Change Ahead In China’s Rare Earth Role

by Geoff Hiscock – The Australian – Published: January 19, 2011

As Chinese President Hu Jintao wraps up his US tour on Friday with business meetings in Chicago, his country’s future role in the global rare-earth trade will be under scrutiny at a Critical Materials investment conference on the other side of the North American continent.

But instead of the usual discussion about Chinese domination of the rare-earth supply chain – it currently has more than 95 per cent of the market – two of Hu’s rare-earth specialists are due to speak at the conference in Vancouver, Canada on the theme “China to join the buy side.”

They are Lin Donglu, secretary general of the Chinese Society of Rare Earths and Dr Chen Zhanheng, director of the society’s academic department.

Chen has spoken previously on how China’s rare-earth industry is beset with environmental problems, and that no new mines could be allowed in China. He has also said it is in the industry’s best interest for a diverse and stable supply chain to be established.

Rare earths, along with other materials such as indium and lithium, are used in clean energy technologies and a host of devices that include permanent magnets, hybrid and electric car batteries, computer hard drives, smart phones, iPods, LED televisions, energy-efficient lights, lasers, petroleum cracking catalysts and sophisticated military items such as night vision goggles and missile guidance systems.

Rare-earth miners such as Lynas in Australia, Molycorp in the U.S. and IREL in India are moving to bring new plants into production as quickly as possible after China cut its 2011 export quotas of the strategic material and the U.S. Department of Energy warned of critical shortages over the next five years.

World demand for rare earths in 2010 was about 127,000 tonnes, a figure expected to reach 188,000 tonnes by 2015 as clean technology usage increases.

China’s Ministry of Commerce announced on December 28 its rare-earth export quotas for the first six months of 2011 would be 14,446 tonnes, a drop of 11.4 percent on the same period a year earlier. Nominal export quotas in 2010 were already down 40 percent on the 2009 figure.

According to the U.S. Department of Energy’s Critical Materials Strategy report released on December 15, five of the 17 rare earths — dysprosium, neodymium, terbium, europium and yttrium, as well as the processed rare metal, indium – are the “most critical” in terms of supply over the next five years.

The big demand drivers are permanent magnets for wind turbines and battery alloys for electric motors; these two applications alone are expected to account for more than 55 per cent of demand by 2014.

Although China dominates global supply from its vast and heavily polluted Bayan Obo mining region in Inner Mongolia, scores of mining companies around the world are racing to bring new plants on stream. Even so, it will take years for more than a handful of them to begin production, given the environmental constraints they face.

According to mining industry analyst Gareth Hatch of U.S.-based Technology Metals Research (TMR), 17 of about 275 rare-earth projects are at what he calls the advanced stage: four each in Australia and Canada, two each in the U.S., Greenland and South Africa, and one each in Sweden, Kyrgyzstan and Malawi.

Two of those – Mount Weld in Western Australia and Mountain Pass in California – are due to start production this year. Three others – Nechalacho in Canada’s North West Territories, Nolans Bore in Australia’s Northern Territory, and Bear Lodge in Wyoming, U.S., could come on stream between 2013-15.

Another possible source is India, where Toyota Tsusho, a Japanese trading house that is part of the Toyota automotive group company, said last month it planned to build a rare-earth processing plant in Orissa state this year. It aimed to begin shipping up to 4,000 tonnes a year of rare earths to Japan from 2012.

Toyota Tsusho’s project partner is Indian Rare Earth Ltd (IREL), a unit of the state-owned Nuclear Power Corp of India. IREL now extracts uranium and thorium from monazite minerals in alluvial ore deposits along the east coast of India. Rare-earth chloride mixtures are produced as a by-product of this extraction process, and these mixtures will be the raw materials for making rare-earth oxides.

According to Nicholas Curtis, executive chairman of Lynas, the Australian listed mining company which owns Mount Weld, China’s decision to limit exports in 2011 is an opportunity for companies such as Lynas to meet the supply deficit outside China.

He said Mount Weld was the world’s richest known deposit of rare earths. The company planned to concentrate ore at a plant on-site, before shipping it to an advanced processing plant it is building at Kuantan in the Malaysian state of Pahang. The first ore is due to be concentrated in early 2011, with the first feed of concentrate to the Malaysian plant in the third quarter of this year.

In November, Lynas struck a strategic alliance with Japanese trading house Sojitz Corp., to be its exclusive distributor into Japan. Japanese companies process about half the world’s rare earths before exporting the finished products to markets such as Europe and the U.S.

New York-listed Molycorp, which stopped production at its Mountain Pass plant in 2002 in the face of Chinese competition and environmental constraints, is spending US$531 million on a plant upgrade and is due to begin mining fresh ore this year.

In December Molycorp announced separate deals with Japan’s Hitachi Metals and Sumitomo Corp covering the funding, supply and manufacture of rare-earth end products, including alloys and magnets in the U.S.

China’s recent actions in the rare-earths market have prompted a storm of criticism about its control of the supply. That provoked a counter-attack last week from a senior Chinese commentator, Chen Weihua, who lashed out at what he called “the sheer hypocrisy” of the West.  Chen, deputy editor of the China Daily’s U.S. edition, wrote that the state of China’s rare-earth industry typified the serious environmental and social costs that China incurred in its role as the world’s “manufacturing workshop.”

“When China takes action to raise its standards, the West cries foul because the moves hurt their selfish commercial interests,” Chen wrote.

U.S.-based industry veteran Jack Lifton said Chen was “mostly correct.” Lifton, founding principal of Technology Metals Research, told The Australian that there remained a vast cultural gulf between profit-oriented Western businesses and China, where the goal was growth to raise the living standards of the masses.

“I think that China will supply its domestic industry’s needs in total and then export only the surplus, because this is how a command economy works,” he said.

Lifton said he also believed China had already cut back rare-earth element production for environmental reasons as part of a restructuring and consolidation of the sector that was now under way.

Despite the proliferation of long-term agreements signed by Western companies in the past few weeks, Lifton said it was hard to believe that “any significant production of anything other than ore concentrates will be underway by the end of 2011.”

“So I think that prices for rare earths will be set on the spot market by Chinese exporters for one or two or even three more years,” he said.