EDITOR: | December 8th, 2012

The Pulse: China’s REE challenge, Vietnam plant reopens, Korean graphite move, Focus on Brazil phosphate

| December 08, 2012 | No Comments
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More details are now available about the decision by Inner Mongolia Baotou Steel Rare-Earth Hi-Tech to extend its suspension of operation for another month, courtesy of the Nikkei news service. The company has extended the suspension as the rare earths supply situation remains in surplus. It will affect mainly the Baotou plants that refine and process dysprosium and other materials vital to high-grade motors for hybrid vehicles.

Actually, if you accept the Japanese figures we might be looking at an even longer suspension. Production in China this year is projected to fall to about half the peak of 160,000 tonnes achieved in 2006. Yet, says Nikkei, there are 126 rare earth-related companies in China, with total annual output capacity of 320,000 tonnes, far outweighing estimated global demand of 120,000 tonnes. That is an awful lot of surplus capacity, and it doesn’t sound as though just a month’s suspension will be sufficient adjustment. Add to that the global slowdown and the unfolding economic disaster in Europe: industry there, especially in Germany, has been an important buyer for rare earth producers. Capital Economics of London is expecting Eurozone GDP to shrink by 2.5% next year – and the OECD in Paris, while not quite so pessimistic, is also forecasting an economic contraction in the 17 countries which use the euro. So prepare yourselves for more extensions out of China.

Meanwhile, Showa Denko KK  is next month reopening its Vietnam plant that produces rare earth magnetic alloys. But the company plans to hold off on restarting two plants in China – which can produce 4,000 tonnes a year – for at least another six months, says Nikkei. The Vietnam factory, which recycles magnet waste material, is much smaller. All three plants were shuttered due to declines in manufacturing orders although the 5,000 tonnes a year plant in Japan has been operating.

Graphite: Before World War II, Korea – then a Japanese colony – was an important supplier of graphite. Of course, after December 7, 1941, this was no longer an option (and as The Pulse reported last week, the U.S. also lost graphite supplies from Madagascar until the Vichy administration was ousted and therefore had to rely heavily on supplies from Ceylon). These days North Korea is a graphite producer, with most of its output thought to go to China. Meanwhile, South Korea is dependent heavily on China for its graphite needs.

Domestic graphite consumption runs at 20,000 tonnes a year, the steel industry being an important customer. Enter an Australian junior: Lamboo Resources (ASX:LMB) which has acquired three projects in South Korea. One, Geumam, includes an existing open cut mine and mill, along with a 200,000 tonne resource at 10% graphite. Lamboo adds that companies such as Samsung, LG Chemicals and Hyundai are all deeply involved with technological developments in electronics, batteries and automobiles, the principal sectors driving new demand for flake graphite.

Phosphate: Following the announcement by Rio Verde Minerals Development Corp (TSX:RVD) that it had received a non-binding proposal from B&A Mineraceo SA to acquire all the shares in the Canadian company, Toronto-based Paradigm Capital says it believes negotiations should begin around 40c a share. The analysts add: “If completed, this would be the first acquisition of a public junior phosphate player in Brazil and, to our knowledge, the first take-out of a public junior phosphate company (to date all the significant acquisitions in this space have been potash projects in Saskatchewan”.

Paradigm notes that B&A also owns 11.5% of MBAC Fertilizer Corp (TSX:MBC). Other public companies with assets in Brazil are Verde Potash (TSX:NPK), Eagle Star Minerals (TSX.V:EGE), Pacific Potash (TSX.V:PP) and Aguila Resources (ASX:AGR).

 Disclaimer: The above is an opinion written by Robin Bromby, and he is not a licensed investment advisor.

 


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