Rare Earths And Rampant Resurgent Regionalization

by Jack Lifton on June 17, 2013 · 23 comments

in China, News Analysis, Permanent Magnets, Rare Earths

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From my perspective, the natural evolution and expansion of global free-market capitalism into mainland China was disrupted by the reforms of Deng Xiaoping about 25 years ago. By fiat he created a centrally commanded version of capitalism in which it appeared that domestic Chinese costs (of both skilled and unskilled labor) were lower than those in the then-developed world. We now know that this was only a perception (an artifact), due to virtual and actual subsidies paid by the Chinese local, provincial, and national governments, to ‘kick-start’ and then maintain what turned out to be a massive export-driven Chinese national economy.

The ‘reforms’ of Deng were labeled Capitalism with Chinese characteristics and they worked. However, the logical, foreseeable consequences of the subsidy program (invisible to foreigners but known to insiders), namely the economic cancers of over-capacity and over-supply, also began. Its consequences are now sharply curtailing the rate of growth of the Chinese economy, and the impact of these consequences is also to hold back the global ‘recovery’ from the debt-fueled Western economic collapse of 2007.

The Chinese national government is taking official, not virtual, steps to attempt to reverse the impact of this over-capacity and over-production on its economy, and in this way is again having a direct impact on the entire global economy. This is very apparent in the global rare-earth sector. This sector is tiny in the context of the global industrial economy, but it is a perfect example of the problems created by central (command) control of the production of a natural resource.

The news from China about the reorganization of its domestic rare-earth-mining sector is a strong indication, I think, that from a global point of view the world’s rare-earth total supply chain is also in a rapid transition to reorganization, and, alliteration aside, it is, by economic necessity, evolving toward one of compact regional centers, as distinct from the current Sinocentric model.

In the paradigmatic and foremost of these centers, China, the rare-earth markets are being directed to reorganize into survivable units, i.e. with a minimum size to be profitable, even without virtual and actual subsidies. China’s rare-earth supply chain has too much of everything – mines, separation plants, metal / alloy / fine-chemical makers, and magnet and other end-use product makers. China announced just this past weekend that strict limits on emissions of pollution from named industries, such as mining, are to be enforced. From the point of view of economics, this means the capitalizing (recognizing the costs as liabilities) of both curbs on current polluting emissions and of remediation (cleaning up) of the damage from past emissions.

This means that even as over-production and over-capacities in the total supply chain, which is today essentially Chinese, have driven down the selling prices of the rare earths, the industry will be saddled with new and permanent increased costs of operation and the huge legacy costs of an industry long used to artisanal mining (in China’s case this means rogue and illegal mining). To implement a ‘crackdown’ the Chinese government has already added very significant taxes to mining and processing to fund remediation; it has also promulgated expensive regulations requiring proof of the holding of licenses to produce and to consume rare earths. These taxes and regulations will force the industry to contract, by creating a minimum size for a profitable rare-earth business.

The rising costs in China though, especially due to capitalization of environmental remediation, are also fueled by an expansion of the rule of law (equality of the rich and poor before the law) and even a distinct glimmer of a serious adherence to the concept of property rights, are reworking the rare-earth landscape (“if your pollution injures me or my property I can bring you to law, or, as in China – and the USA – the State can shut you down, pending the resolution of the problem”).

Most of the (logical) evolution of China from a “developing nation,” which it loves to call itself in international trade, to the world’s second largest economy by GDP, has taken place in plain sight and with lots of publicity. We outsiders who do not read Mandarin or understand Chinese culture, see the overall plan, but certainly not the operational details at any particular sites.

The fierce internal competition in China among legal producers of the rare earths, has until now been matched in ferocity by illegal, unregulated ‘midnight mining’. The existing dozens of small separation plants in China (and even nearby in places such as Vietnam and Thailand) have operated for years on irregular offers of such illegal material as cash-generating icing on the cake. Now, as the central government of China forces consolidation and requires certificates of mine and separation-plant allocation, the illegal miners have to work with a ‘total illegal supply chain’ to keep everything ‘off the books’. Those who puzzle over the existence of an illegal separation plant built by Chinese ‘contractors’ in Vietnam and ask, “from where does it get feedstock?” are naive in the extreme. Such a plant is part of an illegal total supply chain. I can only assume that corrupt officials in China, Vietnam, and perhaps other Southeast Asian countries, keep this supply chain going.

I discuss this, because it is a plausible explanation of how a seeming global shortage supported by ‘official data on total production’ of the critical rare earths, does not seem to cause extreme distress or shutdown of industries totally dependent on rare-earth permanent-magnet (REPM) alloys, modified with dysprosium and terbium. The fact that official production figures do not support the current demand picture of dysprosium and terbium, show that end-users must now, in the face of the Chinese crackdown on illegal production, secure their supplies outside of China. If, for example, as the Chinese repeatedly say, they are not able to expand their proven resources of heavy rare earths through legal mining regulated as to health, safety, and pollution, then the illegal mining and refining that is supporting the current shortfalls, is undoubtedly draining the reserves much faster than the official figures are showing. This is the real crisis!

Non-Chinese sources of heavy rare earths must now be brought into production under all circumstances. Non-Chinese manufacturing centers and regions need to attain self-sufficiency as soon as possible. There are ion-adsorption clays exactly as those in China in the tropical regions, in addition to numerous non-Chinese hard-rock sources, including those listed on the TMR Advanced Rare-Earth Projects Index.

There is, however, simply not enough middle and heavy rare-earth separation and purification capacity outside of China, to support European, North American, and non-Chinese, Southeast Asian DEMAND, along with an increasing Chinese domestic demand. This is in particular true as Chinese domestic demand literally explodes. Long-term Chinese planning is based on the very fact that Chinese sources of the heavy rare earths must be conserved, to support the changeover of the Chinese economy from being export-driven to being domestic-consumer-driven.

For the total rare-earth supply chain, the news is even worse. Outside of China the global capacity for rare-earth metals and alloys production is tiny. If we base non-Chinese REPM production capacity on secure access to didymium metal, samarium metal, ferro-dysprosium, and cobalt, then I suspect non-Chinese capacity would be today at most just 10% of global demand.

The non-Chinese world, even if its costs become level with or lower than those in China, still has one big problem – the cost of building new separation and metal and alloy making facilities, as compared with the already arrayed and substantial available capacity within China. This problem can only be resolved by central, regionally deployed tolling facilities for separation, such as the one being developed in Quebec by Innovation Metals Corp. (whose President is my TMR colleague Gareth Hatch), and perhaps even for metal and alloy making. I believe that this will occur in four regions: Europe, North America, Japan, and Korea. India will most likely be a fifth non-Chinese rare earth total supply chain center, but perhaps later than the first four here mentioned.

Disclosure: Jack Lifton is a member of the Technical Advisory Board for Innovation Metals Corp.

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1 Walter Jensen June 18, 2013 at 2:09 am

Excellent insights, Jack. Thank you for your in depth research and analysis. A non Chinese separation plant especially for heavy rees will be essential and I hope Innovation Metals corp can obtain the financing necessary to build it!

2 nicolas pietrangelo June 18, 2013 at 3:07 pm

Suggest reading CAR AND DRIVER magazine June 2013 issue page 34 Three early- hybrid storage fears that never materialized by Don Sherman. Most key pts I think Ann Arbor based Mich Green Cabs 27 Prius cars in their fleet many top 250,000 miles on original battery pack(NIMH). One has logged 368,000 miles on original battery. Other comments, “expect NIMH batteries to continue to play an important role in BUDGET hybrids for yrs to come.” Great @ 90,000 plus $$$$ for the TESLA car and Li-ion batteries. The BIG NUMBERS will be in the BUDGET hybrids around 20,000 to 25,000 $$$$$$ especially from Toyota. Buy one Tesla or 4(approx) NIMH powered HYBRIDS. Boy big amts of Lantanum???/a few more RE for the Iron-Boron-Neodynium magnets and is GM/Detroit ever DUMB!!!!! NIMH born and fully developed in DETROIT, MICH, now because of their GREED and STUPIDITY, Detroit has lost approx 40% of their population/lost their tax base can’t pay their bills/and has become a 2nd/ third/fourth___________ class city. You can’t bring it back with baseball/hockey surely not football/and Dan Gilbert(Quicken) is buying up distressed property one after another(good for him). Shame on the BIG THREE especially GM-they had it all in the palm of their hands. And that is only the beginning, they threw the modern day Thomas Edison(Stan the man) under the bus and lost lots lots more Ovonic materials/Phase change memory/one of the best solar cells in the world/and of course the NIMH battery/ and whatever else Stan the man was working on. Sounds like to me Detroit birthed the next GE let it flounder for 50 yrs and THEN pulled the plug ONLY TO SEE THE WORLD OVSHINSKY ENVISIONED and NOW SEE IT SUCCEEDING!!!!!!!!!! What a bunch of FREAKIN MORONS. DETROIT should have been a dynamic center, now it is a DISASTER. GM is brain dead/Chysler is controlled by the ITALIANS(big deal)/Mallalli though should be running the place-no the entire USA-he has got the entire enchilada figured out. So Detroit instead of the big three should be the BIG ONE(Ford). Jack sounds like your place of origin would be better served by the globe trotting phrase instead of being from Detroit.

3 thom calandra June 18, 2013 at 3:24 pm

The topic of non China rare earths is coming up more these days and shows a more sophisticated approach to the 250 or so rare earth cos out there. I discussed with the principals of Namibia Rare Earths this week. (NRE) Thanks Jack.

Burning through SF fog: Namibia Rare Earths http://www.stockhouse.com/companies/overview/nre/namibia-rare-earths-inc.

4 Lou Pearson June 18, 2013 at 4:29 pm

Jack,

As you and others have pointed out, as China consolidated its dominance in the rare earth space, much of the technical proficiency to separate rare earths and process rare earth oxides into alloys, metals and powders, became relatively scarce outside of China. Assuming your premise that development of relatively insular regional supply chains are the optimum path going forward, would not this bode well for the separators and alloy makers outside of China that remain and have already climbed the “learning curve”? Or has the promise of new technologies in these areas antiquated methods associated with past “learning curves”?

5 Igor June 18, 2013 at 8:44 pm

Thank you, Jack. Very good work.

6 Amar Acharjee June 19, 2013 at 3:41 am

Yes, we agree with Jack Lifton that the trouble of this sector can resolved by central,regionally deployed tolling facilities for separation such as developed in Quebec by IMC.
Thank you very much for your research,analysis article.

7 Tim Starns June 19, 2013 at 9:23 am

Thanks Jack for an insightful article. This is perhaps the first effects of China’s realization that “owning” 95% of Rare Earth production is more problematic and much less profitable than originally thought. They do indeed need a competitive market.
This is good news for the few companies who have weathered the storm of cut rate pricing and managed to hold on to a plan of self sustainability and production. Brighter days ahead?

8 Jean-Claude Bunzli June 19, 2013 at 8:01 pm

Jack,
Excellent analysis. I am wondering though if there exists an “inventory” of separation facilities in the ROW, with their capacity of separating LREE and HREE. Lynas and Molycorp have now brand new separation plants and should be able to help (Molycorp at least can separate HREE).
With best regards
Jean-Claude

9 Jack Lifton June 19, 2013 at 8:58 pm

Jean-Claude.

You are asking a very good question, but I simply don’t know the answer. All of the older non-Chinese SX facilities I know of are either dedicated (see below) or not only out of commission but cannot be brought back into operation mostly due to contamination problems.

With regard to Molycorp: I know that the Chinese facilities of the former Neo Materials have the capability to separate HREEs, but I do not think there is any such capability either in use or able to be brought into use outside of China with the exceptions of Rhodia’s company dedicated Larochelle SX facility in France and, I believe, one belonging to Shin-Etsu, but dedicated only to use for Shin-Etsu, in Japan. If you know of any others I would be very grateful if you could tell me of them.

Best regards,

Jack

10 Lou Pearson June 20, 2013 at 1:37 pm

Jack,

If the Chinese government succeeds in cracking down on illegal mining in China, will this not free up the separation facilities in Viet Nam and Thailand to accept concentrates from ROW sources?

11 Jack Lifton June 20, 2013 at 1:57 pm

Lou,

I do not believe that the SX facilities in Vietnam and Thailand are operating with officially licensed Chinese technology, and I also think that their operating licenses from their host countries are not open and aboveboard. Their (Chinese(?)) owners are, of course, free to accept concentrates from wherever it may be legal in Vietnam or Thailand to import them, and, it cannot be overemphasized to where it is legal to re-export them or direct their re-export.

The issue is simple once you get by the ethics and legality of the situation:

1. Can concentrates be purchased cheaper from the ROW or from illegal Chinese mining materials smuggled across the .borders of nations on both sides of the crossing points of which live blood-related peoples who have dealt with each other for centuries no matter what side of the line they happen to be on. The answer is that illegal smuggled goods are going to be cheaper.

2. Can you get a global company using regulated global banking to finance a transaction based on the above situation? I would guess that the answer is no. The risks are just too high.

3. I spoke to a Canadian group that said they were in the process of buying one of the above described SX plants to use as a central non-Chinese refinery. I think they are biting off far more than they can chew, and I do not see any possibility of creating a central non-Chinese SX refinery in any foreseeable future in which China, Vietnam, and Thailand have their current legal, political, and economic systems.

4. To answer a question you didn’t ask I foresee a non Chinese central refinery in Asia as located in Maylasia, Korea, or Japan, in that order of precedence, by 2020.

12 Lou Pearson June 20, 2013 at 3:27 pm

Jack,

Thank you for the clarification. Lou

13 Mike Niehuser June 20, 2013 at 6:56 pm

Very helpful Jack, you mentioned Larochelle, didn’t you visit and write on them in the past, would you help me locate the article, thanks!

14 Jack Lifton June 21, 2013 at 3:16 pm

Mike,

I wrote a description of Lynas Malaysian SX facility in which I compared it with Rhodia’s Larochelle plant. To summarize: The Larochelle SX plant has a capability of separating all of the naturally occurring rare earths plus yttrium and purifying them to 99.99% as their chemical compounds. Its capacity is 9000 metric tons per year. It has been operating for 43 years nonstop. Larochelle is thus the standard against which all other existing or proposed such “total rare earth spectrum” SX plants should be judged.

I am giving a presentation in Guangzhou China on August 10-13. My title is “The Case for a Non Chinese Central Refinery” as a tolling facility. My benchmark for this idea is Rhodia’s Larochelle facility. But at this time Larochelle is company dedicated and not a tolling facility. The chairman and deputy chairman of the Chinese Society for Rare earths (Academic) have both been very supportive of this presentation, so please take their support as food for thought. The rare earth supply/demand issue is much more complicated than it looks.

Thanks for reading and commenting,

Jack

15 Enrique Burkhalter June 29, 2013 at 12:42 pm

Jach,

I have read that in Estonia is a rare earth processing facility operated by Silmet (Molycorp). Do you know the capability of this plant and what is the source of the raw material to feed it.

Thanks in advance,

Enrique

16 Jack Lifton June 29, 2013 at 3:57 pm

Enrique,

The existing Estonian facility was originally built by the USSR in the 50’s as a central processing station, I believe, for recovering plutonium and uranium from ore concentrates and reactor fuel. Later on, I again believe, in the 1960s its operations were expanded to encompass tantalum, niobium, and the rare earths separation and purification. It has never had more than 2-3000 tons per year of rare earth (light rare earth) separation capacity, and although it has produced light rare earth metallic materials, such as didymium metal used to make rare earth permanent magnets I do not believe this capacity has ever been more than 1000 tons per year. The facility at Silimae was operating at a very low inefficient level in rare earth processing, certainly less than design capacity, up until now. It was for sale for many years before Molycorp bought it around two years ago. I doubt that Molycorp brought any new technology to Silimae, since Molycorp was also a start-up in separation and knew practically nothing about rare earth metals preparation other than what it learned from its purchase of the very small capacity Santoku plant in Arizona. (Note: Molycorp may have been billed as a re-start of an old operation, but it had literally only one former employee whose knowledge to draw upon, so it is more accurately described as a start-up, in my opinion.)

I’m certain that the purchase of Neo Materials early last year by Molycorp brought far more processing and metal/alloy making knowledge to the Molycorp fold than the acquisition of SilMet did. I think that it would be interesting to ask Molycorp’s management just what they obtained when they bought SilMet, and whether or not the purchase even made any sense at all before the acquisition of Neo.

I have no clue from where feed stock to SilMet is to come in the future. In the past it was coming from the Lovozero mine in Siberia. If it is true that a new separation, purification, and metal making facility for rare earths is being built in Murmansk by a Russian owned group then I don’t think that SilMet has much of a future as a rare earth processing plant. In fact it may already be obsolete.

The news media doesn’t seem able to or to be interested in asking questions about Molycorp’s operational issues, so SilMet will remain a mystery as gar as rare earth processing goes until Molycorp is much more forthcoming.

17 Tim Ainsworth July 7, 2013 at 12:43 pm

nicolas, you missed the absolute doozy, GM & US Govt letting Magnequench slip thru it’s fingers:
http://www.mechatronictips.com/2011/01/2362/technology/motioncontrol/magnets-and-mechatronics/
ROW will be paying dearly for that one for many years to come.

18 Tim Ainsworth July 11, 2013 at 10:45 am

Jack, a little snippet of news uncovered today on one of the the investment forums:

“Lynas Corporation, Pilot Plant, Bell Bay (Tasmania)

The Proposal

Lynas Corporation has proposed to develop a pilot plant at the Research & Technology Development Centre, Bell Bay, to prove an electrolysis process and produce up to 100 tonnes per year of Didymium and Lanthanum metals for up to a three year period.”

Sorry no link, it’s just an environmental assessment at this stage and no announcement from Lynas but clear indication they are looking to create their own market by moving into the middle supply chain, the real area of competition with China.

19 Jack Lifton July 11, 2013 at 10:54 am

Tim,

Thank you very much. I did not know this, and I am very impressed by this move. It is a logical move downstream for Lynas, and it is clearly a beta test to try to master a process, which although established in the industry, is new to Lynas. Lynas is a very professional operation, and I think it will do well.

Jack

20 Tim Ainsworth July 11, 2013 at 11:04 am

Jack, from what I can determine the development/redevelopment of the ROW middle supply chain is critical to the likes of Lynas so potentially a great proactive move, without trying to bite off too much!

21 Tim Ainsworth July 13, 2013 at 9:40 am

Jack,

You may find this an interesting read. Lynas would appear to be looking to emulate the scale of the LAMP in metal production by borrowing from the aluminium industry and at the same time introducing modern environmental controls.
2.1.6 “…..medium term that the development in Tasmania can be expanded incrementally so as to make up to 4000tpy of metal….”
Perhaps innovation by necessity to fill the middle supply chain gap for the Siemens JV, with La metal for the battery market as a bonus.

http://epa.tas.gov.au/documents/lynas%20services%20pty%20ltd%20,%20didymium%20pilot%20plant%20,%20eer.pdf

22 SteauaOilers July 13, 2013 at 2:38 pm

Jack,

Continuing the discussion started by Tim Ainsworth, Great Western Minerals just announced that they were successful in using an electrolytic cell process for producing Neodymium metal. Not being a specialist, it was hard at first to understand the magnitude of this achievement, but then I found this note written by Ed Richardson, the VP of Thomas&Skinner, who confirms that this is a big deal:

http://www.magneticsmagazine.com/main/channels/materials-channels/a-break-in-the-rare-earth-magnet-value-chain-fused-salt-electrolysis/

If only now Great Western could solve efficiently the separation part of their mine-to-metal model (using a tolling facility or not) …. I am very much aware of your current opinion regarding the survival of GWM, although I believe that I didn’t read a detailed explanation.

Regardless, thank you very much for writing all these articles, they are extremely helpful when navigating through the complexities of REE

23 Enrique July 15, 2013 at 2:22 am

Thanks Jack for your reply,

… and what about TREINBACHER capacity in Austria? …

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