Rare-earth deposits are not rare; they are just rarely put into production. Why is that? It is because of pricing economics driven by supply and demand. The demand for the rare earths as raw materials is today in southeast Asia, so it should not be surprising to see how the producing supply base has migrated to that part of the world. Yet pundits and politically charged writers keep hinting at a vast intentional Chinese conspiracy to “control” the rare earths. It is more than likely actually a consequence of the operations of the market forces of (what we now ironically call) free-market capitalism. as practiced today by governments following the model originated by John Maynard Keynes.
The American financial regulators are as guilty of allowing foreseeable but unintended consequences of their actions, as the Chinese regulators are responsible for maximizing the benefits of American oversight for China’s economy. There is actually no intractable problem so long as both economies practice free trade, but when Chinese self-interest is seen as a threat to American self-interest, it is the “other” rather than the “system” that is brought into ill-repute.
Rare-earth-based production (the supply) and production levels are determined by the economics of overall demand. So long as the lowest cost for rare-earth products is obtained by buying such types of goods manufactured in China, the total supply chain and the focus of the rare-earth industry will remain in China.
Today, in early March 2012, I am going to give one prescription for the re-birth, health and continued growth of a non-Chinese rare-earth industry, and I’m also going to make one prediction about the growth of the global rare-earth industry over the next ten years.
First, before I assume the mantle of the business-survival specialist or of a resource-markets Nostradamus, I need to point out that the growth of demand for a rare-earth element (REE) is in the case of almost all of the REEs, within a unique market for each of them individually. The demand for cerium (Ce), for example, has almost nothing whatsoever to do with the demand for lanthanum (La), or any other REE. They are not interchangeable, nor substitutable for each other, except in very few cases such as that of neodymium (Nd) and praseodymium (Pr), which in some limited applications in rare-earth permanent magnets (REPMs), are substitutable/interchangeable.
Notably the demand for Nd for use in REPMs is the principal driver of the demand for dysprosium (Dy), whereas the inverse is not true. This complex subject, the demand for individual and certain combinations of the REEs, is glossed over by pundits as if it doesn’t matter. This is a fatal flaw in creating investment strategies for developing REE supply, because what is overlooked is that the supply of the rare earths must be examined on an element-by-element basis and not looked upon simply as a “basket” containing all of the REEs.
This error of assuming that all or most of the REEs are interchangeable for marketing purposes, gives rise to the glib assumption that the same strategies will work for selling REEs to a variety of end users, whose only common interest is that their products all contain REEs.
An even more flawed assumption is the idea that the individual REEs are of equal importance to our technological economy in any of their uses, and so one simply calculates a basket price and this metric then defines an opportunity to produce a combined value. Nothing could be farther from the truth.
China appears to have unused (excess) capacity in the production of the lower-atomic-numbered rare earths (LANREs) in the amount of more than 50%. This means that China could ramp up production to twice today’s output of LANREs and, based on even old (from 1997) basically anecdotal data from the US Geological Survey, keep this level of production up indefinitely.
On March 5 there was official news from China (reported in the China Daily, the English-language version of the People’s Daily, the house organ of the Chinese Communist Party) for example, that Jiangxi Copper, which has been given responsibility to consolidate rare-earth production in Sichuan province, says that it will increase production there to 50,000 tpa and will target the export markets. Rare-earth prognosticators please pay attention. Jiangxi Copper is a world-class commodity-metals-producing giant. It is also state-owned and has more working capital and borrowing firepower than all of the non-Chinese rare-earth ventures on Earth combined.
The domestic growth of the Chinese demand for the REEs is today without doubt the principal driver for any attempts to increase the supply of REEs. China’s domestic demand for all of the REEs today is probably at 70-80% of the world’s total supply (also, of course, today produced in China domestically).
China is openly moving to change its economy from an export-led to a domestic-consumption-led model. As China does this, the domestic demand for REE-containing consumer products (the vast majority) will increase in China, apparently without decreasing outside of China. Unless there is increased production of those among the REEs that are the critical REEs, there will be shortages and price hikes – but not in China, which will simply consume more REEs domestically while reducing exports, as it has already begun to do precisely to prepare for the change of direction in its economy.
Reacting to that change and to world opinion, China has restructured its REE industry and this has resulted, for example, in Jiangxi Copper telling the world that it will ramp up production in the area under its control, so that both the Chinese domestic market and the export market can be served.
Jiangxi is a new competitor in the global REE market, and it is a large profitable company run by excellent managers. It has no competition outside of China in the REE space that can match it in resources of intellectual property, manpower resources, capital, and knowledge of world markets.
Yet in China, Jiangxi faces Baosteel and Chinalco in the newly consolidated REE production space as its competitors. Keep in mind that it will be an uphill battle to beat China at its own game inside China. So what is left for the non-Chinese REE supply wannabes is to produce something that the Chinese domestic REE market needs, and which is not produced in China in sufficient quantity, so that it will be in demand whether or not a total supply chain is ever constructed outside of China.
It seems that the higher-atomic-numbered rare earths (HANREs), the so-called ‘heavy rare earths’ fit this description and their number may even be joined by the LANRE Nd.