REEs And Substitution.

Yesterday I covered the “red metal” mob making their pitch for copper based induction motors replacing the Rare Earth Elements used in permanent magnet motors. Essentially the pitch boiled down to cost. A copper based induction motor for an Electric Vehicle ought to be much cheaper and do essentially the same job. We’ll get to know more about that next Monday, when the “SAE 2012 Powertrain Electric Motors Symposium for Electric and Hybrid Vehicles”  is due to take place in Detroit. I suspect that it’s not so simple.

Whatever the latest news from SAE 2012, not all uses for REEs are substitutable, and even where they are, very often it’s only a reduction in  the amount used, often with an offsetting trade-off in quality, weight, or a reduction in the amount whatever petro-chemical is produced by the reduced process. As it happens, Industry Week carries a timely article today emphasising just that point.  Below, from a part of that 5 page article.

Rare Earths, Major Headache
The race for rare earths is on as China’s dominance of the critical minerals sets off a wave of supply chain concerns.
By Steve Minter April 18, 2012
—– When China started to tighten its quotas for rare earths in the fall of 2010, Grace Catalysts Technologies soon felt the impact. Grace uses the rare earth lanthanum in the manufacture of fluid catalytic cracking catalysts and additives. Shawn Abrams, president of the W.R. Grace & Co. division, says the company was forced to institute a rare earth surcharge as local supplies of rare earths dried up and the company had to order directly from China.

—– Grace took a number of steps to secure its supply chain and shield customers from pricing volatility.  In November 2011, Grace signed a contract with Molycorp which could supply Grace with more than 75% of the lanthanum production from Molycorp’s Mountain Pass mine.

Grace is also pursuing products that use either reduced or no rare earths. Last June, Grace introduced eight fluid catalytic cracking catalysts — five in a Replacer family of catalysts with zero or low rare-earth content and a ResidUltra catalyst with 40% lower rare earth content than in comparable products.

—- Rare earths make up anywhere from 0% to 35% of the glass products produced by Schott Advanced Optics. The company uses rare earths in glass products for night vision lenses, lasers and filter materials. Schott also uses cerium oxide in the polishing of glass.

“We really can’t replace them in our formulations,” says Heather Rayle, vice president and general manager for the Schott North America business unit. “The materials are key to obtaining the physical properties our customers require in some different refractive index and even how well the glass transmits. We have talked to a few customers about requalifying new glasses that have slightly less rare earths but in general we are stuck with the situation as it is.”

The major rare earth Schott uses is lanthanum oxide. “In 2009, our average price for lanthanum oxide was $13 a kilogram,” recalls Rayle. “In June 2011, it was $208 per kilogram.”

With so many REE stocks trading at interesting lows, and the IMF yesterday suggesting that the “fragile” global economic upturn seems to be gathering steam, it seems to me in faraway London that this might just be the pivot point this decade to re-evaluate portfolios and/or to enter or re-enter the REE sector. As always, always do your own due diligence and never let some stock salesman or promoter influence your judgement. Nor me either. But though they don’t ring a bell at the top, as they say, they don’t sound a siren at the bottom. I suspect that this might be near to this sector’s decadal bottom.