Rare earth elements (REE) have been in international headlines
for the last two years, mostly owing to a succession of Chinese
export quota limitations. China is also consolidating the
number of its REE producing companies in Inner Mongolia to one,
Baotou Iron & Steel Group Co. and imposing tougher
environmental and health and safety regulations, along with
increasing taxation for REE producers.
end of 2010 witnessed the first mine blast since 2002
at Molycorps Mountain Pass bastnaesite mine in
California; the company plans to produce 20,000 tpa REO
This is a complex and intriguing
topic, involving technical and commercial considerations, and
environmental, financial, social, legal and political
However, this scenario is expected
to continue to cause severe international concerns at least for
the next couple of years.
Resources & supply
REE are not rare at all, but are difficult to exploit owing to
geographical and mineralogical distribution, often remote
locations, specialised technology required in processing, and,
increasingly, environmental concerns.
Chinas share of world
reserves is probably lower than 40%, with large unexploited
deposits found in the USA, Australia, Russia and other CIS
Reserve estimates for proven
industrial REE oxide (REO) vary widely. For China, they range
from 27m. to 52m. tonnes. Estimates for Russia also differ,
from 28m. tonnes ahead of China to about 19m.
tonnes including CIS countries.
REE mines in China have an
abundance of heavier REE, while many of the projects elsewhere
are overweight in light REE.
Over 50% of the reserves in Bayan
Obo, Baotou, in Inner Mongolia, China comprise cerium, while
the majority in Mountain Pass, California consist of lanthanum
In 2009, production of REO
comprised: China 120,000 tonnes, India 2,700 tonnes, Brazil 700
tonnes, and Malaysia 400 tonnes.
Thus, China produces more than 95%
of the world total. Baotou itself reports production of 55,000
tpa of processed REE , about 44% of global production.
The USA and Europe have no REE
production but operate processing facilities.
Demand - expected to rise
Among the most important REE market applications are magnets
and high-efficiency lighting.
Corp.s REE processing plant under construction in
Malaysia, which has encountered some local opposition
to the plant.
The magnets are employed in small
electric motors to power everyday items such as vacuum
cleaners, lawnmowers, and washing machines, as well as high-end
technology applications like computer disc drives, wind turbine
motors, and electric and hybrid car engines.
Other important REE applications
include catalysts, cell phones, metal alloys, and batteries.
Many REE end uses are considered sensitive, eg. defense,
aerospace, medical equipment, and green technology.
World demand for REE is estimated
at 135,000 tpa, with global production around 125,000 tpa. The
difference is covered by above-ground stocks or inventories.
Domestic demand for REE in China has increased by as much as
200% during the last 12 months. Incredibly, almost half of that
increase has come since the start of 2011.
World demand could rise to 180,000
tpa by 2012 and exceed 200,000 by 2014, barring a sharp
REE prices have risen dramatically in the last two years. For
example, at the end of April 2011, the price of cerium oxide
had increased almost 20-fold over the last year.
An immediate result has been the
increase in the price of end products made from REE. For
example, prices of REE magnets made in Japan were expected to
rise by over 40% from 1 July 2011, and companies like Nanophase
have complained about the soaring cost of cerium and little or
no guarantees over availability.
Even though REE market prices are
not terminally traded and should, thus, be difficult for
speculative investors to get involved with, some analysts
report several speculative funds targeting the industry. This
was noticeable soon after the Chinese Lunar New Year in 2011,
where hoarding of REE material exacerbated price
Smuggling and illegal mining
Experts estimate that illegal production accounts for about 14%
of the world supply of light REE and as much as 50% of heavy
Smuggling from China, recently
under attack by the authorities, has been reported at 50% of
REE exports to Japan/South Korea/Taiwan, with 20% of
Japans REE imports from China apparently on the black
Environmental, health, and safety (EHS) issues have always been
a significant factor in the REE industry.
In addition to the then low Chinese
prices, it was EHS factors that contributed to the closure of
the USAs Mountain Pass REE operation in 2002.
EHS is also behind the new Chinese
policies condemning emissions of fluorine, dust,
hydrofluoric acid, sulphur dioxide, sulphuric acid and
radioactive waste residue.
EHS is also a cause of opposition
to new processing projects outside China, including the
worlds biggest planned REE processing plant by Lynas
Corp. in Malaysia. Here locals have compared the project with
radiation poisoning issues surrounding the last, Japanese-led,
REE project in Malaysia, which closed in 1992.
Economics and finance
In 2010 Baotou Steel Rare Earth Group showed a revenue increase
of 102.78% from RMB2.59bn. in 2009 to RMB5.26bn, while net
income improved 1,246.13% from RMB55.77m. to RMB750.74m.
This followed a net profit decline
of 66.6% in 2009 from 2008. Baotous market value stood at
Broadly speaking, financing in
China seems easier than in the West, eg. Baotou
City subsidises loan interest payments.
In the USA, Molycorp Inc. posted a
net loss of $909,000 for Q1 2011, compared with a year earlier
loss of $7.7m.
Many other Western companies with
projects outside China, listed in Canada and Australia for
example, are mostly at development stage and are still not in
Interestingly, in May 2011, Baotou
won approval to start an exchange to trade in REE, to
regularise market flows of RE, give greater
leverage over foreign buyers, further regulate the market, and
help China influence REE pricing on the global
The exchange would initially
confine itself to modest spot trading in some of the REE and
will not deal in futures.
Economising, substituting, recycling
Despite growth in demand from certain REE market applications,
there are signs in the market that certain sectors are actually
reducing their dependence on REE. Examples include:
Albemarle Corp. has announced a REE content reduction in
its catalysts by up to a factor of four
WR Grace develops zero and low REE FCC products.
Toyota plans to completely phase out REE metals from its
electric and hybrid vehicles.
Hitachi has developed a machine for the dismantling of
neodymium magnets from hard disks and compressors.
Mitsubishi is studying costs associated with extracting
dysprosium and neodymium from washing machines and air
However, it might take years for
many similar campaigns to yield economically viable
For example, one criticism of
recycling REE is the cost, with most applications using such
small quantities of RE that it is unlikely to be economical to
New supply projects
New REE supply projects are being developed mostly outside
China. Some of them may take years to materialise. Completely
new discoveries will invariably take even longer.
Molycorps Mountain Pass
operation, which restarted mining in late 2010, could start to
produce in 2012 but has yet to secure government
Other major domestic projects
include Lynas and Alkane Resources in Australia; Ucore in the
USA; LKAB in Sweden; and Steenkampskraal in South Africa
(see IM March 2011: 10 steps to rare earths
At the same time, there is a flurry
of investments and projects based on transnational co-operation
in REE. For example, Chinese interests in Arafura and China
Yunnan Copper, both in Australia; Molycorp in Silmet, Estonia;
Lynas in Malaysia; Japan and the South Korea in Brazil,
Kazakhstan, Uzbekistan, Vietnam; the USA in Afghanistan.
Taiwan, for its part, has chosen to cooperate with China.
Prospects for efficient Chinese and
rest of the world (ROW) producers are generally good, although
some analysts worry about REE equities and the plethora of RE
Criticality, strategic considerations
A Chinese withdrawal from world supply of REE may
starve ROW consuming industries of the relatively inexpensive
raw materials they have been used to buying over the last 20
According to many US and Japanese
analysts and policy-makers, this will cause a strategic threat
to the ROW by moving to dominate the magnet industry, and to
gain total international market advantage, with the ROW losing
market share in fields such as the environmental technology
industry to China.
Eventually, the international
threat could get bigger if China starts importing REE to meet
rising internal demand.
The EU and the USA have recently
established lists of Critical Raw Materials, while
Euromines, the European Association of Mining Industries, is
setting up a special Task Force.
The US Department of Energy defines
critical as a combination of a metals
importance to the clean energy economy and its risk of supply
disruption. The DoE has found five REE metals most critical in
the short and medium term (dysprosium, neodymium, terbium,
europium and yttrium), with another two REE near-critical
metals in the short term (cerium, lanthanum).
In mid-2010, the Chinese cut their RE export quotas 40%, having
issued 30,258 tonnes of quotas as of end-July 2010 (some 19,887
tonnes less than in 2009).
China also has announced that it
will not be issuing any new mining licenses for REE from 2009
In September 2010, Japanese buyers
claimed that China banned Japan REE exports in retaliation to a
fishing vessel capture, with Chinas Trade
Ministry denying any embargo.
Dudley Kingsnorth, a REE consultant
at Industrial Minerals Co. of Australia, has drawn up a list of
Industry Constraints for REE, which includes production quotas,
export taxes of 15-25%, VAT rebate on exports withdrawn,
co-ordinated pricing, industry consolidation, enforced
environmental legislation, and a lack of transparency.
To this list must be added the
following: tax increases, that will increase production costs;
large research and development assistance; and stockpiling to
have China build up its strategic reserves of REE.
Policies like co-ordinated pricing
could clearly be in favour of Chinese producers, but most of
the rest will clearly work against them.
The Chinese justification for these
policies is of a rather macro nature, and is based on the fact
that China has been for many years exporting REE at very low
prices, causing local environmental damage, and at the expense
of their domestic consumption. Consultant Jack Lifton agrees
that we effectively said to them in the past that we
wanted them to produce our REE in order to save money Ð to
cut costs. That has been accomplished. Now, we are saying why
did you do this to us?
The Chinese also point out that
many companies in the West depend, albeit indirectly, on
Chinese illegal mining and smuggling.
Also, inflation and rising labour
costs in China, coupled with power shortages, are phenomena
that China clearly takes into account.
By only applying to the raw REE
rather than the processed forms of the commodity, eg. REE
magnets, quota cuts can also be seen as part of a strategy to
boost development of the Chinese domestic manufacturing
industry, owned or not by Chinese capital, by trading
resources for technology, ie. encouraging foreign
companies to set up processing facilities inside the
Many other emerging economies have been pursuing industrial
development strategies by means of trade, taxation, and
investment instruments aimed at reserving their resource base
for their exclusive use, through government measures such as
export taxes, quotas, subsidies etc.
REE far from constitute the first
case of such policies by the Chinese. Over the last 35 years,
China has undergone a transformation from exporting cheap raw
materials to higher price but also higher value added
In the 1980s, for example, China
reacted to the imposition of EU antidumping duties on magnesia
and fluorspar by instituting an export license regime for these
products, with the aim of capturing the surplus
domestically, and has since being moving up the value chain to
In another case, in 1985, China
decided to maintain its dominance in the tungsten market by
pushing large quantities of the metal into the world market at
low prices, with the result that tungsten miners in other
countries went out of business.
Even today, China accounts for more
than 85% of the worlds tungsten output. The question
remains whether Beijing would try to repeat this with
ROW reactions and policies
On the positive side for ROW, if illegal mining and smuggling
in China are taken into account, Chinese production and exports
are considerably higher than officially reported.
Also, the US Pentagon is distancing
itself from the strategic danger rhetoric.
Non-Chinese companies for some time have been able to secure
REE by operating in China, to benefit from cheaper REE prices
in the country, eg. French REE processor Rhodia (recently
acquired by Solvay SA) runs a processing plant near Baotou.
Furthermore, German wind turbine
producers say they are not using magnets containing neodymium
in their turbines, and that only 5% of wind turbines in Germany
Any new REE projects which might
come on stream internationally might cause overcapacity,
especially if/when they coincide with an abrupt deceleration of
the Chinese economy, and a negative effect on world commodity
demand and prices. Another potential threat is if China were to
turn around and bring prices back down.
Nevertheless, many countries have
been officially opposing the 2010-2011 Chinese REE policies.
They have been pressuring the Chinese to relax their export
restrictions, and stimulating supply outside China by
supporting the discovery and development of REE domestically or
through international cooperation agreements.
The USA, aiming at energy
independence, considers crucial the promotion of alternative
sources of power generation. The government estimates that many
REE applications are highly specific, and substitutes are
either inferior or unavailable.
In early October 2010, the US House
of Representatives passed the REE and Critical Materials
Revitalisation Act to reestablish the US as a leading
producer of REE, to make it self-sufficientÉ. and to
never be dependent on China for crucial components for national
Japan, the worlds largest REE
importer, stands to lose more from Chinese supply bottlenecks
than perhaps any other nation.
Like South Korea, Japan is
establishing joint ventures and supply agreements on REE with
third countries, discussing the creation of strategic
stockpiles outside China, and putting great emphasis on
economising, substituting, and recycling.
The EU is undertaking a study to
find economic REE deposits, examining raw materials
stockpiling, and working on research and development in
reducing the need for REE, and developing substitutes for
Regarding the World Trade
Organisation, a decision is expected on a complaint lodged by
the USA, the EU, Mexico and others on a first wave
of minerals, with China arguing that environmental grounds
justify their policies. Interestingly, neither
waves include REE, but the EU is considering adding
REE to its second wave.
Contributor: Vasili Nicoletopoulos is a consultant
with Natural Resources GP Consulting Services
(email@example.com), and also heads up the
Critical Materials Task Force of Euromines. This article is
based on a report: Rare Earths Worldwide: An Industry and
Policy Analysis, recently available from Natural