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How Did We Do? Looking Back on 2009.

Posted by admin at 10:53 AM on Dec 17, 2009

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By Clint Cox

In January of this year I examined the issues that I believed that the rare earth world would be facing in 2009. Below, I have analyzed my own text (for better or worse) — my current comments are in italics:

Rare Earths in 2009: Cover Your Eyes, Grit your Teeth, and Hope for the Best!

January 18th, 2009

By Clint Cox

Welcome to the New Year! The Rare Earth industry is one that has the ability to humble us all — so please view the following comments as “possibilities” and not “prognostications”. Without further adieu, key issues to watch for in 2009:

The Economy
This is the story for rare earth in 2009. How bad will it get? How will it affect the REE market? Rare earth prices have begun to drop.

In brief, this year could be catastrophic for global economics. Bouts of panic may pop from the globe like a truckload of kettlecorn. Spending on rare earth exploration and consumer end-products that use REEs could deteriorate dramatically. This could be a tough year.

The Global economy stagnated or got worse in terms of employment, housing, consumer spending, numbers of food stamp participants, government deficits, etc.; but improved in terms of stock market and commodity prices. We must wait to see the effect on this years Christmas shopping numbers, but the economy didn’t go “catastrophic” as I anticipated.

Another bonus for rare earths this year on the macro scale was the Climate Change debate and the REE awakening by the media (and that many green technologies rely on rare earths in some form).

World Conflict
Depending on which nations are involved in conflict in 2009, and how bad it gets, there may be an increased desire for the REEs for use in military applications. It is somewhat tragic to view war as a positive for this market, but it is possible.

The USA has committed to increased troop levels in Afghanistan, but there hasn’t been any significant outbreak of new conflict that would affect the REE world.

The US Congress has, however, decided to formally investigate the use of REEs in defense applications, with a report due by April 1, 2010.

Current Projects
Lynas Corporation says they are on schedule to be producing REE product by the 4Q of this year. If there are delays or problems it may affect the perception of the rare earth market. The industry is hoping for success in this (and other projects). If Lynas is successful, it could lead to funding for other projects. If Lynas has delays, it could provide opportunities for other companies, or it could taint the entire sector – it is very difficult to know.

Financing for many current exploration projects is certainly in question.

That said, the world is desperately in need of viable projects outside of China that can compete economically.

Wow. What a year on this front! Lynas lost significant funding early in the year, and it looked fairly bleak. However, with the phenomenal interest in rare earths this year, Nick Curtis and Lynas were able to pull off a major financing of $450 million. On a different note, they will not be in production by the end of this quarter, as they anticipated. In Hong Kong, Matthew James stated that they hoped to be in production by the first half of 2011.

Many other companies have been raising money in pursuit of rare earths — there are now well over 100 projects with some level of funding.

Chinese Output / Stockpiling
What will Chinese output be this year? Will the iron mine at Bayan Obo (which has enough REE by-product to make it the largest REE mine in the world) continue at the current pace if there is a downturn? The Chinese have already declared that they will create a stockpile of 300,000 tonnes of concentrate. That is a lot of concentrate! That will hang over the light rare earth (LREE) market like a dark cloud for years to come.

How much production can the South China clays handle? Will Sichuan regain previous form? There are always surprises in Chinese production – undoubtedly, this year will provide more fireworks.

Bayan Obo is still producing. The amount of stockpiled concentrate will, most likely, be less than that which is listed above. The Chinese are looking at streamlining South China Clay production (as described below). Sichuan may become a substantial player as consolidation takes hold.

Chinese Consolidation
The consolidation has begun. The plan is to consolidate each of the three REE mining districts – Bayan Obo/Baotou, Sichuan, and South China Clays – under one Chinese company each. This will create substantial efficiencies and allow the Chinese regulatory agencies to more closely control the flow of REEs.

This is a slow process, but has the potential to change the face of the REE industry within China. It may create efficiencies within the different producing regions that haven’t been seen before. This is especially true in South China with the clay production. The details are still being hammered out, but it looks like this may be a game-changer on some level.

Chinese Export Quotas
The Chinese have once again cut export quotas for the first 6 months of 2009 to 15,043 tonnes versus 22,780 tonnes in 2008 (http://www.metal-pages.com/news/story/36952/).

Will this have impact? With companies outside of China working down their own stockpiles, will they need to purchase as much? These are issues to watch closely this year.

This is where we got the FIREWORKS this year! I’m not sure anyone saw this coming (at least on the scale it erupted). The MIIT draft which spoke of the possible cessation of export for certain elements set off a chain of events that will forever mark 2009 as a pivotal year in the industry. The story really broke in September with the world’s media jumping on the story and wondering aloud with the headlines “Will the Chinese cut off the world from Rare Earths?” Despite a lot of bad information and misinterpretation, the controversy helped bring rare earths into the spotlight.

Even in the midst of the hooplah, REE prices didn’t spike as one might think. However, the prices of junior exploration companies searching for REEs did spike, and a lot of new money has flowed into the sector.

Who Blinks First?
Chinese officials have made it very clear: If foreign manufacturing companies move their facilities to China, they will be guaranteed a steady supply of rare earths. Many technology companies are reluctant to do this because they want to protect their intellectual property, but will the temptation of an endless REE supply be too much?

Companies continue to move operations to China, but the tension still exists.

The Unexpected
This will probably remain a staple in the annual market outlook for years to come. New technologies, new exploration discoveries, basic economics, and geopolitics can all reverberate through our small industry. It is the nature of this fascinating sector.

The unexpected event this year was certainly the worldwide attention REEs garnered as a result of the MIIT Draft controversy. In addition, it has also been discovered by the media that REEs are necessary for the fulfillment of many green technologies. There will be more of the unexpected!

I wish you all the very best in 2009!

Please take time to contact me with any questions you may have on the “Contact” page.