Rare Earths 2014: Industry down, but not out

By Laura Syrett
Published: Thursday, 27 November 2014

Lighting industry cutting consumption in LED shift; Supply security top priority for auto makers

Rare earths companies are facing some of the worst market conditions in the industry’s history, market participants at the 10th International Rare Earths Conference in Singapore glumly acknowledged in November.

Speaking on the eve of the conference, hard pressed juniors, miners, processors and buyers agreed that rare earths have been hit particularly hard by the general malaise in the global resource cycle.

"It’s not just rare earths - it’s pretty tough wherever you look," Mark Saxon, CEO of TSX-listed Tasman Metals Ltd, which is developing the Norra Karr rare earths mine in Sweden, told IM. "Everything is subject to financing, but it’s tough to get meetings to take projects forward," he said.

Saxon said that the relaxation of TSX rules last year which made it easier for retail investors to participate in small financings had thrown a lifeline to some companies that might otherwise have been forced to delist for want of capital.

"It hasn’t been good for the industry," he said, noting that the rare earths sector continues to be crowded with juniors competing for financing when only a handful have a realistic chance of making it into production.

Lloyd Kaiser, marketing manager for ASX-listed Arafura Resources, similarly told IM that the funding hardship was being felt across the mineral spectrum, but argued that the "difference with rare earths", is their role in green energy, particularly in electric and hybrid cars.

Kaiser noted that while most of the industries suffering from falling demand are linked to an oversupply of materials for construction sector, magnetic rare earths have applications in technologies where there remains a significant amount of growth potential.

Ian Bamborough, managing director Spectrum Rare Earths, which is also listed on the ASX, agreed that large and achievable market opportunities exist for some rare earth minerals.

"Everybody talks about 'lights’ and 'heavies’ - but what really matters when it comes to rare earths is magnetics," he told IM.

"Cerium is worthless - there is too much of it and nobody wants it," he said. "But if you look at the magnetic minerals like neodymium and dysprosium, the high tech and renewables sector are going to ensure these remain vital materials for the foreseeable future."

Both Arafura and Spectrum are developing rare earths projects in Australia’s Northern Territory, south of the port city of Darwin.

Each company has devised a business model that involves dropping cerium - the lowest valued rare earth, mainly used in polishing powders - out of their refining process at an early stage in the form of crude cerium carbonate.

Lighting industry offers dim prospects

Adding to the junior sector’s funding woes is the prospect of weakening demand in rare earths’ traditional end markets. 

Manufacturers of lighting systems, for example, are moving away from phosphor-based fluorescent lighting technology in favour of better performing light emitting diodes (LEDs), which require smaller quantities of rare earths.

Bill Cohen, technology systems manager for phosphors at GE Lighting USA, said that GE’s phosphor blends typically comprise 50% rare earth elements, broken down into 44% yttrium, 4% terbium and 2% europium. 

Cohen explained that while LEDs still need rare earths, the volumes required are "15 to 20 times less" than those in fluorescent phosphors.

Unlike other rare earths-consuming industries, such as catalysts, polishing powders and magnets, which have acted to cut their use of the minerals in response to concerns about price volatility and supply security following the market spikes of 2011, the consumption shift in the lighting industry has been driven principally by innovation.

Cohen acknowledged, however, that concern about volatility in the rare earths market had added impetus to the move towards LEDs and remains a concern as long as the lighting industry continues to require the elements, albeit in smaller amounts. 

GE Lighting, which spends around $40bn annually on raw materials, is "strategically assessing" its rare earths requirements as it switches to manufacturing a greater proportion of LEDs.

Cohen referred to a US Department of Energy report released in August 2014, which published figures indicating that phosphor usage in the US is set to decline by 65% between 2010 and 2030.

LED technology claims a number of advantages over fluorescent lighting, being more efficient, longer lasting and not requiring mercury. The price of LEDs has also come down significantly since the technology first appeared in the 1960s, making it more popular with industries and consumers.

Cohen said that while the overall trend for rare earths usage is positive based on rising volume demand for lighting systems, particularly in emerging economies, specific consumption of rare earths by the industry will shrink.

Supply security biggest priority for automakers

The challenges of establishing a viable rare earths supply chain outside China notwithstanding, delegates in Singapore were reassured that the need for reliable supply sources remains of paramount importance to downstream consumers.

In a presentation discussing rare earths consumption in the Japanese auto industry, Sumio Kozawa, managing director of the Metal Economics Research Institute of Japan (MERI/J), said that automakers have "real concerns" about interruption of supply.

"Automakers are taking precautionary measures [to secure their access to rare earths], such as collaborating with suppliers of raw materials and [automotive component] parts," Kozawa said.

"It is a fact that rare earth elements are scientifically unique and useful, but concerns over their supply and prices may outweigh their importance to car makers," he explained.

Kozawa said it was difficult to estimate the exact usage of rare earths per car owing to variations in technology between models and manufacturers, but that Japanese car makers, which include Toyota and Mitsubishi, were among the world’s major consumers of the minerals.

The heavy rare earth dysprosium is used to make magnets for car motors and an average car contains more than 100 of these magnets, Kozawa said, although not all car models rely on rare earths-based magnet technology.

One precautionary measure pursued by automakers has been investment in active research and development into dysprosium-free magnets. Some of the experiments taking place in the US, Korea and Europe are yielding "technically feasible" alternatives, according to Kozawa.

Another major automotive application for rare earths is catalysts, which control vehicle emissions by turning harmful pollutants in exhaust gases into less toxic substances. Since the introduction of catalytic converters into cars in the 1970s, this market has grown rapidly and remains a significant consumer of the light rare earths, cerium and lanthanum.

According to data compiled by Roskill Information Service, the autocatalyst market consumed around 9,000 tonnes rare earths in 2013, of which between 80% and 90% was made up of cerium, lanthanum and neodymium.

Need for stable pricing

Second on the priority list for car makers is raw material price stability, Kozawa said. As a factor generally linked to security of supply, rare earths prices skyrocketed in 2011 after China cut its rare earths export quota by 40% at the end of 2010.

This resulted in a near 4,000% increase in the price of cerium which, according to Roskill analyst Suzanne Shaw, sent shockwaves through industries like catalyst manufacturing which were used to paying low prices for rare earths.

"[Catalyst makers] could not sustain these price rises and many simply stopped buying," Shaw told delegates.

She added that while prices have come down significantly from their 2011 peaks, the value of cerium and lanthanum (currently priced ataround $4-5/kg) remain around 30% higher than their 2011 levels - something that many downstream markets, including autocatalysts, are refusing to tolerate.

Roskill estimates that there are market surpluses of 40-45,000 tonnes for lanthanum and 90-95,000 tonnes of cerium in the market today and that buying standoffs buy key purchasing sectors is exacerbating this oversupply.

Kozawa said that automakers are beginning to weigh up the performance benefits of using rare earths and the need to meet stricter environmental regulations against the supply risks and their consequent cost impact on downstream buyers.

He said that MERI/J’s analysis of the industry suggested that specific consumption of some light rare earths by the auto industry and other markets would not recover to the volumes seen before the 2011 price spikes.

He added that even a bullish outlook for the industry did not allow room for rare earths price rises, saying that prices would need to be stable and concerns about supply and market volatility would need to be resolved for demand to increase. 

Rare earths news review

New supply still needed, says Molycorp

Rare earths miners need to be aware of efforts to substitute and reduce specific consumption of rare earths, but the emergence of more suppliers outside China will be a net benefit for the industry, Geoff Bedford, CEO of Colorado, US-based Molycorp Inc. told delegates at the 10th International Rare Earths Conference in Singapore.

"New supply outside China will lead to a little more security and a little more visibility in the supply chain," Bedford said.

Bedford added that anxiety from downstream rare earths consumers was less about price volatility than visibility in the market. 

"Our customers come to us and say that their business models can accommodate higher prices, but what they can’t accommodate is significant insecurity," he said.

Molycorp announced a third quarter loss of $105.2m at the start of November and 7% decline in sales year-on-year (y-o-y), to 3,356 tonnes. The company also said that average selling prices had fallen by 10.3% y-o-y, to $36.93/kg.

In September, the company closed a $400m financing deal with Oaktree Capital Management, of which $250m was immediately available to the company.

The remaining $150m can be accessed until 30 April 2016, contingent upon Molycorp achieving consolidated adjusted EBITDA* of not less than $20m and production volumes of at least 4,000 tonnes rare earth oxides per quarter, for two consecutive fiscal quarters.

*Earnings before interest, taxes, depreciation and amortisation.

China pursues further rare earths consolidation

China’s Ministry of Industry and Information Technology (MIIT) announced in November that it is discussing consolidation plans received by three rare earths producers.

The details of the plans submitted by China Minmetals Corp., Ganzhou Rare Earth Group Co. and Rising Nonferrous Metals Co. were not disclosed, but industry rumours said that Ganzhou Rare Earth Group intends to cooperate with Jinpanxi Rare Earth Group Co. - a consortium of six rare earth firms in Sichuan province.

MIIT also announced that it is considering revising rules introducing some changes to China’s rare earths export policies next year.

The government is planning to introduce management regulations, revisions about domestic output ceiling rules, different management of heavy and light rare earths and raise resource taxes on ion-adsorption clays.

**Conversion made November 2014

Sumitomo begins production at Kazakh plants

Japan’s Sumitomo Corp. has commenced test production of rare earth elements in its joint venture with Kazatomprom, the national atomic energy company of Kazakhstan.

In a statement sent to IM, a spokesperson for Sumitomo in Tokyo confirmed: "Currently, we are producing a small amount of rare earth materials on a trial basis since this June, and we are now making preparations to go into commercial production."

Exports to Japan had been due to start in 2013, suggesting that the project is at present behind schedule.

The two companies set up Summit Atom Rare Earth Co. LLP (SARECO) in 2010 to recover rare earth elements within residues from Kazatomprom’s uranium mines.