Industry group worries about rare earth supply

How fast Chinese exports of rare earths get to zero is the $64,000 question, Keith Delaney, executive director of the Rare Earth Industry and Technology Association told participants on a private conference call on Mar. 31.

“I’m hoping and I’m sure everyone is hoping for a soft landing – and that the Chinese gradually wean us off their production – but I don’t feel qualified to make that prediction.”

Earlier this week China’s Ministry of Land and Resources issued production quotas for rare earth concentrates for 2011, according to Metal-Pages. Nine provinces have been granted quotas for rare earth production, down from twelve provinces in 2010.

This year the quota amounts to 93,800 tonnes (80,400 tonnes for light rare earth concentrates and 13,400 tonnes for heavy and medium rare earth concentrates), Metal-Pages reported. Last year quotas of 89,200 tonnes were split between 77,000 tonnes of lights and 12,200 tonnes of heavy and medium concentrates.

“The Chinese have been telling us for years and maybe we haven’t been listening, that they aren’t going to be the rare earth supplier to the world,” Delaney said. “And it’s my belief that China has no interest at all in supporting rare earth supply chains outside their own borders.”

Delaney, whose non-profit organization represents mining companies, producers, and end-users and was formed to facilitate the development and commercialization of rare earth technologies that are critical to the economic and national security of developed nations, noted that demand growth in China for rare earth concentrates is growing and that the Chinese are serious about conserving their rare earth resources, eliminating inefficient and polluting rare earth processing operations and controlling supply.

And while the promise of Lynas Corp.’s (LYC-A) Mt. Weld and Molycorp‘s (MCP-N) Mountain Pass rare earths operations that are coming on stream later this decade offer  some hope, he notes that the two companies have told him that they are going to be “pretty much sold out of their first-phase expansions,” and therefore markets will be tight for quite some time.

“When Lynas and Molycorp are fully on stream and producing over 60,000 metric tonnes of rare earth oxides between them, which would be around 2014, it’s going to be good, but the demand forecast for the rest of the world is pretty quickly going to exceed that production right in the time frame of 2015-2016, so while three to five years from now look fairly good, the next two years are going to be tough and after 2016 we’ve got to have many more rare earth properties in production if we’re going to get out of the woods,” he said.

Delaney also noted that the United States must start investing greater amounts of money in education and R&D to create more scientists and engineers who can be trained in areas like rare earth research.

“I’d like to see the country mobilized to address the issue like we did over fifty years ago after the Russians launched Sputnik,” he argued. “Science and math curricula was encouraged and broadly offered and it created a generation of scientists and engineers who have helped sustain America’s economic growth.” 

He also warned that demand for cleaner energy will continue to drive demand for rare earth magnets for everything from wind turbines to electric cars.

“What we have to plan for is the electrification of internal combustion engines, integrated starter generators, and power-assist motors for power steering and other functions,” he explained. “The auto industry is not going to be able to meet the new EPA CAFE standards coming up at the end of this decade without these devices. How big electric vehicles are going to be is anyone’s guess, it depends on political will, etc., but meeting CAFE standards is going to be a real market for rare earth magnets.”

Delaney added that uncertainty over supply, demand and prices is making it extremely difficult for all industry players to develop products and technology.

“I would hate to be a product manager at a wind company trying to predict how many permanent magnet generators I am going to sell and at what price,” he continued. “This market has to have predictable supply and prices, transparency, and open communication, because nobody wants to go forward with this big unknown of rare earth supply security hanging over their heads. Permanent magnet generator technology is the best renewable technology out there but this Sword of Damocles is hanging over their heads.”