Will China Become A Net Importer of Rare Earths By 2015?

by Gareth Hatch on February 27, 2011 · 10 comments

in China, News Analysis, Rare Earths, Uncategorized

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The buzz in the rare-earths industry over the past few weeks, sending the analysts scrambling to update their spreadsheets, has been the shocking news that China will become a net importer of rare earths by 2015, completely altering the supply and demand dynamics of the global rare-earth industry.

At least, that is, if this news is accurate... is it?

At the Critical Metals Investment Summit in Vancouver last month, a presentation was made on behalf of Dr. Zhanheng Chen, Director of the Academic Department of the Chinese Society of Rare Earths (CSRE), titled "China's Role in a Changing Global Rare Earths Market". Dr. Chen was unfortunately not able to be there, and it is my understanding that Mr. Jay Roberge of Tehama Ventures gave the talk instead.

In the presentation, Dr. Chen forecast a total supply in 2013 of 87,000 t from China, out of a total 134,000 t of global supply. He then forecast a total global supply target after 2015, of 278,000 t of rare earths, with the target for China's production set at 100,000 t of rare earths. For China, this is not far off the current production levels, but is less than most analysts had been projecting for that time period. More important, this leaves a 178,000 t production target for the rest of the world (ROW), based on CSRE estimates, which is significantly higher than the total output of projects due to come on-stream in the next four years.

Later in the presentation, Dr. Chen indicates that there are "early signs that China is moving from [the] sell side to [the] buy side", noting that 10,381 to of rare-earth concentrates were imported by China, presumably last year. Nowhere in the presentation does Dr. Chen use the term "net importer" to describe China's situation in 2015, as has been widely reported on the rare-earth-industry grapevine and beyond.

To find out exactly what Dr. Chen meant, I dropped him a line to ask if he could clarify this notion that China will become a net importer by 2015. In his reply, he said that, "[it] is still too early to make an assertion than China will become a net importer by 2015". He acknowledged that "[t]here is evidence that several China[-based] companies imported rare earth concentrate from CIS [Commonwealth of Independent States i.e. the former Soviet Union] last year", as referenced in his Vancouver presentation. Dr. Chen went on to refer to heavy rare-earth elements, and indicated that "China might become a net importer soon" of these materials.

So, is the buzz with which I opened this article, accurate? I would say that it was not. At the very least, Dr. Chen made it clear that it is not he who is making the assertion that has been ascribed to him (while acknowledging the possibility of this happening for a small subset of the total REEs sold). For me the real takeaway from Dr. Chen's presentation are the CSRE projections for ROW supply requirements beyond 2015.

Finally, for the record, I'm not accusing Mr. Roberge of mis-stating Dr. Chen's position, or of putting words in his mouth :-) Clearly though, at least some folks in the audience got the wrong end of the stick last month, perhaps reading into the presentation, a sub-text that wasn't there.

Food for thought.

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1 Jack Lifton February 27, 2011 at 10:42 pm

Gareth,

I was at this talk, and I agree that Dr. Chen’s statements were misunderstood, to say the least, just as you point out. I shared a podium with Dr Chen in Brazil three months ago, and he gave a similar talk. He said there in Brazil that the recent reduction of ore concentrate production in China has left many Chinese refiners searching for feedstock. They do have long established relationships with the producers in the former Soviet Union, and Dr Chen knows that some REO concentrates are coming in from this area now called the CIS. I find it difficult to believe that 10,000+ tons of REOs came in to China this way from new production, and I conclude that China has been sent stocks of ore concentrates being drawn down in Russia and perhaps in Kyrgyzstan. I do not believe that the CIS could long maintain such a flow of material (10,000+ tons per annum) other than from inventories.

The global supply story of the rare earths is getting more and more interesting.

2 Dan Collins February 28, 2011 at 9:51 am

I spoke with Dr. Chen as well right after the Chinese New Year. My thought process on this issue us as follows: First, I discount weather anyone is exporting a few types of RE to China today. That doesn’t mean anything. Second, Is the question of China becoming an importer of RE still a valid question? I believe that it is. If China tries to meet just have of their targets for green vehicles, wind , solar, etc…they will not have enough RE from domestic supplies. China produces ten times the amount of steel than the U.S. now. China now produces twice as many cars as the U.S. does. The scale of this market is hard for people to wrap their head around. Mark my words, China will move to the buy side…Most likely not by 2015…but will be no later than 2020.

3 Robert Olson February 28, 2011 at 10:39 am

Was not at any of the conferences and did not talk to Dr. Chen.

I did review his powerpoint presentation from Vancouver’s recent meeting. Ian Loudin sent them to me.

Dr. Chen’s slides indicate “net” on several REEs. Inflows and Outflows.

Looked to me the “net” was dependent on which REE?

China Net REE Importers of the Heavies sooner.

Indirect evidence of China’s overall REE resource status: China’s attempts to buy Non Chinese REE resources, like Northern Minerals (NTU.AX), Lynas and Molycorp.

Why? If China had so much “excess REEs” why is China so aggressively trying to buy Non Chinese REE resources? Doesn’t add up?

Companies with the heavies are best positioned, and will be in demand as REE suppliers.

Non Chinese REE companies with the heavies: “No Worries”.

4 Gareth Hatch February 28, 2011 at 10:50 am

@Dan: I fully agree that the question of China becoming a net importer of REEs is a valid question – and a very important one at that. That’s precisely why it’s important to properly understand what is being said on this subject by representatives of the Chinese rare-earths sector, and for it to be reported accurately.

@Robert: I’m looking at the slides and I don’t see an indication from it, of China becoming a net importer of any specific REEs. He does include a price chart for some REEs, and he does pose a question and then answer it: “What kind of rare earth deposits [are] worthy [of] mining? Preferably [those] with high Heavy REEs contents, Tb, Dy, Eu”. Obviously these are clues to REEs that *could* potentially see increased imports to China once available. Mr. Dudley Kingsnorth has been forecasting a potential supply deficit for these elements for some time now.

Again, so that no-one misunderstands me – I’m not saying that it isn’t possible for China to become a net importer (i.e. it imports more than it exports) of certain REEs; I’m simply saying that Dr. Chen did not assert that this would happen by 2015, as he was reported to have meant. Dr. Chen himself has clarified this point.

5 Ib Olsen February 28, 2011 at 11:22 am

Chinese companies are conscious about raw material prices and not necessarily locked into Chinese sources as their purchase from CIS indicates. So the bottom line is that there will be a significant Chinese demand for non-Chinese REE before they become net-importers.

As Dan points out, their very ambitious goals for growth need raw materials from somewhere, and I believe if we do not invest in this growth now, the Chinese companies and government will do it for us.

6 Charles S. February 28, 2011 at 1:16 pm

Gareth, I also wanted to add that near the end of his presentation, the spokesman for Dr. Chen had advised those investing in rare-earths to target the companies that were bigger in the heavy rare-earths.

7 Robert Gill February 28, 2011 at 5:34 pm

Gareth, thank you for contacting Dr. Chen and clarifying the “net import” issue. I was one who was making the statement, on blogs, that they would be “net importers” and I take that back now.

@ Robert Olsen: There was evidence China tried to buy MCP indirectly through trying to buy Unoco. And they did attempt a run at Lynas and NT. There was a statement by Premier Wu that China wanted to become the centre of the chessboard, “the OPEC of Rare earths”, so yes, this may be true. However, the failure of those attempts may have changed the game somewhat.

I was at the Van. Resource Conference, and the panel discussion on this topic (Lifton, Goncalves, Fulp, Kaiser, et al) left a big question mark on the ree space, whether it was a spec frenzy or substantially priced. any comments?

8 Jay Roberge March 1, 2011 at 12:25 pm

Gareth –I think you have missed the mark in your suggestion that it was Dr. Chen’s presentation that started the buzz that China will be a net importer by 2015.

The “buzz” that you are referring to is more accurately credited to Metal-Pages that conducted an industry poll previous to the event that resulted in 53% of respondents believing China will be a net importer of REE.

The only specific mention that China would be a net importer of REE by 2015 at the Critical Metals Investment Symposium was made by Jim Sims, Vice-President of Molycorp, who in fact made reference to the Metal-Pages poll in his presentation which you can see here (slide 16): http://slidesha.re/gRNRcU.

Mr. Sims clearly stated that this is also the position of Marc Smith – CEO of Molycorp – and Marc has stated so at other events and in interviews with mainstream media like Bloomberg going back some time now.

As for Dr. Chen’s reference to China importing 10,381 tons of REE concentrate last year, it is a statement of fact in the presentation, and attributable to Chairman Xu Xu of the China Chamber of Commerce of Metals, Minerals & Chemicals Importers & Exporters (“CCCMC”) who stated that China is importing REE concentrate at the International Rare Earths Conference in December 2010. When you contacted me for Dr. Chen’s presentation I also provided this support information for this import number. To Jack’s point above, yes, this would have likely been from stockpiles and not from new production REE, though I have not confirmed this one way or the other. The only thing we know for sure is that 10,381 tons of REE concentrate was bought and imported into China according to the CCCMC who I think would know better then anyone.

In my email to you I did point out that Stan’s Energy (Presentation here: http://slidesha.re/g8IU76 ) gave an interested presentation on a REE facility and resource they have optioned in Russia. In that presentation they referred to bags (stockpile) of REE concentrate at the facility and stated every ton was sold and shipped to China. This would support the fact that China was importing REE and would suggest at least a portion of that was from stockpiles. I will try to determine the exact number of tons Stan’s Energy exported to China.

What is also factual is that China has been actively trying to secure REE resources outside of China and this is supported by the documented public attempts to acquire such assets. (The western market will run rampant with speculation as to why China would be interested in such assets). Dr. Chen does suggest that the closing of illegal mining, and environmentally damaging mining, may open Chinese processing capacity, and these processors would look outside of China to secure and import REE feedstock. Furthermore, it is also pointed out in Dr. Chen’s presentation that REE resources in China and elsewhere are finite. China understands long term planning and is securing resources not for today but for future generations, it would not be a long stretch to imagine they are already planning for the day their domestic REE resources come to an end.

In the end, as Dr. Chen has pointed out in his reply it is still early to determine either way if China will become a net importer overall, but on certain heavy elements it may come sooner. Time will tell.

You can view the presentation that I delivered on Dr. Chen’s behalf here:
http://slidesha.re/h4Xwo5

Dr. Chen was again invited to present in Toronto, but is unable to attend and has authorized me to present on his behalf at the Critical Metals Emergency Forum on March 8th, 2011 at the PDAC Conference in Toronto. It will be the same presentation that was given above.

Sincerely,

Jay Roberge

9 Gareth Hatch March 2, 2011 at 11:04 pm

Jay: thank you for taking the time to post your comment.

I’ve had numerous conversations with people within the industry in past weeks, in which this subject of “net imports” keeps coming up. Most of them referenced Dr. Chen’s Vancouver presentation; none of them mentioned either the Metal Pages survey or the presentation by Mr. Sims, but I will certainly acknowledge that either of these sources might have created “buzz” of their own.

My original article above does not dispute the 10,381 tons of REE concentrate number, so you’ll get no argument from me on the veracity of those numbers :-)

Folks predicting that China will become a net importer of all REEs (as opposed to the HREEs only) may well be right; time will indeed tell. I’m just pointing out that Dr. Chen did not make this prediction, despite the number of individuals within the rare-earths community and beyond who are under the impression that he did. This discrepancy becomes a potential problem when the industry, rightly or wrongly, believes representatives of the China Society for Rare Earths to be spokespeople for the authorities in China on this subject.

Again – thank you for taking the time to reply.

10 prescient11 April 15, 2011 at 10:55 pm

This is an excellent discussion. Thanks Gareth for the reporting and all the back and forth.

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