June 17, 2011 (Source: Reuters) — Sumitomo Corp , Japan’s third-biggest trading house, said on Friday that it would close a delayed $130 million rare-earth financing arrangement with U.S. miner Molycorp once it has secured Japanese customers for its products.
The deal has been delayed as Molycorp is still processing rare-earth oxides to meet the specifications of each of its Japanese customers, while applications for government approvals take time, a Sumitomo spokesman said.
“We’ll close the financial transaction with Molycorp after we have signed deals with Japanese clients and obtained government approvals,” the spokesman said. “We can’t say at the moment when it will be done.”
Sumitomo last December agreed to buy $100 million of Molycorp’s common stock and provide $30 million in debt financing to help fund its redevelopment of its Mountain Pass, California, mine and processing facility.
They had planned to close the transactions in February 2011.
Sumitomo is struggling to find Japanese customers as Japanese demand for light rare earths has plunged and prospects for supply increases from other sources have made Japanese clients cautious, four sources familiar with the matter said.
“Customers are cautious about making commitments to the project and are taking a wait-and-see stance,” an executive of a trading house specialising in Chinese rare earths and metals trade said.
“Many new development projects are under way, with Lynas likely launching shipments this year and some other Japanese firms exploring projects in Vietnam.”
Showa Denko KK , Japan’s top producer of cerium abrasive, a crucial rare-earth product for Japan’s electronics industry used to polish liquid crystal display glass and hard disk drives, said it received samples produced to its own specifications this week but it may not make purchases.
“The offer price, the same as the China free-on-board price, was too high,” said Shoichiro Takatsu, a general manager at Showa Denko.
Sumitomo declined to comment on price negotiations between the two companies.
The price of Chinese cerium oxide has soared to $150 a kg, up from $5 a year ago as China imposed an export licence premium of $100 per kg. That spurred Japanese consumers to scramble to cut their cerium consumption.
Showa Denko expects Japan’s cerium abrasive market to fall by half in 2011 from last year, to less than 4,000 tonnes.
Australian miner Lynas said it plans to get a pre-operation licence by September for production of four light rare earths: neodymium, cerium, praseodymium and lanthanum.
Its rare-earth processing plant in Malaysia is under a one-month review by an independent panel for radioactivity risks but the company said in April that this would not create delays for the project’s completion.
Under a deal with trading house Sojitz Corp , Japan will secure more than 9,000 tonnes of rare earths per year — nearly one-third of its current needs — from Lynas from early 2013.
Kaz Machida, president of rare earths consultant Kay Investment, said skyrocketing rare earth prices have dampened demand, casting a shadow over the robust demand outlook and the economic viability of mushrooming development projects.
” Any new development projects being launched on the assumption that the current price levels charged by China will continue will face a profitability risk,” he said.