U.S. administration fails RE; Deng & Kissinger: Two Quotes; 16 Years Prison for Luu Anh Tuan; Magnet Crisis in Automotive; Major Scandium User lies? USA fall for Eudialyte; Prices move South
Beijing has not committed to grant export clearance for some specialized rare-earth magnets that U.S. military suppliers need for fighter jets and missile systems, the people said. The United States maintains export curbs on China's purchases of advanced artificial intelligence chips out of concern that they also have military applications.
A Chinese equivalent to the U.S. mudslinger website Breitbart had the following:
China generously granted temporary licenses for six months to civilian automakers such as GM and Ford, giving them enough face. But at a closed-door meeting, Commerce Minister Wang Wentao changed the subject: "This is a civilian quota. Military dysprosium and terbium? No talk."
We don’t think that the Chinese website was privy to such information, but there is no doubt that the U.S. team was given a very hard time in London.
Forget about the military. It is the EV industry in the West taking the big hit.
China tells us regarding EV tariffs:
If you don’t buy our EVs, then you should not be allowed to have your own home-made ones either. You should open your EV markets, so that our automakers can slaughter your’s properly.
Remember? The EV battery is the most expensive component of an EV. Through the withheld VAT refund upon export of battery materials, China’s domestic manufacturers have 13% lower material cost than anyone else on the planet.
Actually, this discriminatory application of VAT refund upon export is, what perpetuates China’s cost advantages in almost every major product.
We began pointing out China’s WTO non-compliant, discriminatory withholding of VAT refund upon export to the EU Commission since 13 years ago. A simple and highly effective trade manipulation tool. The EU does not attend to it.
So, the problem is self-perpetuating.
As especially rare-earthlings know painfully well:
Incompetence is the rule, not the exception
Manfred P. Salemke
The current U.S. administration’s policy anyway is not favourable for rare earth permanent magnet growth drivers, EV and renewable energy.
And the haphazard trade politics without clear objectives and no preparation expose U.S. EV makers to China’s blackmail.
His Elonic Muskness can certainly tell a long story about it.
We can’t help noticing the gloating in the heavily state-censored Chinese media over the damage its government causes abroad, while stocks of finished products keep piling up at Chinese factories - hundreds of millions of rare earth permanent magnets for export to 130 countries worldwide.
These magnets now all have to be squeezed like a camel through the ear of a needle: MOFCOM’s dual-use license system.
No relation to trade
A few years ago China said that it does not wish to aid the production of weapons that can threaten China.
We allege, that the dual-use licensing system for the 7 rare earth elements has been in the pipeline for years. It was just a convenient time during the tariff tit-for-tat to drop the bombshell.
The dual-use licensing system is decoupled from trade issues. This is something, the U.S. administration representatives at the talks with China in London must have missed.
Instead, China started a trial balloon to link rare earth permanent magnets to the U.S. export restrictions of advanced semiconductors, trying to see if these chip restrictions are for sale.
China’s government can’t retreat
Even if China’s officialdom wanted to, it can’t abolish this dual-use licensing without causing serious indignation among China’s nationalist-overcharged population.
Also arguing about China’s dismal record of export control of conventional weaponry and ammunition to almost every major hot spot on the planet, allegedly including even internationally banned ABC (atomic, biological, chemical) weapons, e.g. the alleged NORINCO, Syriachlorine gas bombs case, won’t bring about change.
Nixon’s gambit
More than 50 years President Nixon and State Secretary Kissinger drove a wedge into what was perceived to be an evil Communist Bloc, the USSR and China.
That bloc was driven by derivative ideologies of the philosophers Karl Marx and Friedrich Engels, two notorious German drunks, who had thought of Communist Revolution as a way to change the screaming social injustice of the 19th century. German Communist idealism was adapted by Lenin, Stalin and Mao to the traditional political patterns of their respective nations.
Realising the vision is utopian, Communists rely on the road, Socialism, being the destination. If the road should be the destination, then one may well be traveling in circles, an infinite loop.
The gambit of Nixon and Kissinger to split the Communist Bloc interrupted China’s infinite loop of misery, which was caused by insane political and economic experiments. It led China on a path of economic development, crowned by China’s accession to the WTO in 2001.
History repeats - sort of
Half a century later the bloc is back, Russia and China, but China is no longer the junior partner.
The current U.S. administration may be hoping to split the bloc again, this time by enticing Russia to split from China.
Two quotes
Henry Kissinger, U.S. Secretary of State, and Deng Xiao Ping, then First Vice Premier Minister of the State Council, in 1974
The Middle East has oil, China has rare earths.
Deng Xiao Ping, then China’s de-facto Paramount Leader, 1992
—
Oil is a much too important a commodity than to be left in the hands of Arabs.
Henry Kissinger, U.S. Secretary of State and National Security Advisor, 1973
Deng’s quote was related to happiness about the electronics boom, which began in the early 1990s and increased rare earth and rare earth permanent magnet demand from China.
Kissinger’s quote came in the context of the First Oil Crisis.
Crude oil
The First Oil Crisis was triggered by a Saudi Arabian oil embargo on the United States, starting in October 1973. In 1975 the U.S. banned export of crude oil, which left the U.S. allies high and dry at the time. It was lifted only 40 years later, in 2015.
During the 1970s crude oil’s economic impact on global GDP had been ca. 10%. The oil crises led to a decline of global GDP.
Today the Middle East boasts 30% of global crude oil refining capacity.
Rare earths
The First Rare Earth Crisis had been triggered by a combination of a zealous, yet hapless Chinese bureaucracy, trying to manage the domestic rare earths business by primarily forcibly reducing rare earth exports, and the quest for environmental compliance, leading to the temporary closure of most of China’s rare earth industry in 2011.
It is fair to say that at least 10% of global GDP is currently driven by rare earth.
Today China boasts 95% of world rare earth refining capacity.
And now China’s bureaucracy creates the Second Rare Earth Crisis.
Crude Oil ≠ Rare Earths
While we do not need to discuss that crude oil varieties are commodities, we need to discuss if rare earths are commodities:
Commodities are standardised:
In China there are industrial standards for all rare earth products along the entire value chain. This makes the products interchangeable, regardless of the producer, and enhances competition.
In the West there are no standards for rare earths. The International Standards Organisation (ISO) has dragging its feet over internationalising Chinese rare earth standards for 10 years. We hear it is the U.S. participants at ISO who stall the process.
Commodities are traded on exchanges:
In China rare earth products are traded on exchanges, thanks to the standardisation of rare earth products.
Lacking volumes, standards, as well as significant demand and supply, rare earths can’t be traded on exchanges in the West.
Commodities are priced by demand and supply:
In China, with the participation of exchanges, rare earths are indeed priced along demand and supply.
In the West rare earth prices are determined by the China domestic price, reflecting China’s domestic demand/supply balance.
There is no material divergence of China’s domestic rare earth prices and its export prices, as by China law VAT is included in all prices, which makes the VAT element invisible.
Rare earth exports from China are denied VAT refund upon export, which results in Western rare earth users having 13% higher material cost than China’s domestic rare earth customers do. WTO non-compliant, in our humble view.
Western rare earth companies like Lynas and MP determine their offer prices along Chinese domestic rare earth prices.
Experts dispute prices
Some Western rare earth experts claim that China’s rare earth prices were not formed by supply and demand, but by state price setting. Pre-2014 rare earth export prices had indeed been set by Chinese bureaucrats.
However, these experts have yet to experience the commercial living hell of the rare earth inherent imbalance.
The 15 lanthanides (minus extinct promethium) either come together, or they don’t come at all. If you want to produce one rare earth element up to demand, then you will automatically over- and underproduce other rare earth elements, with predictable results for prices.
Supply/demand example:
The most volumous rare earth element, cerium, good for ca. 49% of total rare earth output, costs measly US$1.60/kg and the second most volumous rare earth element, lanthanum, good for ca. 23% of total rare earth output, costs puny US$0.60/kg.
Both are priced at a small fraction of their cost of production because both are continuously produced far above their respective demand.
The reason is the rare earth inherent imbalance, which China has been battling for decades, also with an Herculean effort in application research.
The rare earth inherent imbalance
If you want to produce neodymium up to market demand, you will automatically overproduce lanthanum and cerium, but you will also underproduce dysprosium and terbium.
If you want to produce dysprosium up to market demand, you will overproduce neodymium as well as lanthanum, cerium and others (that is why also China makes continuous efforts to engineer dysprosium out of application products).
It happened before, when europium was fashionable and all efforts were made to produce europium up to market demand. At the time, neodymium prices dropped to US$8/kg on oversupply. Since europium has long gone out of fashion, the current Nd oxide price can be US$62/kg.
Should thulium ever become “fashionable”, the whole fickle rare earth supply/demand balance would simply blow-up.
Big Oil benefits from the imbalance
It is actually the two most uneconomic rare earth elements, lanthanum and cerium, that are at the core of Western rare earth dependency.
Lanthanum and cerium are regularly 60-70% of all rare earth import volumes of Japan, USA and the EU.
The two elements are essential in the production and consumption of fossil fuels
Lack of lanthanum could drive up gasoline prices at the pump by ca. 30%
Lack of cerium would affect washcoat for catalytic converters, needed for internal combustion engine and hybrid vehicles.
If China had wanted to hit Big Auto with reduction of exports, lanthanum and cerium could have been ideal candidates.
However, Lynas as well as MP Materials can replace Chinese lanthanum and cerium in an instant - and at gargantuan operating losses, because of the low prices of these overproduced rare earths.
Back to Kissinger.
Rare earth is a much too important a “commodity” than to be left in the hands of China?
While we are unable to predict technological developments, from today’s point of view it is probably fair to say that rare earth elements will substantially define the development of technology during this century.
This applies to all rare earth elements, not only the currently junior miner foghorn-hyped “magnet materials”.
China does what it says
Leading rare earth experts agree, that in rare earths China says what it does and it does what it says.
At a government to government meeting between the EU and China in 2014, the Chinese side explicitly stated that China strives to eventually produce rare earths only for its own domestic consumption.
When the usually ill-prepared EU bureaucrats asked, what about the EU rare earth demand, the Chinese side offered to take the EU’s demand into account, if the EU could kindly define it. Of course the EU bureaucrats had absolutely no idea what rare earth products and how much of them the EU would need for what application.
Potential capacity reduction
While China’s capacities in both, rare earth refining and rare earth permanent magnet production have grown much too large for current and forecast China domestic consumption, much of the capacities are meant as replacements for the numerous smaller (purely coincidentally: private) factories it wants to disappear.
Going forward a reduction of overall capacities is quite possible. Along with it producing only for China’s domestic demand may become conceivable, with the objective to export value-added products made from rare earth and rare earth permanent magnets.
Consequence: Do It Yourself
Just like Japan having its Lynas, the U.S., the EU, India, Russia and any other country aspiring to playing an industrial role during this century will have to have their own Lynas as well.
And, just like Japan already has, aspiring countries will all need to have rare earth metal manufacturers and rare earth magnet makers, too, in order to create a market for rare earths.
A key sticking point in the ongoing talks is apparently the restrictions on exports of rare earths from China. The issue has been receiving increasing attention after China started to implement a license requirement system for exports of the minerals in April.
In the US, some have attributed the lack of progress in the bilateral trade talks to China failing to honor promises on rare earths by withholding their shipments. The accusation is oversimplifying a complex issue that China is seeking to handle responsibly for the benefits of the industry's long-term and sustainable development. The tightened management of the rare earths industry, including the recent move China has taken to regulate exports of these critical minerals, is in response to the increased demand. It aims to change the industry's unsustainable development model that has been characterized by extensive exploitation and severe ecological damage. Such a model not only threatens to deplete the country's reserves of these natural resources, but also poses risks to the long-term stability of the global industry and supply chains.
China dusts off a number of old, outdated explanations, while fogging the facts.
Our view is:
The dual-use licensing is unrelated to the trade-war. It had been in the pipeline anyway, probably for years.
The 7 rare earth elements were not chosen for their “high demand”. They were chosen specifically for hitting U.S. defense contractors, who are among the largest importers of the 7 elements globally. That becomes pretty obvious, if you dive into the details.
The licensing system is here to stay. At most China will offer fast tracking (“green channel”) of Chinese exporters’ dual-use license applications for exports to a select number of civilian U.S. companies.
Analyst error
Some analysts think, that China applying the recently introduced dual-use licensing system to the 7 rare earths scandium, samarium, dysprosium, terbium, gadolinium, lutetium and yttrium would help the Chinese side to gather intel on the application of these in the military-industrial complex, primarily of the U.S..
This assessment completely disregards the fact, that these 7 elements were carefully chosen, precisely because China already had all the intel it needed to identify these elements as highly U.S. defense relevant in the first place.
China showed-off its intel-prowess when it leaked:
The dysprosium content of U.S. F-35 fighter jets at exactly 417 grams.
Titanium alloy used in the blades and combustion chamber of the F119 turbofan engine is mixed with rhenium, yttrium and other materials to enhance the flame retardant performance.
The nuclear reactors of nuclear-powered aircraft carriers and nuclear submarines require samarium and europium as shielding materials, yttrium as nuclear fuel diluents, and gadolinium as inhibitors.
The 6th-generation U.S. fighter jet F-47, planned for the 2030s, requires 12 kilograms of rare earths per aircraft.
The optical fibre communication technology, partly military, relies on rare earths holmium, erbium, and praseodymium. Erbium minimises the energy loss of optical fiber transmission, and praseodymium is used for making optical fibre amplifiers.
We could go on and on, but you sure get the sequence here. There is little that the opposition can’t find out.
For good measure, sharing is caring, here China’s COMAC C919 commercial airliner, a Frankenstein:
Source: South China Morning Post
China can’t even get the C919 tires right? Seriously? Or a research error?
Rare earth elements can increase chlorophyll synthesis efficiency by 23% and enhance photosynthesis;
Corn seed dressing increased yield by 14%, and the number of pods per soybean plant increased by 26.6;
The vitamin C content of citrus fruit increased by 19% and the storage decay rate decreased by 35%;
This rare earth micro-fertiliser technology, which began in the 1970s, has been promoted in 31 provinces, protecting the Chinese people's "rice bag" and "vegetable basket".
The defendants in the case were brought to trial for six crimes: “Violating regulations on resource exploitation”, “Violating regulations on management and use of state assets causing loss and waste”, “Violating accounting regulations causing serious consequences”, “Smuggling”, “Consuming assets obtained through criminal acts of others” and “Causing environmental pollution”.
In the crime of "Violating regulations on resource exploitation", defendant Doan Van Huan organized and directed the exploitation of rare earth and iron ore at Yen Phu rare earth mine (Yen Bai province) from 2019 to 2013 in violation of the law.
The amount of illegally exploited minerals is worth more than 864 billion VND [US$33.1 mio] and the total amount of rare earth ore and iron ore consumed is worth more than 736 billion VND [US$28.2 mio].
In the crime of “Smuggling”, Vietnam Rare Earth Company, chaired by defendant Luu Anh Tuan, purchased rare earth with TREO content of 18-20% illegally mined from Thai Duong Company. To conceal the origin of the ore, Tuan directed his employees to use import documents for production materials to legalize illegal exports.
In total, Vietnam Rare Earth Company illegally exported more than 473,000 kg of rare earth oxide worth more than VND379 billion [~US$14.5 mio].
Defendant Luu Anh Tuan (Chairman of the Board of Directors of Vietnam Rare Earth Joint Stock Company) was sentenced to 12 years in prison for "Smuggling"; 4 years in prison for "Violating accounting regulations causing serious consequences". The total sentence that defendant Luu Anh Tuan must serve for the two crimes is 16 years in prison.
This is quite different from the original charges, when Luu Anh Tuan was arrested. It sounded much more benign back then.
The Commie Big Wig is going in for only 3 years, while Luu Anh Tuan must serve 16 years? To the unsuspecting observer this sentence looks tilted towards Communist Party seniority.
Whatever nascent rare earth business there may have been in Vietnam, it has now been thoroughly uprooted.
Group of Seven leaders on Monday provisionally agreed on a strategy to help protect the supply of critical minerals and bolster their economies, according to a draft statement seen by Reuters.
The draft, which a source said had not yet been approved by U.S. President Donald Trump, also said minerals markets should reflect the real costs of responsible extraction, processing, and trade of critical minerals.
The signal for a bull-run.
Of 122 exchange-listed rare earth companies on our list, share-prices of 56 advanced, among them 13 by double digit percentages.
Assuming that current cost should be “unreal cost”, the G7 probably mean to say the “real” cost should be much higher.
But who or what defines if cost are “real”? And who will pay for that, with Chinese supply always lingering in the background?
If you are a rare earth user using “real” cost western rare earths and your competitor’s factory is located in a China-neutral country using Chinese rare earths, you will need tariff protection or you will be in trouble. And then you will depend on the mercy of your customer to accept high cost.
This being so, western protectionism must continue. Or China radically cuts its export capacities.
European Commission chief Ursula von der Leyen has accused Beijing of deliberately creating a near-monopoly in the global supply of rare earth elements, then weaponising the world’s reliance on those chains.
Addressing the Group of Seven summit in Canada on Monday, von der Leyen made a hawkish return to form, reversing a course of toned-down criticism of China spurred by the return of US President Donald Trump in January.
“But we strongly feel that the biggest challenges are not the trade between G7 partners. Rather, the sources of the biggest collective problem we have has its origins in the accession of China to the WTO in 2001.”
This is harsh. And China better listens up.
The EU is China’s single largest market for rare earth permanent magnets. The EU takes 3 times as many rare earth permanent magnets from China than the U.S.:
The EU Commission is clearly put off by China endangering ambitious EU 2030 wind energy and EV targets.
China needs unrestricted access to both, U.S. and EU markets. It can afford mess around a bit with one of them for a brief period, but not with both at the same time.
When unleashing an all-out anti-corruption campaign in 2013, simultaneously in the party and in the armed forces, appealing only to the will of the people, just like Mao Zedong would have done, China’s great, fearless leader bet his own life - and he miraculously survived it. He could perform such stunt in domestic politics, but in international trade this is an entirely different matter.
Be afraid of Brussels bureaucrats’ vengeance, very afraid.
One part of Bill 5 would create a new provincial law called the Special Economic Zones Act. It's arguably the most powerful section of the bill.
It would give cabinet the authority to designate any location in Ontario a special economic zone, where the government can exempt companies or projects from complying with provincial laws or regulations.
The legislation contains no limits on where a special economic zone could be located. It gives cabinet the full power to designate a project as qualifying, and does not spell out any criteria for deciding which projects get the special status.
Appia Rare Earth & Uranium Corp’s Elliot Lake deposit is located in Ontario.
