REE Demand RisingThe Rise in Global Demand for Rare Earth
By Damon van der Linde – Exclusive to Rare Earth Investing News
Governments are now recognizing the need for stockpiling and securingrare earth elements like never before. In its 2010 Critical MaterialsStrategy report, the United States Department of Energy identified theREE dysprosium as the element most critical in terms of import reliance.Many analysts around the world are calling for more diverse sources ofREE to ensure availability in the future.
“These raw materials are linked to the entire global economy and whatpeople are finding out now is that these ‘minor’ metals are not sominor,” said John Kaiser, speaking at the PDAC Critical Metals EmergencyForum in Toronto. Mr. Kaiser is an analyst and author of the websiteKaiser Bottom Fish, specializing in high risk securities with anemphasis on the resource sector.
REEs are a collection of seventeen chemical elements in the periodictable, specifically the fifteen lanthanoids plus scandium and yttrium.REEs are crucial in the production of many growing sustainabletechnologies including hybrid electric cars and wind turbines. Newdemand has recently strained supply, and there is growing concern thatthe world may soon face a shortage of rare earths. In several years,worldwide demand for rare earth elements is expected to exceed supply by40,000 tons annually unless major new sources are developed.
These concerns are growing due in part to China, which is not onlythe predominant supplier, but is increasingly now a major consumer. OnSeptember 1, 2009, China announced plans to reduce its export quota to35,000 tons per year in 2010-2015 in order to ensure a nationalstockpile. At the end of 2010, China announced that the first round ofexport quotas in 2011 for rare earths would be 14,446 tons; a figure 35percent less than the previous first round of quotas in 2010. Thesechanges in quotas are explored in depth in a March 7, 2011 article for Rare Earth Investing News.
As a result of the increased demand and tightening restrictions onexports of the metals from China, searches for alternative sourcescontinue in Australia, Brazil, Canada, South Africa, Greenland, UnitedStates and other countries.Mines in these countries wereclosed when China undercut world prices in the 1990s, and though priceis once again climbing, it will take a few years to restart productionin many places.
“You can see the demand growth went way up while China’s supplyresponse went sideways. It was the United States, Chile and Peru thatramped up production and started mining the higher grade portions oftheir components to take advantage of a $30-35 price per pound.Everybody thought this was a flash in the pan and it’s going to crashright back to the $2-3 where it’s been for the last 20 years,” saidKaiser. “Now it’s still sitting at around $15-17 a pound. The value ofthis market eight years ago was a mere $1-2 billion a year and is nowparked at about $10-12 billion a year, and this is happening to many ofthese critical metals.”
China has been emerging as the dominant suppliers of rare earths overthe past 20-25 years. Kaiser explained that in the 1970s and 1980s,China started out mostly as a raw material exporter, subsidized itsmining industry by allowing multiple small-scale production of mineralslike tungsten and zincand the REEs, while paying little attention to emission standards.Today, China has emerged as the market leader for a lot of these metals,and are now starting to consider the local environmental impacts oftheir mining operations, which is one of the reasons being cited for thedecrease in REE export quota.
Outside of China, however, there is a lot talk that the decrease inthe quota has more to do with controlling the production stream of REEsthan it does protecting environmental interests.
“One of the reasons they are introducing this whole strategy ofexport quotes and reducing total production in a scenario where demandis rising from innovation and policy is unofficially people want to seemore intellectual property transferred to China where there of course itrips it out of the western companies’ control and into Chinesecompanies’ control and ends up with China a stronger more knowledgeableplayer,” said Kaiser. “And they want the downstream jobs, not justassembling stuff, they want higher end jobs that come from value addedprocessing of critical metals such as REEs into complex materials thatalso form complex technologies.”
Looking forward, Kaiser says that the only solution is tore-institute a diversity of supply for REEs, not only because of theirimportance as critical materials, but especially now that they have verysignificant demand underpinning their growth.
“Some of these price gains are going to stick until we have anoverwhelming mine supply response, which will create the kind of glutthat will then take prices down. But that sort of glut is not going tohappen until 2015-16 and all the anxiety in the REE market is stillpalpable,” said Kaiser.