Again: FT Fall For Rare Earth Falsehood; China RE Subsidies: Quartz Nail It; Rare Earth Prosperity; Licenses in Limbo; Compliance Shortcut; RE Prices Keep Rising;
Rare Earths 2021 July 19
The Financial Times carried this article, which is a consequent step in the development of FT from newspaper to fish & chips wrapping:
Complete nonsense in the FT article:
The US currently has one operational rare earths mine, Mountain Pass, in California. However, Molycorp, the only big rare earths producer in the country, went bankrupt in 2015, resulting in the mine’s closure at the time. The US Department of Defense is supporting the resumption of activity there by funding MP Materials, a private equity-backed company, and it has restarted excavations.
Anyone who can read an annual report a.k.a. Form 10-K knows, that China’s Shenghe Resources have been funding MP Materials with advance payments to the tune of US$80-100 mio per year.
What the DoD pledged is petty cash money.
Last time FT fell into the trap of a China propaganda outlet. This time FT were mislead because they believe and repeat stereotypes, often thrown around by irresponsible rare earth company executives:
Once unearthed, materials must still be sent to China for processing.
We had previously listed the rare earth stereotypes. This is one of them.
The trouble with these stereotypes is, they sink unfiltered into the public domain, get picked up by people who couldn’t possibly know any better and end up in policy-making. In the worst case eventually everyone will wonder, why these policies and thereby everything else fails.
No-one in the rare earth industry anywhere can possibly have an interest in that.
Perhaps FT should take a lesson or two from Quartz:
The Baotou government’s new measures (pdf, link in Chinese) are designed to address some of those weaknesses. Plenty of tax incentives and subsidies are being introduced to entice investments in the rare earth industry…
The byproducts problem is one that’s being urgently discussed by executives and government officials. At a conference on rare earth supply chains this April, industry experts noted (link in Chinese) that the excess production of lanthanum and cerium poses serious barriers to the overall development of China’s rare earth industry.
This Quartz journalist seeks truth from fact by researching and - important - asking Chinese experts, rather than believing what being told, parroting common-place stereotypes and replicating non-vetted corporate fog.
The Rare Earth Sector Enters a Period of High Prosperity
sina.com carried an analysis, titled “The rare earth sector enters a period of high prosperity”:
Rare earth permanent magnet terminal demand is expected to maintain high prosperity for a long time
We are not surprised. Given the overcapacity build up in permanent magnets, the pull for rare earths magnet materials should be enormous. However, as we have seen during spring, RE prices can not defy gravity:
WT=working termperature (NdFeB demagnitize rapidly at high temperatures, depending on composition).
This graph is not entirely correct, as the cost contain averages (=too high on the lower end magnets and and too low on the higher end magnets) and prices refer to list = spot prices, which often do not apply to long term volume-dicounted contract prices.
But what we can see from the graph, that it was clearly the raw materials pushing up the NdFeB prices and afterwards the consumers of NdFeB pushing back.
How does this work?
Balance of Terror
Leading NdFeB makers have price gliding clauses in the contracts, enabling them to pass increased raw material prices to magnet consumers. However, the contracts typically also have quantity adjustment clauses, enabling consumers to take reduced quantities. The balance of terror: Manufacturer increases the price, consumer reduces the quantity (and starts negotiating with an additional supplier, who is eager to place quantities).
In order to reach/keep the break-even-point, a manufacturer of anything must keep the utilisation rate of his factories above a certain level. In metal commodities this is ca. 70%, from our experience. If reduced customer offtake quantities push the utilisation rate below such mark, operating losses kick-in and that is when price/margin compromises start, regardless of raw material cost.
The high volumes with low margins in permanent magnets are those types, which only operate at lower temperatures and in whose composition 20-30% of NdPr content is replaced by cheap cerium. This, however, does not apply to the NdFeB in above graph, which are used in automotive, e.g. electric power steering.
Taking a Dead-End Shortcut?
An avid reader pointed us to the fact, apart from other documentation, that Vital Metals will need to file a Environmental and Social Impact Assessment (ESIA) for North T and Tardiff Zones as per Canada law, if they go into commercial production.
Currently, what Vital Metals do, may be described as an oversized pilot run, proof of concept.
This course of action is similar to some other RE hopefuls, in case of Canada with active financial support of Canadian government entities, who undoubtedly will require compliance down the road.
When contacted by e-mail about the status of ESIA for Nechalacho’s “T-Zone”, Vital Metals chose not to respond.
While in average still up 33% for the year, western rare earth stock prices are taking a beating these days, while China’s rare earth manufacturers’ shares are thriving, in average +85% for the year, with not a single stock cheaper than at the start of the year.
May be also the result of successful decoupling from the most prospective market and from the most prospective investors in rare earths: China.
However, it is up to China to induce inevitable changes, to lay the ground for renewed cooperation at least on an economic level.
China can’t serviously expect good-faith trade negotiations, while continuously asking the People’s Liberation Army to prepare for imminent war.
The overarching conflict remains between one of the oldest surviving empires versus the oldest constitutionally-governed nation in the world.
The London-headquartered sponsor is looking to have exited seven or eight investments from its first fund and likely three from fund two before launching its new investment vehicle in 4Q21, he said.
Scherb declined to comment on which portfolio companies are for sale but noted that there is a large number of existing investments that are going through an exit process.
Appian, which was founded in 2012, has made nine “large investments” across its portfolio since then, Scherb said.
One of Appian’s investments is Peak Resources. There is also anchor investor IFC.
Peak lost their Ngualla, Tanzania mining license more than 4 years ago through fundamental changes in Tanzania’s mining legislation.
Peak’s financial year ended on June 30. Will auditors Ernst & Young continue allowing Peak to carry Ngualla on their balance sheet in year 5 after losing the rights to the deposit? Can Peak still credibly demonstrate a successful legal challenge to a democratic, sovereign nation’s legislative changes?
The U.S. Geological Survey estimates there could be 17.5 billion undiscovered barrels of oil and 148 trillion cubic feet of natural gas off Greenland, although the island's remote location and harsh weather have limited exploration.
When the current government, led by the Inuit Ataqatigiit party since an April’s parliamentary election, it immediately began to deliver on election promises and stopped plans for uranium mining in southern Greenland.
Ruili prefecture has imposed lockdowns over the past week following an outbreak of the virus and suspended rare earth ore imports from Myanmar today.
Some market participants expect imports from Myanmar to resumed soon. A continued slowdown in demand from metal processing plants and magnet manufacturers is also likely to prevent prices from rising too much in the short term.
If cross-border transport should rest for a couple of weeks really does not matter.
China’s rare earth exports
Since China’s rare earth exports first half and second half of the year are generally 50/50, it is reasonable to assume that the annualised rare earth exports from China 2021 will be 47,000 t, 33% higher than 2020, on par with 2016 and 2019.
Large monthly swings in quantity are normal:
The lions share of export volumes are massively overproduced lanthanum and cerium for fluid cracking catalyst (FCC - e.g. gasoline/diesel) and catalytic converters for internal combustion engine vehicles.
With the anticipated larger market share of hybdird and electric vehicles, naturally demand for application in FCC and catalyctic converters will drop, internationally and China domestic - and this will affect rare earth export volumes from China.
It explains, why China is doubling down on its long ongoing intensive efforts to find alternative large volume applications for lanthanum and cerium, as Quartz correctly described in the article China’s rare earth hub is rolling out massive subsidies to fix the industry’s Achilles heel.
It is always useful to observe, what the Japanese are doing, methodically approaching problems and solving them one-by-one, leaving almost nothing to chance.
Asaka Riken started conceptual work already in 2016;
Commercial volumes of scrapable Li-ion batteries will begin appearing in 7 years, recycling can swing into full gear in 10 years. However, there are conditions;
Securing the lead in securing raw material supply (scrap) is mission-critical;
Batteries should be standardised, recyclable by design;
Recycled materials must be useable ideally “battery to battery” (that is NOT SELFUNDERSTOOD, qualities will differ!);
There will be cost differences of recyled versus virgin materials, but in terms of sustainability both should be used;
The participation of all stakeholders along the battery value chain is essential for successful recycling.
Mandatory reading on mining.com:
• The concentrating control of metals’ supply chains is likely to exclude many from the party;
• Systemic supply uncertainty and ensuing price volatility, encouraging disruptive new technologies such as next generation electrofuels, polymeric energy storage, and cobalt free batteries – thereby forcing ‘traditional’ commodities into obsolescence;
• The rise of ‘consumption consciousness’, undermining the long-term reliance on primary metal.
With China dominant in its control of energy transition value chains, non-Chinese entities face an ever-diminishing share of any commodity windfall. With greater cash comes greater investment capability, WoodMac says, enabling China to realise a strategy of supply security at any cost.
If EV manufacturers cannot guarantee access to critical metals at an affordable and predictable price, they will look to innovate or thrift them out to the greatest extent possible. As the supply challenge materialises, the inexorable rise in prices will surely incentivise alternatives.
Comment: In a nutshell.
Price developments leave nothing to complain about, good day sunshine:
The prices above are ex-works RMB prices incl. China VAT 13%, translated at the official onshore RMB-USD exchange rate of the day and contains the most common grades of the named materials.
The price developments for magnetic materials are non-consequential in the West, as there continues to be no VAT refund upon export for rare earths, while the full VAT is refunded upon export of permanent magnets, effectively rendering all and any investment in permanent magnets outside China non-feasible.
There are only 3 solutions, glass clear:
Either China grants full VAT refund upon export for rare earths, or
China cancels the VAT refund upon export of permanent magnets.
Since China will most certainly balk at either, western governments can only impose antidumping duty on Chinese permanent magnets, in order to enable a nascent domestic industry.
However, US and EU users will not be amused by permanent magnet antidumping, as their success is not measured by the increase of cost.
Meanwhile, the US Department of Commerce is busy with protecting the US market against imported wooden kitchen cabinets, while the EU sets gravity-defying targets, not removing even one measely regulatory hurdle to reach these targets, so to preserve EU voters feelgood bubbles.
EU Commission President von der Leyen sums up the concept nicely:
We want…growth, that does not hurt nature.
Fundamentally, contradiction in terms. There is no economic growth that will not affect nature. This spin was invented for the UN to make everyone sign the Paris Agreement.
For if reduced consumption and reduced growth would have been the order of the day, particularly third world countries and of course China wouldn't have signed up for it.
Prime material for a Monty Python sketch?
Real sustainability, however, is called "thrift", reduction of unnecessary consumption.
The hopes for new rare earth production and permanent magnets rest on small, evolutionary developments, as long as governments don’t stand in their way.
Thanks for reading, have a wonderful week ahead!
JCB claims its research shows that the new engine – based on the hardware of JCB’s Dieselmax 448 four-cylinder engine but with substantial modifications at the top end – not only produces no CO2 but also offers important advantages over battery-electric and hydrogen fuel cell solutions, both of which are considerably more expensive.
New research has now revealed an alternative pathway to engineer the fundamental phenomena of these rare-earth compounds solely with graphene, which has none of the safety problems of traditional rare-earth compounds. The exciting result in the new paper shows how a quantum state known as a “heavy fermion” can be produced by combining three twisted graphene layers. A heavy fermion is a particle – in this case an electron – that behaves like it has a lot more mass than it actually does.
Cuprates and nickelates have similar structures, with their atoms arranged in a rigid lattice. Both come in thin, two-dimensional sheets that are layered with other elements, such as rare-earth ions. These thin sheets become superconducting when they’re cooled below a certain temperature and the density of their free-flowing electrons is adjusted in a process known as doping.
The first superconducting nickelate was discovered in 2019 at SLAC and Stanford. Last year, the same SLAC/Stanford team that performed this latest experiment published the first detailed study of the nickelate’s electronic behavior.
Justin Wilson, associate professor of Chemistry and Chemical Biology in the College of Arts and Sciences, has received a grant from the U.S. Department of Energy’s Basic Energy Sciences program to develop more efficient methods of separating rare earth elements that will make their domestic availability economically viable.
Although natural mineral deposits of the rare earth elements are present within the U.S., environmental and cost-related concerns render these inaccessible from an economic perspective, Wilson said.
The project investigates chemical receptors, or ligands, that can bind, or chelate, the different rare earth elements with different degrees of efficacy, or affinities.
Comment: Rare earth? Ligands? As if we haven’t heard that one before……