The Conversation (0)
Governments are now recognizing the need for stockpiling and securing rare earth elements like never before. Many analysts around the world are calling for more diverse sources of REE to ensure availability in the future.
Governments are now recognizing the need for stockpiling and securing rare earth elements like never before. In its 2010 Critical Materials Strategy report, the United States Department of Energy identified the REE dysprosium as the element most critical in terms of import reliance. Many analysts around the world are calling for more diverse sources of REE to ensure availability in the future.
“These raw materials are linked to the entire global economy and what people are finding out now is that these ‘minor’ metals are not so minor,” said John Kaiser, speaking at the PDAC Critical Metals Emergency Forum in Toronto. Mr. Kaiser is an analyst and author of the website Kaiser Bottom Fish, specializing in high risk securities with an emphasis on the resource sector.
REEs are a collection of seventeen chemical elements in the periodic table, specifically the fifteen lanthanoids plus scandium and yttrium. REEs are crucial in the production of many growing sustainable technologies including hybrid electric cars and wind turbines. New demand has recently strained supply, and there is growing concern that the world may soon face a shortage of rare earths. In several years, worldwide demand for rare earth elements is expected to exceed supply by 40,000 tons annually unless major new sources are developed.
These concerns are growing due in part to China, which is not only the predominant supplier, but is increasingly now a major consumer. On September 1, 2009, China announced plans to reduce its export quota to 35,000 tons per year in 2010-2015 in order to ensure a national stockpile. At the end of 2010, China announced that the first round of export quotas in 2011 for rare earths would be 14,446 tons; a figure 35 percent less than the previous first round of quotas in 2010. These changes in quotas are explored in depth in a March 7, 2011 article for Rare Earth Investing News.
As a result of the increased demand and tightening restrictions on exports of the metals from China, searches for alternative sources continue in Australia, Brazil, Canada, South Africa, Greenland, United States and other countries.Mines in these countries were closed when China undercut world prices in the 1990s, and though price is once again climbing, it will take a few years to restart production in many places.
“You can see the demand growth went way up while China’s supply response went sideways. It was the United States, Chile and Peru that ramped up production and started mining the higher grade portions of their components to take advantage of a $30-35 price per pound. Everybody thought this was a flash in the pan and it’s going to crash right back to the $2-3 where it’s been for the last 20 years,” said Kaiser. “Now it’s still sitting at around $15-17 a pound. The value of this market eight years ago was a mere $1-2 billion a year and is now parked at about $10-12 billion a year, and this is happening to many of these critical metals.”
China has been emerging as the dominant suppliers of rare earths over the past 20-25 years. Kaiser explained that in the 1970s and 1980s, China started out mostly as a raw material exporter, subsidized its mining industry by allowing multiple small-scale production of minerals like tungsten and zinc and the REEs, while paying little attention to emission standards. Today, China has emerged as the market leader for a lot of these metals, and are now starting to consider the local environmental impacts of their mining operations, which is one of the reasons being cited for the decrease in REE export quota.
Outside of China, however, there is a lot talk that the decrease in the quota has more to do with controlling the production stream of REEs than it does protecting environmental interests.
“One of the reasons they are introducing this whole strategy of export quotes and reducing total production in a scenario where demand is rising from innovation and policy is unofficially people want to see more intellectual property transferred to China where there of course it rips it out of the western companies’ control and into Chinese companies’ control and ends up with China a stronger more knowledgeable player,” said Kaiser. “And they want the downstream jobs, not just assembling stuff, they want higher end jobs that come from value added processing of critical metals such as REEs into complex materials that also form complex technologies.”
Looking forward, Kaiser says that the only solution is to re-institute a diversity of supply for REEs, not only because of their importance as critical materials, but especially now that they have very significant demand underpinning their growth.
“Some of these price gains are going to stick until we have an overwhelming mine supply response, which will create the kind of glut that will then take prices down. But that sort of glut is not going to happen until 2015-16 and all the anxiety in the REE market is still palpable,” said Kaiser.