The Effect Of Chinese Domestic Growth On Neodymium And Dysprosium Supply

by Jack Lifton on March 13, 2011 · 18 comments

in China, News Analysis, Permanent Magnets, Rare Earths, Wind Turbines

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Chinese domestic demand growth for the rare-earth-permanent-magnet (REPM) metals neodymium (Nd) and dysprosium (Dy) over the next five years, will be strongly influenced and perhaps determined by, the emphasis on industrial policy announced in the new Chinese economic development Five-Year Plan. The general outline of this 12th Plan is reviewed and analyzed in the London Telegraph for March 5, 2011, in an article which is entitled “China’s five-year plan: key points“.

Before we discuss the specific section of the new Five-Year Plan that influences rare-earth-metals demand growth, we first need to understand that China’s industrial economy is centrally planned and rigorously controlled in detail, by the China State Council. This is the executive body of the Chinese Communist Party, which operates in a “King-in-Council” manner similar to the way in which the British government operated when its monarch had actual power centuries ago. In the case of the China State Council, of course, it is the “President” of China who is the head of state while the Prime Minister and State Council members are the daily overseers and rulers of the operations of the government.

It’s not appropriate to refer to the China State Council as equivalent to the Chinese President’s cabinet as many pundits do. The State Council is much more than an advisory group to the President; it is actually operating as the office of the executive branch of the government, and it consists of powerful men, all members of the Communist Party hierarchy, the men who actually rule China. The China State Council does not recommend industrial policy; it defines, organizes, and controls the Chinese economy in order to achieve the goals of the Chinese industrial policy.

The Council sets the goals ahead of time for each five-year period, and it has traditionally done so by asking the permanent civil-service bureaucracy to prepare position papers on their needs and wants, prior to the finalizing of each new Plan. From these studies the China State Council decides on what the goals of the Plan will be, and how the state’s total resources will be allocated to implement it successfully.

The current Plan just officially promulgated is the 12th since the 1949 revolution, which brought the Chinese Communist Party into power. This centralized planning of goals for industry is a legacy of the Soviet Union’s evolution of the economic measures thought to be necessary for the transformation of socialism ultimately into communism. Needless to say, Lenin and Stalin would no longer recognize the policies of the present Chinese Communist Party, as having originated in their own theorizing and economic experimentation, which was finally an unmitigated disaster and eventually brought about the economic and political collapse of the Soviet Union.

Second, you need to understand that the job security of a Chinese manager is a direct function of his or her ability to meet the goals of the Five-Year Plan. Only systemic failure can save a manager who does not meet his assigned goals from disgrace and unemployment. Therefore Chinese managers take their assigned goals very seriously. Plans are made in detail by industry in China, in collaboration with the central and provincial governments,  to allocate the resources of labor, capital, and natural resources necessary and sufficient in the eyes of the planners to meet the industrial goals for production.

Beijing may alter the timing of the execution of any particular aspect of the Five-Year Plan, but local officials have no such power to do so.

Note well that this is the complete opposite of American practice, where legislators, if they bother with this type of planning at all, set over-reaching goals and then leave it to private industry and capital to meet them. Typically when Western politicians simply do not understand a technology, such as vehicle electrification and the production of cost-efficient batteries for such technologies, they then simply set goals to be met after they leave office. They then accept the congratulations of their similarly inclined constituents who like them know nothing of economics, manufacturing engineering, or from where natural resources come and at what rate.

This is not the case in China, where bureaucrats are chosen for specific expertise as well as political reliability.

The punditry usually refers to the Chinese planning as industrial policy, but it is as much direction as it is just simple policy.

The Telegraph article contains the following in its translation of the Five-Year Plan’s key points:

“Introduce targets for energy efficiency and consumption that will see China finding 20pc of its energy from non-fossil fuel sources by 2015. The contribution of coal and oil to fall from its current 90pc to 80pc.”

When I was in Beijing in August 2010, for the 6th Annual Chinese Society of Rare Earths Summit, a speaker representing the Chinese wind-turbine electricity-generation industry told the conference that in the next two Five-Year Plans (the 12th and 13th) beginning in 2011 China, in order to reduce the usage of coal to generate electricity and to improve energy-use efficiency per productive unit of capacity, would add 330 gigawatts of wind-generated electrical power, and that this would require a total of 59,000 metric tons of neodymium.

He said that the wind turbines to be built would use REPM-type generators to save on weight and maintenance. The reaction of the crowd, overwhelmingly made up of Chinese rare-earth miners and refiners, seemed to be one mostly of surprise.

I understood why this was so. The Nd required makes up just 28% of the total typical neodymium-iron-boron (Nd-Fe-B) alloy that comprises a REPM. Yet the spokesman from the Chinese wind-turbine industry had clearly said, and his slide showed, a need for 59,000 tonnes of new, additional, Nd demand that had not before been added to the demand-growth figures anyone had seen.

The Chinese businessman next to me had been busy photographing the wind-industry spokesman’s slides. I asked why he didn’t just request a copy of the presentation. His reply was “You’ll never get a copy from these guys. They’re running trial balloons for the State Council.”

Nd is typically around 20% of the total REEs produced by the Chinese light-rare-earth industry. That total last year, 2010, has been said by Dr Chen of the China Society for Rare Earths to have been just 89,000 tonnes of which 77,000 tonnes, or 86%, were light rare earths. This means that the Chinese production of Nd for 2010 was about 15,000 tonnes.

Of the 12,000 tonnes of heavy rare earths produced in China in 2010, just 7% was reported to be the heavy rare earth Dy, which would mean that 840 tonnes of Dy were produced from the so-called ionic absorption clays in southern China.

A typical Nd-Fe-B-based REPM contains 3-12% of Dy overall – this means that 100 kg of such magnet alloy contains from 3 to 12 kg of Dy as well as around 28 kg of Nd. The OEM automotive industry uses the most Dy loading, as high as 12%, to give their REPM-based motors, sensors, generators and the like, the maximum service life at constant high-temperature use.

Even assuming that the new demand for Nd-Fe-B-based alloy for the Chinese wind-turbine industry uses only 3% of Dy, and even if the 59,000 tonnes of Nd were only 59,000 tonnes in total of magnets, one would still need an additional 1,800 tonnes of Dy just for this project, as well as an additional 18,000 tonnes of Nd! If the demand for new additional Nd for the wind-turbine project is indeed 59,000 tonnes then a minimum demand for Dy could be 6,000 tonnes, which would be, at current production, the total dysprosium produced for the next 7 1/2 years!

These demand-growth figures, assuming that the need is 59,000 tonnes of Nd, would require at least a doubling of current Chinese light-rare-earth-metal production and the total dedication of Dy production to this clean-tech goal for most of the next decade. If there is a further demand growth from the automobile industry, the current largest user of Dy-enhanced Nd-Fe-B-type REPMs, and that growth parallels the increase in motor-vehicle production expected in the next decade then this use alone will add the need for an additional production equal to the entire 2010 production of Nd and Dy.

We would then be looking at a minimum at a torrid 15% a year growth in the demand for Nd and Dy between 2011 and 2020, just from the Chinese domestic-wind-turbine industry, and the global OEM automotive industry.

Such growth may be possible for Nd production; it is unlikely to be achieved for Dy unless there is for the first time development of Dy resources outside of China.

The Chinese have emphasized over the last year that they believe their Dy resources are being exhausted, and that at current rates of production they have only 5-25 years of production remaining.

If the growth of demand for Nd and Dy above are correct, then it is most likely that Dy will be OR IS ALREADY in short supply.

Therefore unless rare-earth mining ventures with commercially significant Dy are now brought into production as soon as possible, then clean-tech growth outside of China will slow down or stop, depending on whether or not the clean-tech manufacturer has a Chinese source for Nd-Fe-B-based-magnet-containing components, and that Chinese source has an export license for rare-earth-containing components.

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1 Ray Spencer March 13, 2011 at 1:49 pm

What are your thoughts re Stans Energy. They appear to have the infrastructure, the technology & confirmed methods for RE extraction techniques , and a low cost open pit mining system. I like it from a general prospective , but i am concerned about geopolitical stability.

Big fan of yours
Ray Spencer
Ontario,Canada

2 Jack Lifton March 13, 2011 at 2:05 pm

Ray,

STANS is one of a group of companies in countries rated very high for political risk of interference by the Frasier Institute’s latest study. I am calling for the investment community to create a set of standards so that there can be independent third party verification of all claims about such issues as infrastructure, metallurgy, and costs. Gareth and I are certainly willing to contribute to a panel or board setting such standards. Until then it is really guesswork combined with experience. When the guesswork gets to be too much of the analysis I back off.

Thanks for reading.

3 Conrad March 13, 2011 at 2:14 pm

Jack,
Thank you for another well written and researched article. These are what are very valuable. A question then is what deposits/companies have good sources of ND and DY. I already own Lynas and Great Western and looking to add a few others with HREEs but not sure who/where to focus. Thanks.
Conrad

4 Isaac March 13, 2011 at 2:26 pm

The top five rare earth companies prime for investment, based on the data,
are Lynas Corp, Lynas Corp, Lynas Corp, Lynas Corp, Lynas Corp.
Yes, I do own stock in this company, and after looking at the data, I see no other company that comes close to its prospects over the next 5 years (or 10).
Study up.

5 Alexander March 13, 2011 at 3:02 pm

Jack,

What are your thouhghts about Ucore. Particularly after this NI, released last monday. They always promote for their Disprosium.

Thanks Alex

6 Hugo Persijn March 13, 2011 at 3:29 pm

Am I glad nobody is pumping ALK.AX ?
DYOR

7 Gordon Clarke March 13, 2011 at 5:25 pm

Isaac;
My top FOUR are GWMG, GWMG, GWMG, and GWMG. My FIFTH is not Rare Earth but Graphite.Jack is graphite your other project? When do you think Northern Graphites’s web page will be completed?

8 Hugo Persijn March 13, 2011 at 5:30 pm

To achieve what ?

9 robit March 13, 2011 at 10:08 pm

Conrad (and all)
If you look at the header for this website you will see “Metrics & Indicies”. The only pull-dow under that tab is for the TMR Advanced Rare Earth Projects Index. There are currently 20 projects. Clicking on each of the project names in the 1st column opens a pop-up showing the metrics of each project. If you multiply the tonnes of TREO by the In-Situ REO:TREO (wt%) you will have the best approximation of that REO in the deposit. For example, the Dy2O3 in Bear Lodge is 548,348 tonnes x .0041 = 2,248 tonnes (or 2,248,000 kilograms) Maybe if we all beg, TMR will add this calculation to the data sheet. I assure you the calculations will surprise you, particularly when you factor in the current market cap of each company. (do you have Snagit?)

By crunching TMR’s public data sets in this way, your view of what is in the deposits of these projects will be close to (or better than) what the fund analysts have to look at. If you want to see the deeper data which includes the dollar values of each of the REOs, you will have to either subscribe to the TMR Insider Network, or spend a lot of time digging up the info on your own.

10 Jack Lifton March 13, 2011 at 10:26 pm

Robit,

You’re correct about the data being available. Gareth and I have spent a lot of our own money and time compiling it, but we’re not asking small investors to make an investment in the data; we’re asking serious investors to do that, so we can continue to upgrade the dat as it becomes both available and credible.

As for the dysprosium content and value resulting I ask you to consider that this is just one factor in the analysis of the probability of success of a mining venture. It is however today a very important factor, I admit.

I will have more to say about that here later this week.

Thanks for reading.

11 Janie March 14, 2011 at 1:14 am

Mr. Lifton,

You wrote above that “in order to reduce the usage of coal to generate electricity and to improve energy-use efficiency per productive unit of capacity, [China] would add 330 gigawatts of wind-generated electrical power, and that this would require a total of 59,000 metric tons of neodymium.”

However. In a January 7th, 2009 report, you stated, “And the fact is it’s recently been projected that a single wind turbine electric generator producing 1 megawatt of electricity requires one ton of neodymium.”

Since the recent China Five-Year-Plan you reference plans for 330 gigawatts of wind-generated power, why isn’t the neodymium required 330,000 tons? Have advances in turbine technology advanced so much in two years to reduce the requirement?

12 Jack Lifton March 14, 2011 at 2:38 am

Janie,

The information I had in 2009 was that it took one ton of neodymium-iron-magnet alloy to produce a one megawatt generator. This would be eqiuvalent to 280 kg/megawatt of neodymium. The Chinese speaker in Beijing in August, 2010, stated that it would require 59,000 tonnes of neodymium to produce the 330 gigawatts of total generation. I think my 2009 figure, which was then current, was thus too high based on what I have since learned.

I’ll tell you of an even bigger change. Several years ago when the chemistry of a nickel metal hydride battery was a closely guarded secret I was told that the 1.5 kWh battery in a Toyota Prius used 10 kg or more of lanthanum. Last year I found out from two independent sources, neither of which was Toyota, that the Prius battery uses 2.3 kg of lanthanum. I have written of this repeatedly yet it has passed into folklore that the Prius uses “more than 20 pounds” of rare earth metals; this is too high by at least a factor of 3x.

I have lately also been surprised to learn that OEM automotive “under the hood applications” of rare earth permanent magnets require up to 12% of dysprosium per ton of neodymium-iron-boron alloy , so that dysprosium can be as much as 30% of the total rare earth load of such a magnet.

I am an analyst today, not a researcher. I depend on the data I receive, and I amend my reports as newer credible data is acquired.

Thanks for reading.

Jack

13 ringo March 14, 2011 at 6:42 am

what is data analyst (air mixer) doing: checking the data and makes sure that his statement is not in contradiction….well it is a shame that other sectors do not receive financial contribution…

whoever has an access to scientific journals can have quite similar views.

To answer your question properly Janie. The design of wind-generators has also changed and they can use smaller amount of rare earth magnets and this reduces overall amount of rare earths.

14 Janie March 14, 2011 at 11:10 am

Mr. Lifton and Ringo,

Thank you, gentlemen, for your replies. I follow the writings on this site with great interest because I am gobsmacked by the US admin’s complete lack of understanding of basic facts, and understanding of the consequences of producing clean energy. In addition, it’s only clean if its clean for us; the sanctimony staggers me sometimes.
http://is.gd/EGMVx1

Also, Mr. Lifton’s understanding of Chinese thinking is exemplary. The Five-Year Plans starting in 1996 reflect the changes that began then with the new Yin Period 8 (Yang Period 8 started in 2004), something else this administration has zero understanding of, but Mr. Lifton has grasped their significance, whether he knows about these Periods or not.

I so look forward to the TMR emails in my Inbox.

15 Bob M March 14, 2011 at 12:56 pm

Janie, I think people understand the problems more than you suggest. Jack has pointed out that green technology starts with a hole in the ground. Mining has to be regulated. China’s stated policy now is to cut back illegal mining because it pollutes, so the article is a bit sensationalistic. The problem is lack of regulation, not rare earths.

16 Jim Burnell March 15, 2011 at 12:05 pm

There are many figures around regarding the usage of REE in EVs. I suspect the figure quoted by JL above includes all uses in a vehicle, not just the battery.

17 Johan March 30, 2011 at 2:52 pm

I do not understand why so many investors treat REE as a group.

Looking at Lynas latest presentation: http://www.lynascorp.com/content/upload/files/Presentations/Investor_Presentation_March_2011_950850.pdf page 14 it seems clear that the problem until 2015 is mainly about heavy REE and especially Dysprosium and Terbium.

Lynas is a 98% light REE company and Molycorp 99% and between them they seem to pretty much add about 50% to the light REE market.

I personally have only one investment in the REE sector and that is Dacha (V.DSM) that is an investment company for Dysprosium and Terbium. It trades at a 35% discount to NAV and holds its metals in South Korea.

18 Servatius Aurélien September 20, 2013 at 7:37 am

Dear Mr. Lifton,
I’m doing a work for the university on rare earth, and i would like, if, you have more details about the need of 59.000t for the 330 GW objective of China.

Thanks for reading,

Aurélien

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