sure to check out Jack’s first three articles in his ‘Unchained’ series: Part 1: The State of the Rare Earth Market, Part 2: The Driver for Global Rare Earth Demand and Part 3: Forecasting Chinese Rare Earth Demand.

CHINAS1The late and unlamented Soviet Union created this planning model, but could not make it work, and so the Soviet Union became a hypocritical dead end benefiting only privileged elites that in the end simply went bankrupt. Even though it had produced immense stockpiles of natural resources. It had not managed to create an economy that could consume them.

China, over the last 25 years, just one generation, has created the largest export led economy in the world. It has accumulated US$3 trillion of reserves in doing so. China is now officially shifting gears. It has announced that it will shift its focus to domestic consumer demand so as to be able to maintain the vast productive capacity it has built as a low labor cost exporter. The Chinese mining industry and its downstream value chain are part and parcel of this shift in emphasis. Let’s see how exactly this is affecting the rare earth supply chain in China and how this will affect any forecast of future global demand for the rare earths collectively and individually.

First of all please note that China today, notwithstanding the entry of both Molycorp and Lynas into the light rare earth supply market, remains the overwhelmingly largest supplier of light rare earths in the world. I estimate that during the last 12 months China has produced and sold 90% of the world’s legally traded light rare earths. I say “sold” to emphasize that Molycorp has stated that it has built a large inventory of material and it is not clear to me how much has been actually sold into the market. Lynas, hopefully due to start up issues, has so far produced almost nothing in finished goods (at its entry point into the market).

Three weeks ago when I was in China at the ICRE in Ganzhou a speaker from Baotou dramatically emphasized that his company is the world’s largest vertically integrated producer of light rare earths all the way through to metals, and that, by itself, Baotou could easily supply the world’s demand for such products indefinitely. Keep in mind that of the 200 or so people in that audience only a dozen, at most, were not Chinese. Ganzhou is the heavy rare earth processing center of the world. There are, as I mentioned above, some 38 rare earth separation plants with more than 60,000 tons per year of capacity in the three-province local region of southern China. The Baotou speaker wasn’t trying to impress us, few, non-Chinese, he was very pointedly telling the other Chinese to stick to mining and refining heavy rare earths. Why? Because he is worried about competition in refining not from Molycorp or Lynas but from other increasingly stressed Chinese rare earth refiners who are being told by the central government that unless they are legal, environmentally in order, and profitable they can be ignored by the new consolidators of the rare earth industry appointed by the central government who, the consolidators, are the only ones who can give out production and end-use allocations and licenses. Interestingly enough there was a list shown of the individual capacities of the 38 rare earth separation plants in the region. The largest was of 5000 tons per annum capacity, the smallest was 1000 tons, and the average was 2000 tons.

There are a small, relative to the total, number of much larger light rare earth separation plants in China. Notably in Baotou’s home, the Autonomous Region of Inner Mongolia. I was told that China Minmetals, now appointed as a rare earth consolidator, for example, is building a new 10,000+ ton per year capacity SX plant. The statement was made in the conference that 90% of China’s rare earth refining is done by the largest 6 SX plants and that 97% is done by the top 20 SX plants. There is clearly a vast excess rare earth separation and refining capacity in China and there is clearly a bloodbath underway among them to see which will survive. These “communists’ are doing a very good job of using market capitalism to sort out a problem. When this type of behavior occurs in a free market economy it normally results in temporary low prices during the oversupply period followed by price stability as inefficient companies fail and then price rises by the winners to compensate for their losses in the battle for survival . I think this is exactly what we’re seeing today in the, still dominated by China, rare earth markets.

Jack Lifton


Jack Lifton is the CEO of 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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  • Veritas Bob

    I don’t consider having consolidators appointed by the central government to be unvarnished pure capitalism.

    October 3, 2013 - 9:38 AM

  • Jack Lifton


    I’m not saying that the Chinese are free market unregulated capitalists I’m saying that China is acting as if the cowboy capitalism of the late 1900s in the USA were now in vogue in the PRC. I sometimes wish that our western version of free market capitalism involved positive government oversight. The Chinese are doing what they think best for China. We pretend to take offense at their collectivist approach. Yet our me-first governments clearly laud the reemergence of monopolies of banking and commerce only so long as individual politicians profit alongside of the monopolists.
    For years I have . When Adam delved and Eve Span who was then the gentleman?

    October 3, 2013 - 10:09 AM

    • Jack Lifton

      This sentence beginning with “for years I have” should continue with” tried to get the North American REE industry to work together and even consolidate, but greed and short term thinking pervade the industry. Even though consolidation is obviously the answer to the foolish notion of building multiple high tech supply chains it is hard to get people to see past their short term interests to ensure long term gains”

      October 3, 2013 - 10:13 AM

  • Tim Ainsworth

    Jack, thnx for update on events in China, and the continuing perspective. Any word on the implementation of the Baotou trading platform that has been pending for some 12 months? Last mention was for October, perhaps an indication the consolidation is largely complete?

    October 3, 2013 - 1:09 PM

    • Jack Lifton


      I don’t know anything more current than you already know about the implementation of the trading platform, but I do know that the air of competition between Baotou and Ganzhou is palpable. There is definitely no love lost there . I’m amazed when people talk about the domestic Chinese rare earth supply chain as if it’s one big happy family. I doubt that the consolidation is anywhere near complete, and I am of the opinion that the consolidators have already begun infighting.

      Thanks very much for reading,


      October 3, 2013 - 4:41 PM

      • Tim Ainsworth

        Ok, that would explain the ongoing delay. Read an article a while back, think it was here by Hong Po, suggesting the southern producers were largely owned by local State or City State Govt. whereas the north was controlled by the national Govt. so perhaps this still has some way to go as you suggest.

        October 3, 2013 - 8:11 PM

        • Veritas Bob

          When/if futures (or forward) trading extending out to distant delivery dates starts, then we will finally be able to get some kind of “useful” valuation of deposits in the ground. If set up properly, futures for delivery distant in time should reflect market expectations (i.e., opinions backed up by money on the line, rather than bogus historical or current prices for products to be delivered several years in the future used for valuation in PEAs) for changes in supply and demand, including the impact of new sites going into production. Unfortunately, the Baotou exchange will not initially include futures trading, although it supposedly will include forward trading (but how far out in time?).

          Per China Daily article from 8-10-13:

          Zhang Zhong, general manager of Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co, said the trading platform will form a market-oriented price index in the long run, which is beneficial for the sustainable development of the global rare-earth industry. “We hope the exchange can carry out futures trading in the future,” Zhang said during the forum.

          According to Gu, the exchange will at first provide spot and forward trading for companies, excluding futures. All rare-earth products throughout the production chain can be traded on the platform.

          However, he said Baotou Steel Rare-Earth will not put all its products on the platform at the beginning because it takes time for new exchanges to grow.

          October 3, 2013 - 9:15 PM

  • Joe O

    I was hoping you can expand on your negative view Re:potential for cerium based water treatment (which obviously mean Molycorp) ?

    October 3, 2013 - 5:58 PM

    • Jack Lifton


      I don’t obviously mean Molycorp. What I am saying is that just 4 weeks ago in Ganzhou the speaker from Baotou, the world’s largest producer of cerium for the last 10-20 years said that his company expected a 30,000 ton surplus of cerium in 2015. China has a huge arsenic contamination problem that is being publicly discussed. If the Chinese believed that cerium could in any way whatsoever help them solve this problem then it seems to me that they would do everything possible to produce cerium and its price would go skyhigh driving a dramatic LREE revival. Nothing like this is happening that I know of. Rare earth compounds have been looked at as chelating agents for many years. There really isn’t much cerium around compared to the availability of iron and aluminum for example. The global metals industry produces today 40,000,000 tons of aluminum,1,500,000,000 tons of iron, and just 50,000 tons of cerium per year. Just the city of Detroit uses 1,000,000,000 gallons of water a day! Wastewater treatment does not seem to be a job for the relatively tiny rare earth industry except in those instances where cost doesn’t matter and/or volumes being treated are small or very valuable. Are there any such? I don’t know of any. Tell me what I am missing, please.

      Thanks for a very good question, which I hope will be debated by disinterested parties using numbers not emotions.


      October 3, 2013 - 11:45 PM

      • Jan Johnson

        Hi Jack,
        I thought the main use of SorbX and the like was to bind to free phosphate in water.
        The CSIRO in Australia developed water treatments for major river systems affected by algal blooms due to agricultural runoffs.
        I live in the tropics and use a Lanthanum Carbonate ‘phosphate remover’ whenever my pool threatens to turn green. (The dosage is about 0.5g/1000 litres from memory.)
        It works a treat. I wish Lynas were getting what I pay for it though: about $120/kg of dissolved salt!

        October 4, 2013 - 8:31 AM

  • Joe o

    Thanks for the response. I was under the impression you meant molycorp because of their cerium based sorbx product that they are peddling/testing.
    They seem to think it has potential but until it get some traction I will take it with a grain of salt.
    Would love to hear your opinions on the progress & potential of GW, ucore and quest
    Thanks again

    October 4, 2013 - 12:40 AM

  • vacuum

    reportedly, graphene will revolutionize water purification, desalination and even nuclear-waste-water cleanup …. all done inexpensively too. If so, perhaps cerium would be an additional step in the water purification process . . . hopefully.

    October 4, 2013 - 3:09 AM

  • vacuum

    Heck, seems like REEs need that principle of “induced demand” to kick in, whereby after supply increases, more of a good is consumed.

    On the other hand, with the dawn of the Age of Apple, is this not already underway. And being amidst, we are unable to realize its happenings; do we suffer familiarity. Perhaps the REE mining shares rally into 2008 was just the sensation of acceleration; now with velocity relatively constant, passengers fret about apparent no motion in LREE. The excitement of the assent of Himalaya dwindles down to three HREEs.

    Something akin to induced demand has been mentioned as pivotal for scandium, for example, which recalls the history of aluminum where from once upon a time precious coins were minted, and now beer cans and 23B annual revenue at Alcoa.

    ; ^ )

    cf. Jevons Paradox

    October 4, 2013 - 3:44 AM

  • Dave

    Hi Jack,
    China is officially shifting focus to domestic consumer demand – Rumors about China going to a rare earth buying spree – What about the consequences on HREE prices ?
    Thank you

    October 4, 2013 - 3:48 AM

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