EDITOR: | March 8th, 2016 | 6 Comments

Technology Metals Monthly – Quiet times can be deceiving in the Rare Earths Space

| March 08, 2016 | 6 Comments
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February is the month of the Chinese (or Lunar) New Year. It is holiday time in China; the rare earth market in particular goes dormant and very little happens. Right? Well, on the face of it, it appears that the rare earths space was asleep but maybe there’s some action going on if you look in the right places and ask the right questions.

So first, let’s look at price movements. Remember I’m looking at a limited number of REO products, namely, Oxides of typically traded quality and FOB China, US$/kg. Again, as per last month, if you want very accurate prices against very accurate quality specifications at specific times, contact others. I am only trying to provide trends that can be used to indicate any shift in fundamentals. Also note if there is no price movement it is most likely the result of zero reported trade.

Chart 1

So, no positive movements at all, and ongoing downward pressure on very low volumes. A totally predictable February. But wait!

Important Events of the Period

The round one 2016 China rare earths production quota have been released! Did you see it or miss it? Well, in previous years it seemed like it was on the front page of every newspaper, major news on CNN, the start of diplomatic ructions, you remember? Well, this year – zilch headlines. Why is that? Are we so complacent? Do we not care? Have we moved on? Well, maybe all of those, but for the record the production quota is unchanged at 52,500 tonnes of total REO for the first half of 2016. Even the consist is unchanged, 43,550 tonnes of light REO and 8,950 tonnes of medium and heavy REO. What does this mean? This is the interesting part. We have all heard of the “illegal” REO. I have previously called this a smoke screen but that’s another story. Apparently, research by Prof Kingsnorth and others puts this “illegal” at 40,000 tonnes per year. This is on top of the “legal” at approx. 110,000 tonnes. So if I was a government with a firm commitment to shutting down the “illegal” REO, I would want to make sure that I didn’t create a supply shortfall as I successfully closed down the “illegal”. You would want to be proactive here. So let’s assume as a government you set yourself the key performance indicator (KPI) of shutting down half of the “illegal” in 2016. That’s 20,000 tonnes according to the research. So to prevent a supply shortfall, you surely must increase the production quota to make up for that “illegal” REO now not in the market place. But there is no increase in the quota! Why not you may ask? Don’t tell me that this is a Chinese government oversight. I reckon it supports my smokescreen theory. Or, and this is really interesting, perhaps the Chinese government see the REO being lost to the marketplace by their success in shutting down the “illegal”, being replaced not by expanded Chinese production, but by the contribution of Lynas! Imagine that. Lynas being acknowledged as a meaningful contributor to the global REO space by the Chinese government! What a compliment! An acknowledgement that at least one ROW developer in the REO space has got its act together. But there’s more.

During the month, Alkane Resources reported the ongoing success of its gold operations. The cash generated helping towards the progress of their Dubbo zirconia project (with a healthy tonnage of REO as by-product). More importantly, the DZP has a project life of greater than 50 years. Now that’s a project you can design a supply chain around. And then there’s Peak Resources! They announced their new reserves giving them a greater than 50 year life. So is that Lynas + Alkane + Peak = very significant ROW REO well into the future? Seems so. And until I hear something a lot more significant from the North American continent, that’s all I can say on that scene.

Also read an interesting piece from Hyderabad, India. Market research by “Mordor Intelligence” into the global yttrium market.

“The global yttrium market is in its nascent stage, and is expected to grow at a fast pace until 2020. Yttrium consumption is estimated to grow at a CAGR of 15.45% from 2014 to 2020”.

This growth has not been acknowledged by anyone else in the published world. Wonder if it’s accurate? Sure would change the dynamics of the heavy REO space. Well, cast your mind back 3 years. Ryan Castillioux, Research Director of Adamas Intelligence published market research into the yttrium space, and came up with the following bullet points:

  • Supply – China dominant for 10 years from the ion-adsorptive clays in Southern China. Yttrium co-extracted whilst chasing dysprosium for magnets.
  • Uses – Phosphors (lighting). Although the size of the units is decreasing (less Y), the number of units is increasing (more Y), resulting in net growth through to 2020.
  • Balance – Legal production is less than demand. There was excessive illegal production of Y resulting in large stockpiles (40,000 tonnes) in China. The situation is now balanced. Over the next 3-5 years, that stockpile will be consumed, and there will be a major shortfall of yttrium.

That’s a significant amount of very interesting and impactful news in a month that was supposed to be asleep. Can’t wait for March!


Steve Mackowski

Editor:

Mr Mackowski is a qualified engineer in mineral processing with over 30 years technical and operational experience in rare earths, uranium, industrial minerals, nickel, kaolin ... <Read more about Steve Mackowski>


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Comments

  • Jeff Thompson

    Steve,
    Is the rare earth market likely to feel any tailwinds from the broader shift in sentiment in the commodities sector, with recent price gains in gold, silver, copper, nickel, oil, and others, or are rare earths too isolated and fragmented to follow broader trends, i.e. they will just respond to their own internal fundamentals of demand/supply levels?
    Also, interesting projection on yttrium, but at odds with the recent narrative from many that yttrium (broadly denigrated as the “cerium of heavies”) was heavily oversupplied and the future trend was decreasing demand and further price declines. Certainly would like to see this newest report proven accurate, but am not too optimistic.
    Thanks for your article.
    Jeff

    March 9, 2016 - 7:15 AM

  • Steve Mackowski

    Jeff, the fundamentals, economics and prices are the theme around my next months article. Thanks for the introduction.

    March 9, 2016 - 3:55 PM

  • Jeff Thompson

    Looking forward to it, Steve. Iron ore, too, crazy recent price gains based on possibly flawed perception of what is (or isn’t) going on inside China.

    March 9, 2016 - 6:46 PM

  • Jeff Thompson

    Interesting that the 2015 quotas of 43,550 tpa (LREOs) and 8950 tpa (HREOs) were left unchanged for 2016, when some of the individual elements are clearing in supply deficit. Why not simply set the quotas on an element by element basis instead of a family basis, or better yet, eliminate quotas altogether? What purpose bureaucratic purpose do the quotas serve?

    March 10, 2016 - 7:30 AM

  • Steve Mackowski

    Ah. The beauty of bureaucracy. I reckon the level of over-government is inversely proportional to the level of understanding of the issue at hand.

    March 10, 2016 - 6:02 PM

  • Pennie

    I did note a report on info-re.com stated:
    ‘The ministry said that the mining quotas for the whole year of 2016 will be allocated in the second quarter of the year according to related government policies and market conditions.’
    Wonder if full year quota will change based on policies, regulations arising from the new 5 year plan to be detailed shortly – huge focus on environmental protection and new energy autos.
    Not to mention the potential impact of industrial upturn and the restocking cycle in commodities after years of destocking in the global downturn. We’ll see.

    March 11, 2016 - 3:41 AM

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