China Eases Restrictions on REE Exports

Chinese export quotas raised

China’s government has eased restrictions on REE exports for the first time since 2005. The country’s Ministry of Commerce confirmed that it will permit a rise in rare earth export volume equivalent to a 2.7 percent increase from 2011 – a total of 30,996 metric tons.

The news, however, is unlikely to have a profound effect on the market as over the past two years, China has not come close to exporting as much as it is permitted.

Mark Smith, CEO of Molycorp (NYSE:MCP), the US company attempting to ramp up production at its Mountain Pass, California mine, said in an interview with The Wall Street Journal, “[t]he export quotas are not all that meaningful anymore.”

Smith added that Molycorp estimates that domestic Chinese demand absorbed 70 percent of the country’s rare earth oxide (REO) output in 2011, up from 60 percent the previous year. The company believes that Chinese industrial demand for REEs is growing as a result of Beijing clamping down on domestic miners, a move that could reduce REO production by 20 percent this year.

“We think the real story is [Chinese] production quotas, not export quotas,” Smith said.

Producer’s earnings fall

Inner Mongolia Baotou Steel Rare-Earth (SSE:600111), the largest REE producer in China, announced that its net profit fell by over 20 percent in the first half of this year from a year ago. The company confirmed that it achieved a net profit of 1.6 billion yuan ($252 million) in the first six months of 2012 and attributed the dip to falling prices and a global slowdown in demand.

“The slowdown in the economy has dragged down demand for rare-earth products,” said Chen Zhanheng, deputy secretary-general of the China Rare-Earth Industry Association, in an interview with Global Times. To cut costs amid the faltering economy, many industries have tried using substitutes for rare earths or using less of them during production, he said.

While the company’s net profit remains impressive from an investor aspect, news of the earnings decline has strengthened market speculation that the company may cut or even suspend production to stabilize prices.

Dysprosium-free magnet discovery

Toshiba (TSE:6502) announced that it has developed a samarium-cobalt magnet that has a high iron concentration and is free of dysprosium, a REE that is becoming increasingly expensive and is in extremely short supply. The announcement is significant in that magnets are the fastest growing REE demand sector, accounting for 24 percent of consumption.

In a company press release, Toshiba stated that at typical operating temperatures, the samarium-cobalt magnet has superior magnetic properties to the heat-resistant neodymium magnets currently used in motors.

“Current sources of dysprosium are limited, and recent export limitations and price rises are raising global concerns for future shortages. In these circumstances, the development of dysprosium-free high performance magnets that offer a strong magnetic force at high operating temperatures is an important objective for industry,” it said.

Toshiba has verified the performance of the new magnet when applied in motors for automobiles, locomotives, machine tools and elevators, and has confirmed that it has almost the same capabilities as heat-resistant neodymium magnets of the same size. It aims to start mass production of the magnet at the end of the current fiscal year and will promote its use in all applicable equipment.

Market price round-up

The rare earth market has seen little actual business this week as suppliers and buyers both monitored the market while waiting for clear direction, Metal-Pages reported. Trade in cerium was described by traders as “very slow,” with consumers trying to negotiate prices at the lower end of the $17 to $20/kg range.

The praseodymium/neodymium market has seen thin trading, although some suppliers raised offer prices this week. Prices of about $58,200/tonne for 99 percent praseodymium/neodymium oxide have not attracted buyers, while prices of $56,300/tonne are being accepted by some.

Dysprosium oxide prices have been steady, although many suppliers have increased offer prices. Prices of 99.9 percent lanthanum oxide have been on a downward trend. Prices of $10,530/tonne have been accepted by some purchasers.

Market players are expected to be cautious over the coming months as a result of weakening downstream demand, though some expect the second round of Chinese stockpile purchasing to support prices.

Company news

Stans Energy (TSXV:HRE) announced that it has commenced core drilling at its Kutessay II project. Last year, Stans drilled the Kutessay II deposit to test the depth extension of known mineralization and confirmed that the historic past-producing heavy REE deposit continues to depth.

The 2012 exploration drilling program consists of up to 10 drill holes within the existing open-pit outline, which will allow the new zone to be included in future resource calculations.

Great Western Minerals Group (TSXV:GWG) reported that its application for prospecting rights for the Steenkampskraal monazite mine has been successfully appealed.

The company made the application for prospecting rights for approximately 547 square kilometers surrounding the Steenkampskraal site, according to a press release. Great Western believes that a number of known monazite outcroppings outside the mine site area warrant exploration work.

The company’s president and CEO, Jim Engdahl, labelled the appeal process a “critical win” as it enables the company to extend the Steenkampskraal exploration program past its current boundaries.

Gold Canyon Resources (TSXV:GCU) announced that the second phase of exploration has begun at its Chambe Basin REE project in Malawi. The company confirmed that work will involve the drilling of 167 shallow core holes on a staggered 200 meter grid across the Chambe Basin.

Mitsui Mineral Development Engineering Company of Japan is the operator of the program and will undertake metallurgical testing of clay samples from the holes to determine the leachability of REEs and the quality and composition of resulting REE carbonate concentrates. Work completed in 2012 is expected to advance the REE project toward prefeasibility by mid-2013.

Securities Disclosure: I, Adam Currie, hold no direct investment interest in any company mentioned in this article.