The Rare Earth Weekly Review: Was anything actually resolved in 2011?

You know the old proverb “plus ça change, plus c’est la meme chose” – the more things change, the more they stay the same. Well, that’s it in spades with the rare earth space. Much has happened in 2011, but looking back at the files of a year ago you just wonder whether in fact all that much has changed.

One of the final items posted on RareMetalBlog as the last days of 2010 ticked away was headed: “China may slash rare earth mineral export quota by half”. It was quoting the China Securities Journal. China was our fixation then. We go into 2012 with the same fixation.

When that item was posted, we were already reeling from the December 2010 export quota cuts, which involved trimming 35 per cent off the REE being shipped abroad. There were deep fears held for Japanese technology manufacturers. But it seems to have been taken by the Japanese in their stride: after all, both Hitachi and Showa Denko have subsequently decided to open magnet plants in China to get around the export problems. Hitachi also played both sides of the street, later in 2011 announcing it would start processing REE end-use products in North Carolina. The world, as we know it, did not end.

In fact, the Japanese have proved to be highly adaptable. They were helped by a late-2011 drop in REE prices – something that had not been expected when 2011 began.

Just this week we have seen Japan and India finalizing a rare earths agreement. Prime ministers Yoshihiko Noda and Manmohan Singh agreed that Toyota Tsushu’s Indian joint venture should begin exporting REE to Japan as soon as possible. Again, we ended 2010 with Japan looking for non-China sources; we ended it the same way.

And Showa Denko said in its latest financial report it has been able to charge higher prices for rare earth-based magnets – and they’re making bigger margins on the sales. Again, not something we would have expected given all the gloom about how devastating the rising REE prices would be to end-users.

But that’s not the end of it. The Nikkei news service reports that Showa Denko KK is set to triple production of rare earth alloys in Vietnam by next summer. Showa Denko is considering increasing the production of alloy materials by directly procuring rare-earth metals from mines in Vietnam in the future. The company will increase production of mixes of neodymium or dysprosium with iron. According to the report, Showa Denko now procures scrap materials from electronics recycling facilities and magnet production plants in Japan and exports them to its Vietnamese factory, where RE metals are extracted from the scrap through the use of solvents. The factory in Vietnam is currently producing 200 tonnes of rare earth alloys a year on an experimental basis, with plans to eventually raise this amount to 600 tonnes.

But some things have changed. The stuffing seems to have knocked out of the cerium market. RareMetalBlog understands cerium use in China for polishing and glass applications fell by at least 50 per cent in 2011, thanks to the high prices. This is not the sort of thing that potential LREE producers outside China will want to hear.

But, as 2011 ends, we are even more bemused this New Year’s Eve about what China is up to with quotas than we were at the end of 2010. The latest set of quotas – assuming all the quota holders are able to meet the environmental requirements – allows for the export of 3,204 tonnes of the heavy rare earths in 2012. As we noted a few days ago, Chinese authorities have allowed a 15 per cent level of export quotas for the HREE. Rest-of-world demand (as a percentage of total REE demand) amounts to about 15 per cent, according to the Industrial Mineral Company of Australia. That sounds fine and dandy except for the fact that some of the HREE quotas have gone to companies that don’t actually produce them. This means a potential and serious shortfall of HREE in the year ahead, with the consequent implication for pricing.

The problem is, as we end another turbulent year in the REE space, is that new mines in California and Australia will resolve the LREE supply issue, if that is not already on the way to being resolved.

Molycorp (yttrium) and Lynas (dysprosium) will be able to toss a little HREE into the mix, but probably not nearly enough to make too much a difference to the prices. Everyone has a view, but it would seem that emerging producers such as Alkane Resources, Avalon Rare Metals and Great Western will not be contributing significant HREE until 2015. Behind them comes Rare Element, Greenland Minerals & Energy, Quest Rare Minerals and one or two others.

That’s fine for the situation in 2016, but what do we do for HREE between now and then?