The Green Revolution In China

by Jack Lifton on August 20, 2010 · 7 comments

in Canada, China, Hybrids & EVs, News Analysis, Permanent Magnets, Rare Earths, South Africa, Wind Turbines

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The television commentator and former Jesuit, John McLaughlin, used to make me laugh when he would tell a panelist of an opposing political view: “Once again you’ve stumbled upon the truth, even though you don’t know how you got there.

The New York Times recently reported the facts of a story entitled, “China to Invest Billions in Electric and Hybrid Cars,” but failed to stumble upon the truth. So let me do that for the Times and for your benefit, dear readers:

China, as part of its national plan, a goal centrally set by those in overall charge of its economy, announced yesterday that its motor vehicle industry will be required to build one million electric and hybrid motor vehicles in the next few years. I believe that this means that the industry will be required to reach a production rate of one million electrifed motor vehicles, the size of passenger cars, per year.

This is part of an overall plan to marshal and deploy China’s natural resources and its resources of intellectual property for the benefit of its own people, first. How much more logical can it get than that as a reason to conserve precious natural resources such as the rare earths?

The New York Times points out in the above story:

“The announcement, analysts say, is another example of how China seeks to marshal resources and tackle industries and new markets. The plan also underlines what China describes as its growing commitment to combating pollution and reducing carbon emissions.”

When I was in Beijing in the first week of August, three weeks ago, one of the other (I was a speaker at the plenary session) speakers at the Chinese Society for Rare Earths 6th Annual Rare Earths’ Summit, stated that a goal of the next two five-year plans, to be completed in 2020, was to have 330 GW of wind-turbine-generated electricity installed by that time. The speaker pointed out that this would take 59,000 metric tonnes of neodymium, calculated as 28% of the rare earth permanent magnet alloy, neodymium-iron-boron, since each 1.5 MW wind turbine generator will require one tonne of rare earth permanent magnet alloy.

The same speaker who was from the Chinese rare earth permanent magnet manufacturing industry didn’t mention how much of the heavy rare earths would be required for the project. I will estimate that at most it would be one thousand tons of terbium and three thousand tons of dysprosium.

In any case the total requirements for these new (not replacement) uses for neodymium, would be the total production for three years at the most recently achieved high production rate of neodymium, and as much as five years of terbium and two to three years of dysprosium.

If the neodymium demand is to be met, and this means that China, AS THE SPEAKER SAID, decides to use only rare earth permanent magnets for its wind turbine electric generator program, then it would require that three years’ production of the contained neodymium, at the rate it was mined in China in 2008, among all the rare earths mines there, be reserved for Chinese domestic magnet and wind equipment manufacturers and be targeted for the Chinese domestic market!

I think that it is crystal clear, that China is not reducing the production of rare earths on a long term basis and is not reducing their export on a short term basis. It is in fact pausing to:

  • physically clean up the rare earth mining sector;
  • eliminate illegal mining and smuggling of this precious green resource;
  • consolidate the rare earth mining industry under the largest state-owned base metal producers of iron, copper, and aluminum, to prepare to ramp up the Chinese domestic production of rare earths both to meet and to guarantee the success of its long-term green strategy.

This is called long term strategic planning for those in Washington and on Wall Street who don’t understand why the Chinese are ‘depriving us’ of this vital resource. This process is also called ‘conservation of domestic resources’, by the way.

As to electric and hybrid cars, they require neodymium, dysprosium, and terbium for the magnets in the rare earth permanent magnet electric motors – both that drive them and that power their accessories. Some or all may also use lanthanum in nickel metal hydride batteries, as all hybrids made today currently do. A. In any case, whether or not the Chinese electrified cars use NiMH batteries, they are being designed to use rare earth permanent magnet electric motors. A million such vehicles will probably require just one million kg (1,000 metric tonnes) a year. Oh, did I mention that they will need also 10-20 tonnes of terbium and up to 50 tonnes of dysprosium. All of this new demand will be added demand not replacement demand, by the way.

I have no doubt that China will remain the world’s largest producer of the rare earths indefinitely. In the near term, perhaps over the next 5-10 years, China will need to import the ‘light’ rare earths lanthanum and neodymium, to make up any shortfalls created by its proposed quantum leap in demand in the face of the temporary reduction of production, for environmental and reorganization reasons. If the non-Chinese light rare earth miners get their acts together in time so that they can produce light rare earths at a lower cost than their Chinese competitors are able to do, then both Molycorp and Lynas have a good chance of success even in the long term.

The real issue for the future of rare earth utilization and therefore of mining, is the continued growth of the use and need for the heavy rare earths, terbium and dysprosium.

These ‘heavy rare earths’ are believed by the Chinese to be in short supply domestically. China today is the world’s only producer of heavy rare earths, mostly from southern Chinese deposits known as ‘ionic clays’, although significant quantities are also produced from the Bayanobo region (even though they report in Bayanobo only in small quantities) due to the overall massive amounts of rare earths mined there. Nonetheless, China believes that its own domestic supply of the heavy rare earths has between 5 and 30 years remaining at present levels of use.

This means that the real supply opportunity in the non-Chinese rare earth mining sector, is for those deposits that have above average proportions of heavy rare earths, to be brought into production as quickly as possible.

It is a horse race among those non-Chinese juniors with commercially (i.e. economically) recoverable heavy rare earths.

They are:

Canada

  1. Great Western Minerals Group
  2. Avalon Rare Metals
  3. Quest Rare Minerals

(Note: some of my colleagues have urged me to add other Canadian juniors to this list, such as Matamec Exploration, but I know little about that company and will reserve my judgement on them for a future time, when I have had time to study Matamec Exploration and to visit its site.)

USA

  1. Ucore Rare Metals
  2. Rare Element Resources (a light rare earth deposit but with significant europium only)

Republic of South Africa

  1. Rareco (in conjunction with Great Western Minerals Group)
  2. Frontier Rare Earths (private at this time)

The success or failure of any of the above, will depend on the quality of their deposits, the efficiency of their extractive metallurgy, the ability of the global rare earth refining industry to service them, and the growth of the Chinese, Japanese, Korean, and Indian domestic markets.

Disclosure: I own shares in Great Western Minerals Group, and I am a paid consultant in business development to Ucore Rare Metals and to Frontier Rare Earths.

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1 Tek August 23, 2010 at 7:58 pm

This reiterates a comment made by a Chinese official over 5 years ago, discussing Exxon (I think it was) and its grand plan to help China develop its burgeoning demand for automobiles. The official stated clearly in the article that China had no intent to try to build a massive pipeline,refinery, and trucking infrastructure for the transport and distribution of imported petroleum products. They would build millions of electric cars and charge them with local and regional wind powered charging stations.
It appears clearer and clearer that when the Chinese say they’re going to do something on a five or ten year plan, it gets done. We could use a good dose of that kind of responsibility from our corporate industrial/political system.

2 Hugo Persijn August 23, 2010 at 11:03 pm

Dear Jack .
Where would
http://www.alkane.com.au/reports/broker-media/brokers/20100723.pdf
end up eventually in the long run with their Rare Earths (not the gold) ?
Kind Regards ,
Hugo
Kind Regards from Luxembourg

3 Aat Oskam August 24, 2010 at 3:22 pm

Jack, again a rasersharp analysis!
Washington may be numb, but the US Magnets Manufacturing Agency is not: (http://www.businesswire.com/news/home/20100813005419/en/USMMA-Expansion-Comprehensive-Alternative-Chinese-Rare-Earth)
they made Lynas and Great Western and Arnold Magnetic Technologies a member. So politicians are overtaken by the people who really understand the REE world, also thanks to your fine articles!

Greetings from Holland, Aat Oskam

4 Gareth Hatch August 24, 2010 at 11:05 pm

Aat Oskam: a small FYI – the USMMA is the United States Magnet Materials Association.

5 loquacite August 26, 2010 at 1:50 pm

Uuuh… Aat. I hate to burst your bubble, but those companies buy their way into the USMMA, with huge membership dues. No agency in Washington appoints them.

In fact, this is a lobby group, so these huge dues go towards doing battle with politicians, if nothing else, in order to get pro-REE legislation enacted.

6 Nicholas Matwiyoff August 26, 2010 at 7:30 pm

Jack: I’ve enjoyed your contributions to the broad and rapidly changing world of rare earth investments. Some of your contrarian views are especially useful in the construction of sturdier and more profitable investment models. It is in that spirit that I offer my comments on your recent contribution. “The Green Revolution in China”. It seems to me that China’s recent actions regarding restrictions of rare earth exports and its moves to “manage” rare earth prices derive directly from enormous emerging problems in its economy and health systems. Rare earth supply and demand issues were, and are, secondary. Important, but nonetheless secondary.
The central economic issue owes to major fundamental changes that occur in countries as they progress from so-called emerging markets to developed markets. An important manifestation of these changes is a major jump in the demands for electricity and oil. For example, emerging market countries like China and Indonesia use approximately 0.004-0.005 barrels of oil per person-day, whereas developed market countries like the US, Germany, France and South Korea use about 0.04 to 0.07. In a small country like South Korea (population ~ 51,000,000) this transition caused oil use to change from 250,000 bbl/d to ~2.2 million bbl/d. For a country like China (population ~ 1.4 billion) this would require a change from ~ 7.7 Million bbl/d to nearly 70 Million/d. This is nearly equal to the daily consumption by all the people of the world in 2006! This is a physically and fiscally impossible problem to solve – the world does not have the proved reserves to develop, there is not time to develop them even if we did have them (China has started the transition already), and where would the money come from? I made these calculations back in 2007 (using data from 2006 and 2005) when I first became interested in electrical grids and windmills and battery“buffers” (electrical cars). So there may be some minor data inaccuracies, but the major point still stands – if the Chinese do not solve their electricity and oil problems, they will have an unhappy, unruly population.
However, the Chinese (superb planners that they are) have known their constraints on oil and electricity (coal) for some time now. Hence their parallel accelerated development of nuclear power, wind power, electrical grids and necessary electrical grid buffers (non-polluting Ecars – two birds with one stone, like the Danes). I would suggest that the Chinese have long been worried about the LREE’s in this context as well – unlike the HREE’s, the markets for La, Nd, Pr, and lately CE, have been very high volume and now are pushing at the margins of supply. (I would suspect that, despite their protestations, the Chinese have an adequate inventory of HREE’s – their “warehousing has been going on for a long time now). They did after all go after Lynas first. Lynas could provide Nd (magnets, there is a shortage now and it will go to 50,000 tonnes in a few years) and Pr (magnets) and La (batteries). In this context, even the counter-intuitive pricing scheme they “allowed” makes sense – raise the prices of Nd, La and Pr and cut external demand for them.
So, in the light of evidence, extrapolations and assumptions that are no more speculative than those for the HREE model, we have the basis for an LREE business model as a development spur for the rare earths over the next 5-10 years. Could make plenty of money for Lynas, Moly,RES, Alkane and Arafura.
I had the devil of a time getting what I have written onto this form — deletions, editions. Please excuse the jerkiness in spots.

Sincerely, Nick Matwiyoff

7 Chris November 29, 2010 at 5:29 pm

Less than 1% of wind turbines currently installed use permanent magnets. Why on earth would you bother hypothesizing that all of China’s new wind generation will come with turbines of that sort?

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