2008: Rare Earth Year in Review

Posted by admin at 3:07 PM on Dec 30, 2008


By Clint Cox

Back in January of this year, I wrote an article entitled “10 Things to Watch for in Rare Earth in 2008”. Late December seems like a good time to review my thoughts and see how the market played out.

Here are the 10 Things with my updated comments after each in italics:

The economy. If the world economy (or even the US) goes into recession, then there is the distinct possibility that rare earth businesses may suffer a setback. Key REE uses such as catalysts for cracking petroleum, phosphors for color screens, and many magnetic applications may be curtailed somewhat by a significant cutback in spending. The economy serves as a backdrop to the entire industry.

The economy has clearly hit a recession, and it has affected the REE market most dramatically in this 4th Quarter. Prices are steady or slumping for the majority of REEs.

Chinese production. The Chinese cut production in some of their most prolific mining areas in 2007 in order to better control and consolidate the industry as well as address environmental concerns. There is also talk of shifting mining operations from one part of Bayan Obo–the largest rare earth mine in the world–to another that has more iron (the primary target for the mine) and less REE (considered a by-product). How this will affect output remains unclear.

The Chinese continue to consolidate their production operations into three distinct areas: Bayan Obo/Baotou, Sichuan, and South China. More details on production output below.

Chinese export quotas and tariffs. There has been a steady trend of decreasing exports and increasing tariffs for the rare earths coming out of China. China is absorbing more and more of its own REE production. The industry has embraced this new reality, but if there is a surprise cessation of export for any given element it might send shockwaves through end users. The tariffs have also been accepted, but will hopefully be increased at a slow and steady pace.

Export quotas have been cut slightly for 2009, but the industry seems to be adjusting to the trend of slightly increasing tariffs and reduction of export quotas. This may force more production using REEs by foreign companies into China, as the Chinese authorities have made it quite clear that any manufacturing facility inside China that requires rare earths will be supplied with whatever amount of rare earths that they require.

Progress of current mining projects. There is great interest from the entire industry in getting new mines in production outside of China. There are a number of possibilities spanning the globe that hope to fulfill this need. Established players in the REE industry are gaining momentum by publishing pre-feasibility studies, raising money, moving dirt, and staking new claims. Progress is important for these established projects, because according to Roskill 40,000 tonnes of new material may be needed by 2012. The key to understanding new supply is how well the projects in the pipeline meet the current and future needs of the marketplace. Also, technological innovations in mining and processing may have a positive impact these current projects.

There has been slow, but steady progress on a number of REE projects. It has become more difficult to raise money in this economic environment, but many companies continue to make deals and explore their properties. It is unclear what impact the economic crisis will have on the viability of current project schedules.

New REE mining projects. The rare earth sector in an attractive growth industry that is beginning to pull new players to the REE table with the power of a neodymium supermagnet! With increasing publicity and a growing realization about the supply deficit, new players are sure to begin surfacing soon. We can only wait with eager anticipation to see if new companies may become public in 2008.

Many, many companies assayed for rare earths in 2008 — and many found them! We will have to wait to see if there are any significant projects from these new results, as it will take some time to determine the economic viability of the grade, tonnage, and metallurgical processes associated with each potential site.

New uses. The industry is rapidly developing new technologies that utilize the rare earth elements. Will 2008 bring a breakthrough technology? REE history is filled with sudden shifts in demand based on new technologies.

There were no significant breakthroughs that shook the market this year. There were certain elements that saw increased demand — and some that waned, but nothing like the shocking demand caused by the introduction of Nd magnets back in 1983. The new applications will come, but we must wait at least another year it seems.

Stockpiling. The Committee on Assessing the Need for a Defense Stockpile (part of the National Research Council) has named several rare earths in their recent report “Managing Materials for a 21st Century Military”. The US may not be stockpiling REEs yet, but they are certainly taking a close look at it. Japan has also considered the matter. Stockpiling can affect the industry in a number of ways. In the short term, it could certainly take some product off of the market and drive prices up. However, as rare earth needs can shift over time, stockpiled elements may become less useful for their intended purpose and placed back on the market (thus, unexpectedly lowering prices). The timing and size of possible stockpiling is unknown, but further steps maybe taken in 2008.

With the exception of the economy, stockpiling may have been the biggest story in the REE market in 2008. The Chinese announced that they would be stockpiling 300,000 tonnes of concentrate, and recovering all of the REEs from the Bayan Obo mine (instead of the 15-20% they currently recover). This may drastically affect the market in the future, and may possibly delay the REE market recovery. Future rare earth producers outside of China should keep a very close eye on this situation and how it may impact future pricing.

Investor awareness. If the investment community becomes more alert to the critical role that rare earths play in modern society — as well as the supply and demand crunch that may be looming — there may be a “rare earth rush” of sorts. Rare earth companies have been able to raise substantial money over the last year, so we may be at the beginning of a wave of new interest. However, the industry is cognizant that any prominent misstep by a public rare earth company may sour investors on the sector.

Judging from conversations with public REE companies and private owners of REE projects, it seems that the public has become much more aware of the rare earth sector. However, there are still very few people who know what rare earths are and what they are used for — so even though awareness is on the rise, there is still a very long way to go!

Thorium research accelerating. Thorium (Th) is often found with rare earth elements, and must be properly disposed of — and this can be costly. However, there is a burgeoning interest in using Th as fuel for nuclear reactors. The great advantages that Th has over uranium are that it does not need to be enriched and it cannot be used for nuclear weapons. Current technology is in various stages of testing, and the nuclear industry has yet to embrace Th. But there is potential for the future, and it is quite possible that this current REE liability could become an asset within a decade.

With the recent collapse of energy prices, it will be challenging for Th to break into the market as a viable short-term alternative to uranium. That said, president-elect Obama has proclaimed a green initiative that may include alternatives such as thorium in the future. We will continue to watch this. In the meantime, Indian researchers are working diligently on their thorium reactor technology, as they have plentiful supplies of thorium bearing monazite.

The unforeseen. Every year there are exceptional surprises in this business — 2008 will likely follow the trend!

The severity of the economic crash has taken much of the REE industry by surprise. Rare earth end-users are being very cautious right now. This will continue until the market fog lifts a bit.

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Next week I will be looking at the possibilities for 2009.