The Pulse: Japan’s geopolitical REE challenges; REE market dissected
Posted on November 29, 2012 by Robin Bromby
Japan may be speeding up its support for non-China sources of rare earth metals, but the country faces several hurdles in securing continuity of supply. That’s the view of Ka-ho Yu, a research associate at the European Centre for Energy and Resource Security, as he outlines it in the latest edition of the Potomac, Maryland-based Journal of Energy Security. He also has some insight into illegal mining in Vietnam.
He says that Japan is placing considerable reliance on acquiring REE from Kazakhstan and Vietnam but doing so will not be straightforward.
These challenges are:
1. Experience and technology. Although both Kazakhstan and Vietnam are rich in rare earths, they are not at present key players in the industry. Kazakhstan lacks the technology and is unwilling to make massive investments, with companies there focusing on gold or base metals and iron ore mining which have lower costs. Vietnam also lacks the advanced technology. Yu says Vietnam should acquire the technology for its own economic advantage rather than just ship the minerals away.
2. Competition. China may also be interested in working with Kazakhstan and Vietnam to a) provide more rare earths for its growing domestic demand and b) to increase China’s bargaining power in the REE sector globally. Also, China could ease the international pressure on its own export restrictions but encouraging foreign customers to buy from Kazakhstan and Vietnam. Anyway, says Yu, China s already buying REE from Vietnam through unofficial channels (including illegal mining). “It was reported in 2012 that thousands of tons of rare earth ore in the province of Lai Chau disappeared,” he writes. “This rare earth ore was believed to be illegally exploited and exported out of the country into China.” Japan has to be aware of potential competitors in these countries.
3. Legislative Gaps. A lack of transparency pervades mining in Kazakhstan. There is no legislative norm for mining, extracting or producing rare earths and the government can just terminate contracts with third parties.
4. Environmental problems. Japan should learn a lesson from the Lynas experience in Malaysia. Japan must be aware of local sensitivity to any REE mining or processing.
BREAKING DOWN THE MARKET
Dudley Kingsnorth, former project manager at Mt Weld and now building REE expertise at Perth’s Curtin University after being appointed a professor at the business school there, has summed up the REE market. He sees the global economy remaining weak. There has been minimal recovery in REE demand, he says, but consumption – as much as there is – is largely being drawn from stockpiles so a good deal of present production is surplus to market requirements.
He estimates global demand at present at 115,000 tonnes – and supply at 110,000 tonnes. Rest-of-world demand sits at 35,000 tonnes a year, supply at 15,000 tonnes.
When you break down by region of use, you get China consuming 79,000 tonnes (69%), Japan and North Asia 18,000 tonnes (16%), the U.S. 11,500 tonnes (10%) leaving 5% for the rest of the world.
His outlook to 2016:
1. China will not directly deny REE to the rest of the world but it will take whatever measures are necessary to maximise value-add within China.
2. Consolidation of Chinese industry will continue.
3. Impact of the Baotou rare earths trading platform could become significant and set a global pricing benchmark.
4. The impetus for replacement, recycling and reduction will remain until new projects are well established.
5. The supply of heavy rare earths will remain of concern.
6. The next generation of new projects should be starting up.
Disclaimer: The above is an opinion written by Robin Bromby, and he is not a licensed investment advisor.
LYC Price at posting:
64.0¢ Sentiment: Hold Disclosure: Held
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