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July was an important month for the rare earth market. In perhaps the most significant news of the year, China released the rare earth export quota for the second half of 2011, sending the market into a frenzy yet again. Other top headlines included the continuing rise of rare earth prices, and the alleged Japanese discovery of rare earth deposits on the floor of the Pacific Ocean.
By Michael Montgomery—Exclusive to Rare Earth Investing News
Chinese export quotas
Don’t be fooled by the headlines. Although the Q2 2011 quota is double that of the restrictive 7,000 tonne limit imposed in the Q2 of 2010, the quota for this year now totals 30,246 tonnes, down slightly from the 30,258 tonnes total quota set in 2010.
More importantly, there is one major change to the quota that could restrict supply even further, and that is the inclusion of rare earth ferroalloys. This is potentially a major development because some of the most common rare earth products are ferroalloys, for example, neodymium-iron-boron magnets. However, analysts are split on the effect that the policy change will have on overall demand.
The same supply chain conditions that made the relatively unknown group of metals one of the biggest commodities stories in 2010 are still present. The world is still in desperate need of rare earth production outside of China.
Prices continue to rise
The reduction of rare earth supply coming from China has understandably put upward pressure on prices for rare earths. The price of dysprosium has jumped in non-Chinese markets to $3,300-3,500 per kg. The rising price of lanthanum, from $50 per kg at the start of the year to over $150 per kg currently, has prompted Molycorp (NYSE:MCP) to renegotiate supply contacts.
Seagate (NASDAQ:STK), a computer hard drive manufacturer, recently stated, “The cost of many upstream materials, especially rare earth elements, which have increased significantly, … are expected to adversely impact gross margins.”
The ongoing supply chain tightness in the rare earth market will continue to push prices skyward. There is simply not enough supply in the global market to meet consumer demand.
Japanese oceanic rare earth deposits
In eye catching headlines, reports claim Japanese researchers have discovered massive underwater rare earth deposits. The deposits are reported by sources such as Reuters to be at depths ranging from 11,000 ft to 20,000 ft and contain upwards of 100 billion tonnes. However, the total size may be misquoted.
“What the authors do NOT estimate, is a size of the total mineral resource, and wisely so . . . and thus state that “resource estimates for large regions cannot be made until more detailed data are available for areas lacking cores,” reported Gareth Hatch, for Technology Metals Research.
It seems as if the reporters of this story took a loose estimation by the scientists and ran with it. Regardless of the size of the deposits, the monumental task of mining at a depth upwards of 20,000 feet below the surface is almost impossible, and certainly unrealistic economically with current technology.
“It makes for some nice headlines, but I don’t think it would really be feasible to do this,” said Luisa Moreno, an analyst for Jacob Securities. “Obviously they are very frustrated and very desperate for alternatives.”
The main motivation for putting this story out is to respond to the tight quotas and skyrocketing prices out of China. “They are trying to persuade the Chinese that they are not over a barrel. And they are not fooling anyone,” stated Christopher Ecclestone, mining strategist for Hallgarten & Company.