The Weekly Review: Baotou's plans, dysprosium tussle, recycling in Vietnam + new demand projections

China’s rare earth sector continues to be in flux, with what consequences we cannot yet determine. We have, on the one hand, the official industry policy and the aspirations of various players while, on the other there’s the small matter of the faltering global economy that could have severe impact on metals demand.

First, the latest developments.

According to the Nikkei news service, Inner Mongolia Baotou Steel High-Tech Co, the world’s largest REE producer, is moving quickly to make itself less reliant on rare earth mining and to venture into high-tech fields. The Japanese news report says an outward sign of this is the company’s research centre in Inner Mongolia: along with the national flag, the centre’s frontage boasts a red banner congratulating on the launch of Tiangong-1, the space module launched by China which uses Baotou’s high-performance magnets.

Nikkei says a meeting in October was called by Chairman Zhou Bingli to spread the message he wanted the company to speed entry into downstream processing. Urged on by the central government, Baotou is adopting the slogan “Turn earth into treasure”. The rare earth operation's profit for the first nine months of 2011 was 3.1 billion yuan, or $US491 million, based on the surge in REE prices.

(Editorial comment: such a strategy would make sense on two levels. One, China is anxious to increase its technology know-how and moving downstream with value-adding is an obvious way to go about it. Two, with non-China REE mines on the horizon, such a diversification will make the Chinese miner less exposed to falling REE prices for its overall profitability.)

In another development, there are reports in the Japanese press that the central government in Beijing is locked in battle to gain control of rare earth operations near Ganzhou, in Jiangxi province. This is especially sensitive due to the fact that dysprosium is sourced from this region, the reports say. In the background lie allegations that one company chief swindled a number of people with a bogus promise to sell them rare earths and demanded cash up front. This man has been arrested by the local police, who are members of the Hakka-speaking region, but they have tried to hush up the incident to prevent news reaching Beijing. The central government has signalled it will directly regulate mines around Ganzhou as part of the plan to amalgamate the REE business into a small number of large companies, with both Chinalco and Baotou eyeing opportunities in the area. The fraud is being covered up because the locals want to retain control of their REE business, especially the dysprosium.

The Hakka business people are likely to be thwarted, though. The recently published Industrial Transformation and Upgrading Plan (2011-2015) states that, by 2015, 80 per cent of production of tin, rare earths, tungsten, antimony and molybdenum will come from the top five companies in each sector.

Beijing is unlikely to allow any sectional interests to stand in its way. They know that sectors where there are too many players are putting unsustainable demand on energy and natural resources, and creating excessive amounts of pollution. This will go hand-in-hand with attempts to rein in growth as too many areas of the economy are coming under pressure. Bubbles are forming.

One report quoted Professor Yuan Gangming from Tsinghua University saying the plan is a strategic response to various pressures. "China relies too much on fast growth and it fears decline. This is a dilemma to overcome. As China's economy is facing obvious structural problems both in quality and efficiency, we need to lower the growth rate to provide space for adjustments."

Now the latest in recycling.

Shin-Etsu Chemical Co has announced it will spend 2 billion yen ($US25.8 million) to build a plant in Vietnam for processing REE from hybrid motors and other products. The company will supply the plant with spent magnets from engines, hard drives and other items to process them for extraction of dysprosium and neodymium. The plant will also look to buy output from REE mines in Australia and India, according to reports.

Meanwhile, next week at the Technology Metals Summit in Toronto there will be a video presentation by Dudley Kingsnorth from Australia on his latest forecasts for rare earths demand.  I suspect there might be a few surprises. For those who won’t be at the conference, I shall be doing an interview with Dudley and will post his outlook and comments here on RareMetalBlog after the presentation has been seen by those at the summit.

We should add a rider here that any projections - for any commodity - will be influenced by what happens in the global economy. Proceeding smoothly is dependent on three factors: the European ship being righted, China not falling in a heap, and the U.S. economy ignoring some $60 trillion in debt (government, business and personal) and recovering. That requires a great deal of optimism.