IM 2012 Round-ups: Rare earths

By Laura Syrett
Published: Friday, 21 December 2012

Following a quiet start to the year for rare earths (RE), leading newcomer to the industry US-based Molycorp Inc. signed a definitive agreement to buy the processing firm Neo Material Technologies Inc. for Canadian dollar C$1.3bn ($1.31bn) in March.

Following a quiet start to the year for rare earths (RE), leading newcomer to the industry US-based Molycorp Inc. signed a definitive agreement to buy the processing firm Neo Material Technologies Inc. for Canadian dollar C$1.3bn ($1.31bn) in March.

The value-added production capabilities brought by Neo Material, now called Molycorp Canada, gave a significant boost to overall revenue, Molycorp said later in the year.

In April, a meeting organised in London by independent research foundation Chatham House discussed establishing a code of conduct for rare earths buyers and sellers to reduce the risk of being held to ransom by China.

The proposed purchasing code stated that no buyer should have a supply reliance on one country in excess of 40%, a move that would “force diversification,” the meeting heard.

Participants also issued a four-year warning for RE, stating that if supply was not sustainable within that time, influential buyers would phase out the minerals from their current markets.

China and US step-up

rare earths policies

June saw the clearest statement to date on China’s rare earths policy, with the introduction of an invoice system followed by the release of a White Paper by its State Council.

The document covered development targets, environmental protection, technological advancement and international trade policies for the rare earths sector.

Su Bo, China’s vice minister, told a press conference that the country could no longer sustain the resource depletion and associated pollution caused by rare earths mining, and that China would work to conserve its resources for future value-added applications within its own borders.

In July, China blocked the establishment of a disputes panel under the World Trade Organisation (WTO) by Japan, the US and EU to contest its rare earths export controls. It then cut the number of rare earths mining rights in the country by half to 65.

The aggressive tightening of China’s rare earths policy helped fuel interest in proposed US legislation to establish a secure supply chain for strategic minerals, including rare earths, which was also launched in July.

The substitute amendment to the Critical Minerals Policy Act 2011 (S 1113) sought for the designation and preservation of minerals deemed as critical to key US industries.

In August, China launched its rare earths trading platform in Baotou, northern China, under the name Baotou Rare Earth Product Exchange Co. Ltd, and involved some of China’s most significant rare earths companies in trading negotiations to assist transparency and moderate price volatility.

Several large producers from southern China were not included in the exchange, and some market participants expressed doubts over the effectiveness of the exchange in reforming China’s ill-disciplined rare earths market.

Later that month, China raised its export quota for rare earths from around 30,000 tonnes rare earth oxides to 31,965 tonnes in the first increase since 2005, although the significance of this was questioned given that China did not meet its official export quota for rare earths in 2011, exporting only 18,600 tonnes of a permitted 30,000.

Rounding off a busy month for rare earths came the news that Molycorp had begun processing rare earths at its Project Phoenix facility in California, US.

The commencement of operations came as a welcome relief to the integrated miner, which had reported losses of $67.6m, or $0.71/share, for Q2, had its credit rating downgraded and raised fears over cashflow.

Molycorp’s losses narrowed drastically to $0.19/ share in Q3 as sales increased and rare earths demand stabilised. This was overshadowed by news that previous disclosures by the company were to be investigated by the US Securities Exchange.

China’s Ministry of Land and Resources reduced the number of rare earths mining licences by more than 40% to 67 from 113 in September, fuelling speculation that the measure was yet another move aimed at boosting consolidation of Chinese rare earths supply.

Troubles faced

In October, investigative reporters from the Chinese news service Economic Information Daily revealed the extent of China’s rare earths black market, from mining and refining, to illegal sales and smuggling.

Rare earths companies that had previously been forced to shut by regulators had reportedly moved to new provinces with looser regulation, including Gansu, Shandong, Zhejiang, Henan and Guangdong, where they had revived their operations on a vast scale.

The difficulties faced by China’s rare earths industry were further highlighted when the country’s largest producer, Baotou Steel Rare Earths Hi-Tech, announced a 90%-drop in profits for Q3 2012.

This was particularly significant as the company had seen profits soar 149% to Chinese renminbi (Rmb) 1.21bn ($190m) in Q1, and was indicative of the industry’s abrupt change of fortune.

November saw the long-awaited commencement of operations at Lynas Corp.’s advanced materials plant (LAMP) in Kuantan, Malaysia.

The refinery was initially approved in January, but faced a succession of legal challenges from local residents and protest groups, which claimed that the plant was unsafe.

The first kiln feed was delivered to the plant in late November, but the company faced the prospect of further opposition as fresh legal challenges were mounted by residents in December.

November also saw the global rare earths industry assemble the 8th Rare Earths Conference in Hong Kong.

In the medium to long term, the rare earths industry is expecting to benefit from swelling demand from the electronics and renewable energy industries, much of which will be focused on China and the Asia-Pacific region, delegates heard.

Entrance to the market would remain difficult for new suppliers in the more immediate future, as the sharp decline in prices makes many start-up projects unsustainable.

Price instability, which has characterised the rare earths market since 2010, has also led many rare earths users to seek substitutes, conference participants said, meaning that the demand base of the industry could shift significantly in the coming years.

In December, China’s Ministry of Commerce released a list of conditions domestic rare earths producers must meet to be eligible for export quotas in 2013.

These conditions included requirements for an uninterrupted export history from 2009 to 2011, no previous record of regulatory violation and strict compliance with environmental legislation.