Since we wrote about last November, the situation has become ever more fractious and politicised. With Chinese exports drying up, big manufacturing economies have been rushing to secure new supplies coming onstream.
China turns the screw
China – the dominant global exporter – has further reduced incentives for rare earths production by the imposition of a range of new taxes from the beginning of April. China's high-tech industries – like those within other economies – have become increasingly reliant on the unique properties afforded by these elements. As a result, Beijing brought in export quotas, production caps and a crackdown on illegal mining in a bid to preserve its rapidly dwindling reserves. During the second half of last year, export quotas were cut by more than 70 per cent to 8,000 tonnes, compared with 29,000 tonnes for the same period in 2009.
Rare earths take on a political dimension
But within the Pentagon, the prospect of a cessation of Chinese exports of rare earths is now being defined as a potential threat to US National Security because of their application within modern defence systems. It's one thing not being able to build an iPad for the want of rare earths technology; quite another with regard to a surface-to-air missile. This may well have prompted the Rare Earth Supply-Chain Technology and Resources Transformation Act that is currently doing the rounds in Washington. The proposed legislation would lead to the establishment of a quasi-government inventory in rare earths – built solely from US production sources.
These threats to global supplies have sent prices for rare earths soaring in recent months. According to figures from Reuters (based on Chinese customs data) a tonne of rare earths – comprised of a composite of 17 different elements – now fetches around $109,000 on export markets, which represents a staggering six-fold increase in a little over nine months. So it's little wonder that a lucrative black market still exists, despite the earnest attentions of Chinese officials.
What are rare earths? |
|---|
Rare earths are a set of 17 related elements within the Periodic Table. China currently produces 95 per cent of rare earths used today, despite only laying claim to 35 per cent of known reserves. The elements have become key industrial inputs that have increasingly been applied to existing and emerging technologies, including: green energy sources, such as hybrid and electric vehicles and wind power turbines; hightech uses, including fibre optics, magnets and hard disk drives; numerous defence applications, such as guidance and control systems and GPS; and water treatment technologies. |
Japan moves to secure key supplies
Which of the dozen or so development projects now under way outside the People's Republic will be the first to achieve commercial success? Certainly, the Rare Earth Supply-Chain legislation would be welcome news for Colorado-based Molycorp Inc, which has the distinction of being the only producer of rare earth oxides in the western hemisphere. The company should commence the extraction of rare earth ores from its Mountain Pass facility in California later this year, after recently securing the last of several environmental permits necessary to begin construction of a new manufacturing facility. In January, Japan's Hitachi Metals announced that it had entered into a joint-venture agreement with Molycorp for the production of rare earth alloys and magnets in the US.
Despite some delays to its planned production rollout, Australian rare earths miner Lynas Corp has also been attracting investors' attention, judging by a recent A$55m (£35m) placing that was heavily oversubscribed, according to sponsor JP Morgan.
Rare earths producers outside China
| Name | Quote | Price | High (1-year) | Low (1-year) | Pricechange (3-month) | Pricechange (1-year) | MarketCapital (£m) |
|---|---|---|---|---|---|---|---|
| Molycorp | (NYSE:MCP) | $67.19 | $68.45 | $12.34 | 24% | na | 3,382 |
| Lynas | (A:LYCX) | A$2.55 | A$2.55 | A$0.47 | 33% | 372% | 2,850 |
