Strategic Metals: Rare earth update
Reports
Publishing Date20 Apr 2012 12:40pm GMTIssue/SupplementMJ 20/04/12AuthorJon Hykawy Given the implementation of Chinese export quotas, a system that did not differentiate between rare earth elements, it was largely inevitable that the price of light rare earths would skyrocket. Buyers of formerly inexpensive light rare earths – such as lanthanum – were put in direct competition with buyers of much more expensive heavy rare earths – such as dysprosium
While the Chinese tried to create an impermeable border between the foreign and domestic markets for rare earth oxides, the fact that many companies sold to both markets allowed higher foreign prices to ‘bleed’ into the Chinese domestic market, and caused domestic prices to rocket higher, as well (not as soon or as high, but the effect was still dramatic).
Almost invariably, high prices manage to cure high prices. In this case, the demand for many rare earths fell dramatically in 2011. Demand for lanthanum and cerium outside China, in particular, collapsed.
Part of this may be due to higher levels of production within China, as some companies moved production to the country or increased subcontracting to procure downstream products that were not subject to the export quota, but the official Chinese figures suggest that only about half the 2011 export quota was used.
It is fairly easy to see the effect of price elasticity in the markets for each of these materials. Lanthanum is relatively simple to substitute in the formulation of catalysts with other metals, the decision on substitution being made on the basis of costs and effectiveness of the metal, and on the reliability of supply.
Neodymium is substituted reluctantly. A rare earth-based permanent magnet is far stronger, smaller and lighter than other magnets, and a motor containing rare earth-based permanent magnets can be substituted with induction motors containing no rare earths, albeit with different (generally inferior) specifications for weight, volume, reliability and efficiency.
Neodymium will be used in many applications even at high prices, providing the reliability of supply is high. However, in their applications, many truly uncommon heavy rare earths are substituted only reluctantly, the most likely solution being increased stinginess of use and a lower, but not plummeting, demand.
Heavy rare earths, such as dysprosium, are rarely purely substituted, they are necessary at some level – almost regardless of price or the reliability of supply.
From the above, it would have been expected that lanthanum and cerium prices would vault most energetically, and for these prices to fall the fastest. Neodymium would rise less dramatically and fall more slowly. Dysprosium should have vaulted the least of all and the price been the most reluctant to fall. And by and large, this is precisely what we have seen.
The market may return
The pit below rare earth oxide prices is not bottomless. In fact, the main stabilising influence on prices will be reliable and consistent production outside China.
The demand for lanthanum has fallen as catalyst manufacturers such as Albemarle and WR Grace have substituted other metals into their formulations. Lanthanum is a good catalyst when its price is low, but a lousy one in terms of its desirability when the price is at US$125/kg. As the price drops and supply becomes more reliable, then demand for its use in catalysts should re-emerge.
Similarly, the demand for neodymium in strong magnets should rebound as manufacturers can become certain of their being able to source the required neodymium oxide. At least for the automotive industry, even the historically high neodymium oxide prices seen in mid-2011 preclude the use of rare earth-based magnets.
However, no auto manufacturer can approve a design and commit manufacturing lines to a model for which a key component such as a rare earth-based, permanent magnet-equipped main electric motor might not be available from week to week.
In the wind industry, neodymium oxide prices must drop below US$85/kg consistently for demand to begin to rebuild, and this is not the case at present. But Byron believes all of this will happen.
Dysprosium demand has not been dramatically curtailed. Given the level of demand and the elasticity of this market, it did not require much more than a willingness to use lower grades of magnet alloys to decrease demand and lower the price to the degree presently observed. Dysprosium prices will continue to fall, but less as a result of demand continuing to slacken and more due to supply increases.
Supply up, demand up
Byron believes light-rare-earth prices will fall, some collapsing even from present levels, and that while heavy-rare-earth prices will decline, they will still maintain high prices compared to historical averages.
The reasoning for this is simple. Only three types of rare-earth deposits have demonstrated that they can be economically mined. Two of these deposit types, those containing the minerals bastnäsite and monazite, will produce predominantly light rare earths such as lanthanum and, without going into specifics, light rare earth deposits contain approximately 80% of their rare-earth oxides in the form of lanthanum and cerium.
In China, production quotas plus some “slack” suggests that annual production is in the order of 100,000t of rare-earth oxides. Of the production quota, 80% is granted to companies in the north of China that produce from light-rare-earth deposits, so 80,000t of light-rare-earth production has been sufficient, when not under the influence of stringent export quotas, to keep the world’s need for light rare earths satisfied.
Between Molycorp Inc, Lynas Corporation Ltd and Great Western Minerals Group Ltd, the three companies have plans that would see them produce a combined 75,000t of light-rare-earth deposit-based rare-earth oxides by 2015. Byron suspects that this 90% increase in light rare earth availability will result in collapsing prices for lanthanum and cerium.
This price drop limits the number of additional light-rare-earth deposits that can enter the market. Byron believes that the number of such bastnäsite/monazite producers outside China can number no more than five, and we would suggest three or four is more likely.
Heavy rare earths are truly rare, and, Byron believes, will maintain high prices relative to their historical averages. However, even here the demand cannot be insatiable.
In China, 20,000t of annual production from the south-China ionic clays has been sufficient to meet both domestic and foreign demand at historical prices. If Avalon Rare Metals Ltd, Quest Rare Minerals Ltd, Tasman Metals Ltd, Matamec Explorations Ltd, Tantalus Rare Earths Ag and perhaps one or two other ionic clays were to enter production, it would be likely that total heavy-rare-earth deposit-based production would be some 60,000t.
It seems unlikely, either on first glance or through detailed element-by-element analysis, that there is sufficient demand for this quantity of material. With generally higher operating costs than light-rare-earth deposits, it is unlikely given only partial sales and declining prices, that all such companies would survive.
Conclusions and directions
Rare earths remain a strong industry, one where Byron believes that the right companies can make investors a lot of money. Making those outsized profits are predicated on a few things:
•Have a strong deposit;
•Have a strong physical concentrate;
•Know how to do solvent extraction;
•Know how to make downstream products; and,
•Find an off-take partner, not just for the good stuff.
Combine all of the above, and you have a winning formula.
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