The Investing News Network recently spoke with Ben Kramer-Miller, chief analyst at miningWealth, to get some insight into the rare earths market.
It’s been a quiet year so far for the rare earths market. With no sign of a meaningful rare earths price recovery, the biggest news this year has been Molycorp’s (OTCMKTS:MCPIQ) bankruptcy and efforts at restructuring.
However, that doesn’t mean things have died down completely.
To get more insight into the market, the Investing News Network spoke with Ben Kramer-Miller, chief analyst at miningWealth. Below, he discusses the markets for a few specific rare earths — namely, dysprosium and erbium — and shares some of his thoughts on the rare earths industry in China.
Interestingly, he believes that erbium often gets overlooked, and perhaps deserves more attention.
Read on for Kramer-Miller’s thoughts on dysprosium and erbium, and stay tuned for part two of our interview, in which he talks about what he looks for in a rare earths company and about some of the juniors he likes in the space.
The importance of erbium
When asked about the rare earths market, Kramer-Miller was quick to point to erbium, a heavy rare earth he believes is “really overlooked.”
The metal is used in fiber optics and lasers. “Lasers can utilize crystals, and these crystals contain rare earths,” he explained. “They usually contain yttrium, and they’ll often contain another rare earth. So for instance, for laser eye surgery, that other rare earth is neodymium.” For other applications, erbium is used.
Kramer-Miller believes that the fiber optics market has the potential to grow, and expects erbium demand to grow along with it. “That’s one that I would watch,” he said. “The price right now is about $30 per kilogram. I think that one has the potential to rise.”
In terms of supply and demand, he noted that the metal is also “one of three rare earths right now that is in deficit,” with the other two being neodymium and praseodymium. Those two tend to get quite a bit more attention by virtue of being key ingredients in rare earths magnets.
However, he explained that most heavy rare earths deposits outside of China “are not economic right now,” which could be troublesome for adding new supply. Despite all that, Kramer-Miller said that the price of erbium has come down considerably as of late.
“In fact, it’s come down so much that it’s now useful for another application, which is to color glass,” he said. “A rise in the erbium price could be very beneficial for companies that have a decent amount of it.”
He pointed to Tasman Metals (TSXV:TSM), Texas Rare Earth Resources (OTCMKTS:TMRC), Northern Minerals (TSXV:AU) and Namibia Rare Earths (TSX:NRE) as examples of companies with a decent amount of erbium in their deposits.
A few notes on dysprosium
In contrast to erbium, dysprosium gets plenty of attention from rare earths companies, market watchers and analysts. It’s one of the most expensive rare earths, and it’s a key ingredient in the world’s strongest type of rare earths magnet.
The addition of dysprosium helps neodymium-based magnets function at higher temperatures; without dysprosium they would likely demagnetize. “It has a couple of other minor uses, but that is the overarching one,” Kramer-Miller said. “Given the fact that dysprosium is produced almost exclusively in China, and given its high price, a lot of companies that work with magnets have been doing work to remove dysprosium to as great an extent as possible.”
Certainly, it’s possible to reduce the amount of dysprosium used, but Kramer-Miller argued that it “makes sense to have access to as many materials as possible.” That falls in line with what Jon Hykawy of Stormcrow Capital has pointed out in the past — it’s possible to do a workaround, using different forms of technology to achieve the same function, but those alternatives usually aren’t as good as simply using rare earths.
“If companies produce dysprosium, I think there will be demand for it,” he said, adding, “although we could continue to see the gap between neodymium prices and dysprosium prices close.”
China still center stage
As a final note, Kramer-Miller shared a few points for consideration in terms of the rare earths market in China.
Despite a ruling against China’s rare earths export quotas by the World Trade Organization in 2014, Kramer-Miller agrees with many other analysts who believe that China will retain its hold on the space. The country accounts for the vast majority of the world’s rare earths supply.
“I think the Chinese are still in a very powerful position,” he said. “If they want to, they can cut off supply as a form of economic warfare. I think that’s still a very real possibility.”
Specifically, he noted that China currently has a stranglehold on the market for heavy rare earths. In fact, there’s no heavy rare earths production outside of China. “Heavy deposits [outside of China] are not economic right now because dysprosium is going down in price due to oversupply,” he explained.
Beyond that, Kramer-Miller also suggested that it’s important to keep an eye on some of the alliances that China is making with other countries in terms of its economic development. For example, he pointed to a recent energy deal between Gazprom (MCX:GAZP) and China as a sign that the country is partnering up with Russia more and more.
“The Chinese have a command economy and they are thinking very long term,” he said. Certainly, that’s food for thought for investors considering rare earths miners outside of China.
Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any of the companies mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.