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Rare Earths Fall as Toyota Uses Alternatives
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BySonja Elmquist-Sep 29, 2011 6:15 AM CT
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Rare Earths Fall as Toyota Develops Alternatives
Shannon Song, NeoMaterial Technologies Inc.'s vice president of Magnequench Tianjin Co.,holds up a vial of NdFeB powder at the Magnequench factory in Tianjin,China.
Shannon Song, Neo MaterialTechnologies Inc.'s vice president of Magnequench Tianjin Co., holds up avial of NdFeB powder at the Magnequench factory in Tianjin, China.Photographer: Doug Kanter/Bloomberg
Sept. 26 (Bloomberg) --Mark Smith, chief executive officer of Molycorp Inc., talks aboutChina's rare earth metals' production and exports.Smith also discusses Molycorp's Mountain Pass, California,project. He speaks with Pimm Fox on Bloomberg Television's "TakingStock." (Source: Bloomberg)
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CHINA RARE EARTHS WEAPONS
Neodymium is displayedat the Baotou Steel Rare-Earth Hi-Tech Co. factory in Baotou, InnerMongolia, China. Makers of electric cars, wind turbines and oil-refiningcatalysts have sought to reduce use of the metals after China said inJuly 2010 that it would cut exports and clamp down on the industry.
Neodymium is displayed at theBaotou Steel Rare-Earth Hi-Tech Co. factory in Baotou, Inner Mongolia,China. Makers of electric cars, wind turbines and oil-refiningcatalysts have sought to reduce use of the metals after China said inJuly 2010 that it would cut exports and clamp down on the industry.Photographer: Nelson Ching/Bloomberg
Rare-earth prices are set to extendtheir decline from records this year as buyers including ToyotaMotor Corp. (7203) and General Electric Co. (GE) scale back using thematerials in their cars and windmills.
Prices for cerium and lanthanum, the most abundant rare-earth elements, will drop by 50 percent in 12 months,Christopher Ecclestone, an analyst at Hallgarten & Co. in NewYork, has forecast. Neodymium and praseodymium, metals used inpermanent rare-earth magnets, may fall as much as 15 percent, hesaid.
Makers of electric cars, wind turbines and oil-refiningcatalysts have sought to reduce use of the metals after China,which supplies more than 90 percent of the market, said in July2010 that it would cut exports and clamp down on the industry.That boosted prices, encouraging mining companies to develop newprospects and buyers to find alternatives.
“If you think you can keep raising the prices for thosematerials and still keep your customers, you’re crazy,” Jack Lifton, co-founder of Technology Metals Research, said in atelephone interview. “The principal customer for rare-earthmetals is a global automotive industry using rare-earthpermanent magnets. That industry will engineer this stuff out.”
Declines in August and September pared a five-month,fourfold surge that brought the average price for eight of themost widely used rare-earth oxides to a record 396,850 yuan($62,068) a metric ton in July, data from consultant ShanghaiSteelhome Information show. The average price declined 13percent from its July peak as of Sept. 27.
Share Performance
The Bloomberg Rare Earth Mineral Resources Index dropped 41percent in the last three months, led by a 60-percent decline inMontreal-based Quest Rare Minerals Ltd. (QRM) Great Western MineralsGroup Ltd., which explores in North America, climbed 4.6 percentin the period and is the only gainer on the 17-member benchmark.
Rare earths have been pushed lower because of selling byspeculators, Michael Gambardella, a New York-based analyst atJPMorgan Chase & Co., said in a report last week. Tsunami-related disruptions in Japan and dumping of unpermitted materialin China have undercut prices, while industrial substitution hasdriven “demand destruction,” said Sam Berridge, a Sydney-basedanalyst at Royal Bank of Scotland Group Plc.
“A greater focus on recycling and substitution,particularly by Japanese consumers, has resulted in tightness ofdemand easing somewhat for the lighter rare earths,” Berridgesaid by phone.
‘Huge Savings’
Rising prices for the so-called light metals, such asneodymium and lanthanum, have prompted automakers includingToyota, Asia’s biggest automaker, to look at reducing the use ofrelatively powerful and expensive rare-earth magnets in theirvehicles. Some Toyota vehicles will be built with an inductionmotor, which doesn’t use rare-earth magnets, said John Hanson, aToyota spokesman in Torrance, California.
“Moving from a fixed-magnet motor to an induction motor isa huge savings with regard to rare-earth metals,” Hanson saidby phone.
“The Japanese are leading the push to replace, reduce andrecycle their rare-earths consumption,” said Dudley Kingsnorth,chief executive officer of Perth-based advisory IndustrialMinerals Co. of Australia. “Users are recycling rare earthswherever they can, using them more efficiently, particularly inthe magnet industry where they are producing powerful magnetswith smaller volumes.”
GM’s Plans
General Motors Co. (GM), the largest U.S. automaker, plans tosell a Chevrolet Malibu Eco next year that uses an inductionmotor, and otherwise cut down on magnets that use a lot of rareearths.
“The magnets are like God’s gift to electric motors,”Pete Savagian, GM’s chief engineer for electric motors, said ina telephone interview. “But we don’t always need that level ofmagnet. Even at prices we saw three and four years ago, there’sa more economic alternative, albeit at slightly less efficientoutcome.”
The largest portion of demand for rare earths, one third,comes from generating electricity, according to BloombergIndustries.
In August, GE announced the development of wind-turbinegenerators that will reduce dependence on the rare-earthmaterials prevalent in so-called permanent-magnet machines. Somecurrent offshore wind turbines may contain as much as half a tonof the metals, according to Bloomberg Industries analysis.
Gasoline Refining
“Everybody is going back to the drawing board and tryingto redesign their generators to minimize the usage of permanentmagnets,” said Steve Duclos, chief scientist and manager ofmaterial sustainability for GE Global Research. “In all of ourbusinesses we’re looking to reduce our usage.”
W.R. Grace & Co. began selling this year an oil-refiningcatalyst with reduced lanthanum, a rare earth that has increasedin price more than fourfold in the past year. Lanthanum improvesthe amount of gasoline refiners can extract from crude oil andis also used in hybrid-car batteries.
Half of the company’s customers had switched to the newformula, which offers the same performance and gives them“double-digit type percent decreases in their cost,” GraceChief Financial Officer Hudson La Force III said on a conferencecall this month.
The development doesn’t worry Mark Smith, CEO of MolycorpInc. (MCP), owner of the largest rare-earth deposit outside China.
New Mines
Fluid-cracking catalysts have “always been one of thelargest single markets for any of the individual rare earths,”Smith said in an interview at Bloomberg headquarters in NewYork. “We don’t see that deteriorating in any significantform.”
While rare-earth prices have fallen, demand will outpacesupplies even with new mines in California and Australiaexpected to come online in 2014, Smith said.
“Like any market, you’re going to see up and down in thecourse of a month or two,” Smith said. “But the overall trendremains short supply, heavy demand.”
The ability to substitute many rare-earth applications willbe limited, said Constantine Karayannopoulos, CEO of NeoMaterial Technologies Inc. (NEM), a Toronto-based producer of rare-earth magnets.
“All kinds of folks are trying to use alternativetechnologies,” he said by phone. “Longer-term, don’t expectthese technologies to be in place this quarter or the next.”
GE’s Duclos says he has little doubt companies will findsubstitutes, sooner or later.
“It will depend on the element, it will depend on theusage, but getting 10-20 percent efficiencies out of the usageof an element is not that terribly difficult,” Duclos said.“What I don’t subscribe to is this idea that there’s nothing wecan do.”
To contact the reporter on this story:Sonja Elmquist in New York atSelmquist1@bloomberg.net.