China's Rare Earth Dominance

 
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On a plaque in the lobby of the headquarters of Baotou Steel Rare Earth Hi-Tech, the largest producer of rare earth metals in the world, is a quote by Deng Xiaoping, China's legendary reformer.[1] The quote - The Middle East has oil, but China has rare earth - is symbolic of China's growing dominance in the global market for rare earth metals, of which it controls 97%.[2]

What are rare earth elements?

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There are 17 rare earths that belong to the lanthanide family of elements in the periodic table, beginning with lanthanum (atomic no. 57) and ending with lutetium (atomic no. 71).[3] Scandium (atomic no. 21) and yttrium (atomic no. 39) are also grouped with the lanthanide family because of their similar properties. There are 2 categories of rare earth elements - light rare earths and heavy rare earths - based on their atomic weights and location in the periodic table.

  • Light Rare Earths: Lanthanum, Cerium, Praseodymium, Neodymium, Promethium and Samarium (atomic nos. 57-62)
  • Heavy Rare Earths: Europium, Gadolinium, Terbium, Dysprosium, Holmium, Erbium, Thulium, Ytterbium, Lutetium (atomic nos. 63-71)

Although heavy rare earths are not as abundant as light rare earths, the term rare earth is actually a misnomer, given that they can be found in almost all massive rock formations.[3] Because the concentration of rare earth elements in the Earth's crust ranges from 10-500 ppm by weight, the real challenge is finding them in high enough concentrations to be economically mined and processed.

How much do rare earth metals cost?

Although the scarcest rare earth metal is more abundantly available than precious metals like gold, platinum and palladium, a few are actually quite rare. Light rare earths (like cerium) are plentiful, but heavy rare earths (like europium) are becoming harder to find.

  • Terbium, which is in particularly short supply, can sell for up to US$300 per kg[4]
  • Dysprosium can sell for up to US$150 per kg, a tenfold price increase since 2003[1]
  • Neodymium sells for up to US$25 per kg, a fourfold price increase since 2003[1]

Refer to this image for 2007 and 2008 prices of rare earth oxides and metals.

Why are rare earth metals important?

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Rare earth metals are important because of their specificity, versatility and unique properties (catalytic, chemical, electrical, metallurgical, nuclear, magnetic and optical). The range of applications in which they are currently used is extraordinarily wide, from the ordinary (automotive catalysts, petroleum cracking catalysts, lighter flints, glass and ceramic pigments, polishing compounds) to the highly specialized (miniature nuclear batteries, superconductors, lasers repeaters and powerful miniature magnets).[5] From relative obscurity, they are now important economically, environmentally and technologically. Some prominent applications are given below.

  • Hybrid Cars: The electric motor in a Toyota Prius requires 10-15 kg of lanthanum for the nickel-metal hydride (NiMH) battery and 1-2 kg of neodymium for permanent magnets.[6] Similarly, a Mercedes S400 Hybrid also requires about 0.5 kg of neodymium.[1]
  • Wind Turbines: Although wind turbines do not require permanent magnets to operate, neodymium-iron-born (NdFeB) magnets are often used to prevent frequent transmission box shutdowns. As a result, wind turbines often require up to 1,000 kg of neodymium to operate efficiently.[7]
  • Defense Systems: General Dynamics' M1A2 Abrams tank and Lockheed Martin's Aegis SPY-1 radar both require samarium-cobalt (SmCo) permanent magnets. Similarly, the Hybrid Electric Drive Ship Program for the DDG- 51 class of guided missile destroyers uses neodymium-iron-born (NdFeB) magnets in its permanent magnet motors.[8]

How are rare earth metals mined?

As compared to mining gold, it is more complicated and costlier to extract rare earth metals from their ores.[9] Most of the market value of rare earth metals is added in the refining process and, before they can even be used in an application, rare earths need to be put through the following processing stages.

  • Mining rare earth ore from the mineral deposit
  • Separating the individual rare earth oxides from the ore
  • Refining the rare earth oxides into metals with different purity levels
  • Forming the rare earth metals into alloys
  • Manufacturing the rare earth alloys into components, such as permanent magnets, used in commercial and defense applications

Unlike normal mining processes, rare earth mining produces radioactive waste.[9] Dealing with this waste in the U.S. and Canada requires expensive mitigation efforts, thus putting North American producers at a disadvantage as compared to less thoroughly monitored operations in China. As a result, even though prices have spiked in recent years, rare earth mining is still orders of magnitude less lucrative than mining for copper or iron.[7]

Where are rare earth reserves / mines located?

Country Reserves (t REO) 2006 Mine Production (t REO) 2007 Mine Production (t REO) 2009 Mine Production (t REO)
United States13,000,000000
Australia5,400,000000
Brazil48,000730730650
China36,000,000119,000120,000120,000
CIS19,000,000N/AN/AN/A
India3,100,0002,7002,7002,700
Malaysia30,000200200380
Other Countries22,000,000N/AN/AN/A
World Total (rounded)99,000,000123,000124,000124,000

Source: Mineral Commodities Summary 2010, U.S. Geological Survey (t REO = metric tonnes of rare earth oxide)

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The mineral deposits at Mountain Pass, California, are the richest rare earth deposits in the world.

United States

Until the 1980s, the Mountain Pass mine in Southern California was the world's leading producer of rare earth metals.[7] A separation plant was closed in 1998 after regulatory scrutiny of a wastewater line and the mine itself shuttered operations in 2002 after Chinese producers undercut its prices.[8] Today, the mine manages a limited production of rare earth oxides from ore mined years ago, although these oxides must be shipped to processing plants in Asia which convert them into rare earth metals, alloys and finished products.[7] However, even at full production, the Mountain Pass mine lacks significant deposits of heavy rare earths, which are increasingly in demand.

Some prospects for developing heavy rare earth production in the U.S. include the Lemhi Pass in Northern Idaho, Diamond Creek in Northern Idaho and Bokan Mountain in Southern Alaska.[7] Historical estimates by the U.S. Bureau of Mines suggest that Bokan Mountain may contain 170 million kg of of rare earths, roughly half of which are heavy rare earths, and that Lemhi Pass has a one-to-one ratio of rare earths to thorium. Although other deposits exist in the U.S. and elsewhere, it could take over a decade just to get production online.[10]

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The production of rare earth metals is the exclusive monopoly of China's Bayan Obo mine in Inner Mongolia.

China

In the 1980s and 1990s, China came to dominate the global market for rare earth metals by cutting prices. The country now controls 97% of the world's supply of rare earths, partly because of its willingness to tolerate low cost, high polluting mining methods.[4] The more common light rare earths come from the Bayan Obo mine in Inner Mongolia, which accounts for 40% of global production.[1] The much rarer heavy earths come almost exclusively from clay pits in Southern China, many of which are unlicensed and unregulated.[7] Today, rare earth metals are mined in Inner Mongolia, Shangdong, Jiangxi, Guangdong, Hunan, Guangxi, Fujian, Sichuan and other regions throughout China.

China currently accounts for 99% of global production of terbium and dysprosium, and 95% of neodymium.[4] The U.S. Magnet Materials Association predicts that China's own demand for some rare earths will outstrip demand in 2-5 years and pressure to develop few other known reserves will increase accordingly.[7] At the same time, the country intends to combine the many small mines in Inner Mongolia into a handful of companies, creating powerful entities like Baotou Steel Rare Earth Hi-Tech, which describes itself as the dragon head of the industry.[1]

How is China dominating rare earth supply?

Global rare earth metal oxide production from 1950 to 2006 (in ‘000s of tonnes)
Global rare earth metal oxide production from 1950 to 2006 (in ‘000s of tonnes)

Of late, China has taken a number of steps to cement its monopoly of the global rare earth market. First, in each of the last 3 years, the country has reduced the amount of local rare earth production that can be exported.[4] The total export quota for 2010 is 30,258 tonnes, 40% less than the 50,145 tonnes for 2009.[11] Second, China appears to be forcing manufacturers that use rare earths to move onshore by using export quotas to limit the availability of these materials outside the country.[6] Last, but not least, the country has made moves to buy other rare earth resources around the world. When credit markets collapsed in 2008, government-owned mining companies stepped in to acquire 52% of Lynas Corporation and 25% of Arafura Resources, which plan to open mines in the next few years that would have a combined production equal to 25% of the global rare earth output.[6]

2009/1H 2009/2H Total 2010/1H 2010/2H Total
Foreign6,68510,16016,8455,9781,7687,746
Local15,04318,25733,30016,3046,20822,512
Total21,72828,41750,14522,2837,97630,258

Source: China Cuts Rare Earth Export Quota 72%, Bloomberg (Jul 2010)

How can you make a rare earth play?

As with other minor metals, there are no exchanges on which rare earths or their futures are traded. There are, however, a few rare earth companies and an ETF in which shares can be bought.

United States

  • Molycorp (NYSE:MCP), the Denver-based company that bought the Mountain Pass mine in 2008 from Chevron, has ambitious plans to retool the facility and resume mining and processing of 20,000 tonnes of rare earths by 2012, up from its current level of 2,000 tonnes per year.[7] As the only company in the United States with existing infrastructure and proven reserves, Molycorp could be the first to significantly expand rare earth mining and processing in the U.S. The company was listed on the New York Stock Exchange in July 2010, although it has not made a profit since acquiring the Mountain Pass mine and may lose money for 2 more years before becoming profitable.[12]
  • Market Vectors Rare Earth/Strategic Metals ETF (NYSE: REMX) tracks a basket of 24 companies involved in the mining, refining and recycling of REMs, including a 5 percent allocation to Molycorp. The ETF is also geographically diversified, with 10 percent of assets allocated to Japan, 20 percent to Australia and 11.6 percent to China. It also includes an 11.2 percent allocation to Africa, with the remaining assets spread across North and South America.[13]

Canada

  • Avalon Rare Metals (TSE:AVL) is a Toronto-based company currently developing the Thor Lake mine in Northwest Canada, which - according to the company - is rich in neodymium and heavy rare earths.[14]
  • Neo Material Technologies (TSE:NEM) is a Toronto-based company that shifted its Magnequench division specializing in neodymium-based products to China in 2000.
  • VMS Ventures (CVE:VMS) a Vancouver-based company that owns the Eden Lake complex in Central Manitoba, where rare earth metals were discovered in 2003.[5]
  • Great Western Minerals (CVE:GWG) is a Saskatoon-based company with 6 rare earth exploration and development properties in North America, and an option on an additional property in South Africa. The Hoidas Lake project in Northern Saskatchewan is - according to the company - North America's most advanced rare earth property in development and has the potential to supply 10% of North American demand.[5]
  • Rare Element Resources (CVE:RES) is a Vancouver-based company whose Bear Lodge property has significant deposits of both gold and rare earth elements.[15]

Australia

  • Alkane Resources (ASX:ALK) is a Perth-based company that owns the Dubbo Zirconia project in New South Wales. The mine has relatively large proportions of medium and heavy rare earths.[5]
  • Arafura Resources (ASX:ARU) is a Perth-based company building a rare earth mine and processing plant at its Nolan project in the Northern Territory. It expects to start mining by 2013.[5]
  • Lynas Corporation (ASX:LYC) is a Sydney-based company building a rare earth mine at Mount Weld in Western Australia.[16]

China

Japan

  • Showa Denko (TYO:4004) is a Tokyo-based company that has a 90%-owned subsidiary in Southeast Vietnam which produces didymium and dysprosium metals using rare earth oxides procured from inside and outside Vietnam. The company also produces rare earth magnetic alloys at its plants in Japan (Chichibu) and China (Inner Mongolia and Jiangxi).[5]

India

All 3 rare earth producers in India, including Indian Rare Earth and Kerala Minerals & Metals, are government-owned.

References

  1. 1.0 1.1 1.2 1.3 1.4 1.5 Rare Earths Shortages May Hurt Tech Firms, Bloomberg BusinessWeek (Nov 2009)
  2. China Mineral Dominance Concerns U.S., CNN (Apr 2010)
  3. 3.0 3.1 China’s Rare Earth Elements Industry: What Can The West Learn?, Institute for the Analysis of Global Security (Mar 2010)
  4. 4.0 4.1 4.2 4.3 China Tightens Grip On Rare Minerals, The New York Times (Aug 2009)
  5. 5.0 5.1 5.2 5.3 5.4 5.5 Rare Earth Metals Not So Rare But Valuable, Hard Assets Investor (Nov 2008).
  6. 6.0 6.1 6.2 Rare Earths Are Vital, And China Owns Them All, MarketWatch (Sep 2009)
  7. 7.0 7.1 7.2 7.3 7.4 7.5 7.6 7.7 Rush On For 'Rare Earths' As U.S. Firms Seek To Counter Chinese Monopoly, The New York Times (Jul 2010)
  8. 8.0 8.1 U.S. Smart Bombs Rely On Metals Dominated By China, Agency Says, Bloomberg BusinessWeek (Apr 2010)
  9. 9.0 9.1 Rare Earth Materials In The Defense Supply Chain, United States Government Accountability Office (Apr 2010)
  10. U.S. Warned On China's Role In Rare Metals Market, The Wall Street Journal (Apr 2010)
  11. China Cuts Rare Earth Export Quota, May Cause Dispute, Bloomberg BusinessWeek (Jul 2010)
  12. China Halts Start of New Tungsten, Rare Earth Mines, Bloomberg BusinessWeek (Mar 2010)
  13. Rare Earth Metals ETF, Investing Daily (Dec 2011)
  14. Avalon Rare Metals Inc., Proactive Investors (Mar 2010)
  15. Corporate Homepage, Rare Element Resources (Aug 2010)
  16. Lynas Corporation, Proactive Investors (Mar 2010)
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