US Tariffs On China Magnets Possible; Imported Inflation: China Price- And Forex Controls In Full Gear; RE Price Correction Analysis; 3 Ways to Invest in Rare-Earth Stocks?;
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US Tariffs On China Magnets Possible; Imported Inflation: China Price- And Forex Controls In Full Gear; RE Price Correction Analysis; 3 Ways to Invest in Rare-Earth Stocks?;
President Joe Biden is considering the move as part of measures the White House unveiled on Tuesday to boost the resilience of US supply chains in areas including rare earths, food and pharmaceuticals amid concerns about over-reliance on China.
Clever move. Rare earths enjoy no VAT refund upon export, while permanent magnets get the full 13% VAT refunded upon export from China. This arbitrary handling of consumption tax refunds could well be viewed as a non-WTO compliant subsidy and be treated as such.
Hopefully China’s economic planning cadres understands this broad hint and do the needful: Either grant full VAT refund upon export of rare earths or cancel the VAT refund upon export for permanent magnets.
If the cadres don’t understand it, this may be the supply chain evolving for those US-magnet needs that China does not wish to cover:
Lynas (Malaysia, later Texas) —> Hitachi Metals, Japan (meanwhile US-owned) —> defense contractors.
Weak points:
The losses at which Hitachi Metals produced permanent magnets are unsustainable, this must change for such concept to succeed;
Lynas are under constant existential threat of withdrawal of production license in Malaysia, owing to dispute about a promise Lynas made a long time ago, but couldn’t fullfil.
Apart from defense, US permanent magnet cost will be higher than enaywhere else.
At the same time the US government released this statement:
Develop strong environmental review permitting practices for the extraction of critical minerals. We recommend Congress develop legislation to replace outdated mining laws including the General Mining Law (GML) of 1872 governing locatable minerals (including nickel) on federal lands, the Materials Disposal Act of 1947 to dispose of minerals found on federal lands, and the Mineral Land Leasing Act of 1920 among others. These should be updated to have stronger environmental standards, up-to-date fiscal reforms, better enforcement, inspection and bonding requirements, and clear reclamation planning requirements.
The Department of Defense (DOD) has announced an investment in the expansion of the largest rare earth element mining and processing company outside of China to provide the raw materials necessary to help combat the climate crisis.
What’s going on here? Why are higher tariffs good for supply chain resiliency? Actually, higher tariffs are about the only thing the report wants from trade policy.
Pini Althaus, the CEO of U.S. Rare Earths, believes that Biden’s plan is not feasible in terms of the rare earth industry. “The U.S. government cannot assume that rare earth suppliers from other countries will only sell resources to the U.S. and not to China."
From the perspective of industrial development and international division of labor, since the last government, the United States has hoped to vigorously develop its own rare earth mining and processing industry, but this process is slow. Even if the project progresses smoothly, the United States' dependence on overseas rare earth purchases can only be slightly reduced, and will not completely get rid of import dependence.
However, the US government fears overdependence on China for supplies of materials, pharmaceuticals, food, etc. In this regard, the option of introducing tariffs for rare earth elements is being considered, as the analytical study is carried out. Tariffs can provide financial incentives for the development of such a national industry in the United States.
During the mid 1980s those more equal than the rest in China obtained goods from state-owned enterprises at state-regulated prices and resold them at hugely inflated prices in the free markets. The state-owned shops were quoting low state-set prices, but had inadequate quantities for sale. Many consumers had to buy the very same goods in the free markets at much higher than the state-set prices. This helped to eventually kick-off substantial inflation, leading directly to the nationwide uprising of spring 1989, which ended in a hail of bullets.
Ever since the Chinese leadership has been allergic to inflation.
When in 2005, upon the surge in international oil and gas prices, China’s oil refiners were seeking permission from the Price Bureau (now called chique “Price Monitoring Centre”) under China’s National Reform & Development Commission (previous adequate name “State Planning Commission”) to increase prices at the pump; they were rejected for fear of imported inflation.
Consequently the refiners reduced production in order to limit losses, which instantly led to fuel shortages in China. They quoted a price but had nothing to sell, leading to massive queues at gas stations.
On one occassion even household detergent manufacturers were invited for tea and warned of grave consequences, if they would dare to pass increased cost on to consumer prices.
Nowadays commodity prices are at historical heights, which called the Price Bureau back on stage.
Laments about iron ore prices have been particularly loud for months, which would be almost amusing, if it was not so sad. Up until 2009 iron ore was sold market by market at a pre-agreed fixed yearly price for fixed yearly quantities. Excess quantities would be traded on the spot market. In 2009 the China Iron & Steel Association decreed the spot price of iron ore would be perpetually lower than the contract price and canceled the yearly contract negotiations with the miners. With all China demand initially entering the spot market, it didn’t take long for iron ore spot prices to massively increase. Peak demand regularly lets iron ore prices spin out of control. At the core the grave mistake in 2009.
Pundits in China keep comparing iron ore to rare earth, continuously passing the message that rare earth prices are falling because there is no industry concentration like in iron ore.
While we understand the hidden message to consolidate China’s rare earth sector even more, we beg to differ.
Without additional quotas from the company, crude purchases by the independent refineries, also known as teapots, will fall by 12 million to 16 million tonnes annually (240,000 to 320,000 barrels per day), or roughly 3% of China's total crude imports, the sources said, forcing the firms to import fuel oil instead to keep plants running.
The drop in crude imports by the world's largest oil importer could also cap a recovery in global oil prices , which are now hovering above $70 a barrel.
Sheng explained that a certain level of RMB appreciation has little impact on global commodity prices. He said the current round of bulk commodity price hikes, a result of the relationship between supply and demand and market speculation, cannot be suppressed through the appreciation of the yuan.
Sheng said the unilateral rapid appreciation will no doubt hurt China's exporters, particularly small and medium-sized companies. It may also hurt the real economy as unilateral rapid appreciation could divert the attention of enterprises from business operations to speculation of the exchange rate.
A recent national meeting on the foreign exchange market self-regulation urged financial institutions and enterprises to adapt themselves to exchange rate fluctuations, warning that gambling on the exchange rate will inevitably lead to losses.
The RMB exchange rate is determined by the market [no, it isn’t. It is a scantily clad iron-fisted control mechanism. Also individuals are still only allowed foreign currencies equivalent to US$50,000 per year. More than that is formally illegal, except for those model workers more equal than the rest]. It has witnessed ups and downs since the beginning of this year, and remained basically stable. In the future, the trend of RMB exchange rate will continue to depend on the market supply and demand, and the changes of the international financial market. Two-way fluctuations of the RMB exchange rate will become the norm.
There has been intense and wide-spread pushback from Chinese authorities this week against growing speculation that the RMB will be allowed to appreciate to offset the impact of higher import/commodity prices on inflation.
The debate heated up last week, when Lu Jinzhong, head of Research and Statistics at the PBOC Shanghai branch, said that China should “appropriately appreciate the RMB to deal with imported inflation.” Our impression is that this led some funds to position themselves for further USDCNY downside. But the article (link) was later removed and pushback followed (link, link, link).
Today the semi-official Securities Times noted that “The central bank has basically withdrawn its normal intervention in the RMB exchange rate” (link in Chinese) but as we show below and detailed in Part 2 (link)this does not preclude state-banks stepping in to curb appreciation instead (link).
Import raw material prices, e.g. iron ore and crude oil, are high. More bang for the RMB means lower inflationary impact of import prices on the domestic economy.
Therefore, when US-dollar denominated commodity prices rise, so does the value of the RMB vis-a-vis the USD, miraculously.
The “exchange rate mechanism” is the macro control tool for China imports/exports, the selective VAT refund upon export “退税” is the structural control of China exports, particularly visible in rare earths (no VAT refund) and permanent magnets (full VAT refund).
Both controls have to be abolished, if China really wants to really be a truly globalised trade nation, as advertised by China’s leadership on every single conceivable occasion. Not following through with relevant, long overdue reforms signals weakness and lack of confidence in markets.
If the rest of the world wants to finally resolve overall China trade issues, rectification of trade distorting controls must be addressed in trade negotiations and resulting agreements.
If not, China and the rest of the WTO will be limping from one frustrating trade conflict to another in perpetuity, experiencing Groundhog Day over and over.
NB: Trade talks are give and take opportunities, not suitable for gunboat diplomacy.
We were interested in the question, how much more added value coud be generated from separating neodymium oxide and praseodymium oxide, rather than the non-separated NdPr. A purely academical exercise:
NB: No processing cost considered above
From December 2020 until March 2021 the benefit of selling separated neodymium oxide over leaving it as a component of NdPr was much higher than usual.
NB: No processing cost considered above
Since August 2020 until May 2021 there was no benefit of selling separated praseodymium over leaving it as a component of NdPr.
The reason behind it was the untypical price development of the three products and of course the fact, that each of the products has its own distinct applications and markets, apart from the overarching permanent magnet application. One can’t produce infinitely more of the one or the other, without affecting the price.
Praseodymium oxide is usually higher priced than neodymium oxide and NdPr. In July 2020 this arrangement got unhinged with neodymium oxide price (and thereby NdPr price) rising over the praseodymium price from August 2020. The prices have now fallen back in the original order (perhaps signaling the end of the correction).
Of these three oxides, neodymium oxide has the most active export market.
For comparison, the 2017 and 2019 price rises looked distinctly different, almost perfectly aligned:
While heavy rare earth prices were steadily rising on sustained shortage before neodymium’s stellar price rise, their pricing was mostly driven by the Myanmar ionic clay situation.
However, since about April South China producers have continuously reduced the list-prices of dysprosium and terbium oxide, leading the market on, in our opinion without the real need to do so.
It becomes particularly strange, if a list price for a product is being reduced, even though the product itself is sold-out.
It does not make any sense at all, unless it is politics.
We only wish, that our favourite Argus would be much more outspoken. Argus know full-well, that there is not the remotest chance that additional ex-China rare earth mines will come up in time for filling rapidly increasing demand in Europe. Argus forecast of a gradual decline of prices because of lower demand, but didn’t elaborate. Official media in China blame illegal production (i.e. out of quota) and hoarding by speculators, that led to the decline of prices. No-one mentioned the political interest, to keep raw material prices low in order to turn out export-competitive, value-added downstream products.
Bernd Schäfer, MD of EIT Raw Materials, we’d like to call it an EU-funded debating club, said that 20-30% the EU’s rare earth material demand will be covered from recycling and thereby implying that 70-80% of the EU’s rare earth demand should be covered from elsewhere - from where?
Nothing has come out of years and years EU efforts. If the current costly ineratia continues and EU-Commission unrelated separate initiatives fail, the only way out for the EU will be to eat humble pie, rebuild friendly ties with China and hope for enough permanent magnets and rare earths from China to support the EU’s new energy drive.
The current China-created conditions, however, are not suitable for fostering good international relations.
Before delving into ways to invest in rare-earth elements, investors should remember that these metals are commodities, which means they're subject to the ups and downs in demand that economic cycles bring
[This is plainly false, rare earths are not commodities, even though China has tried for the longest time to make them commodities. There are too many varieties. There are rare earth compounds (chlorides, fluorides, carbonates, oxides, etc.), rare earth metals, rare earth metal alloys and so on. There are 4 different grades (and prices) for many rare earth compounds - for NdPr fans: also 4 grades of NdPr].
The China Northern Rare Earth Group High-Tech Co. (ticker: 600111) mines the world's biggest rare-earth deposit, located in the Inner Mongolia region. Other publicly traded Chinese miners involved in the rare-earth industry include China Minmetals Rare Earth Co. (000831), Rising Nonferrous Metals Share Co.(600259) and Xiamen Tungsten Co. (600549).
[We tried and failed in buying Rising Nonferrous shares, not available for foreign entities, but some others like Minmetals and Shenghe can be bought through the exchange links Hong Kong - Shenzhen and Hong Kong - Shanghai]
The list of publicly traded companies that mine rare-earth elements outside of China is limited
[We beg to differ, there are about 60 listed rare earth companies outside China].
China Rare Earth Exports
Annualised exports in 2021 may well turn out to be the highest in 6 years. The highest volume exports are lanthanum and cerium carbonates/oxides.
As usual, there is no need for hyping big month-on-month or year-on-year differences. The products statistically lumped together here are too different, low-volume-high-price and high-volume-low-price, metals, compounds, alloys, none of which are exported always proportionally in the same month. Exports are demand-driven by product and big statistical differences in total value and quantity are utterly normal.
Nearing the Kingsnorth line (of replacement), this time from the north, NdPr closer to US$70/kg now, same as neodymium oxide. Praseodymium oxide price is actually trending up (see analysis above), which tells us overall correction may be about to finish:
Hear from the master (the PayPal checkout does not work):
Contents are largely existing regulations, but updated for several matters such as inclusion of raw material imports, traceability system, national strategic reserve, sets penalties for violations of rare earth regulations, etc. and puts the State Council directly in charge, rather than interministerial coordination between MIIT, Ministry of Land Resources, EPA, Finance Ministry and Public Security Ministry.
While that is not really exactly new, this law formalises it.
In March Vital Metalsappointed former Northern Minerals Managing Director George Bauk as advisor. That is high calibre support.
While this was certainly a pre-agreed, scheduled move, how is the market to interprete this exit, other than assuming that the full potential of Vital Metals has been reached?
Vital have plans to build their own processing center at Saskatchewan Reasearch Council’s site. Why: SRC has a design capacity of 500 t per year, not exclusively for Vital. Vital need min 1,000 t TREO/year capacity in order to live up to commitments made to REEtec, Norway.
The very fact, that Vital within a couple of years stand to achieve more in Nechalacho than Avalon achieved in more than a decade with the very same deposit, is nothing short of impressive.
Beginning June Vital Metals released a promising progress report, which had no substantial impact on the share price:
Is this Coulson’s fault? We don’t think so.
The sad truth of junior rare earth miners is rather, that the less they spend on public relations to spread hype and unrealistic expectations, the more junior rare earth miners spend on actually walking the talk, quietly and determined, the less the market appreciates them.
In Canada this immature stock investor behaviour can be seen at ASX-listed Vital Metals and at TSX.V listed Geomega, in Australia the equivalent would be ASX-listed ASM and Arafura.
None of these is without risk and every one of them has its own stumbling blocks, but they are moving ahead with their projects, rather than burning shareholder money by retaining multiple promotion- and PR agencies to shower the market with vapour announcements.
Disclaimer: Of the companies mentioned in this post we hold positions in Minmetals Rare Earth, Shenghe Resources and Geomega. This is not investment advice, do your own due diligence.
Thanks for reading and have a great, rare-earthy week ahead!
In general, the analysis found that in the case of temporary scenarios — a one-year export stoppage and a two-year mine shutdown — price impacts tended to extend years beyond the disruption period. Effects on production, capacity, and demand also could potentially last longer. The model suggested some mines that started up outside of China in response to a disruption would not likely be able to keep operating after primary supplies recovered.
And here’s what the Argonne team is doing going forward:
The GCMat [an agent-based model] team is now working on changes to the model that will help align it with US goals to lower greenhouse gas emissions. They are enhancing representations of rare earth magnet markets for energy-efficient motors, including those used in wind turbines and electric vehicles. And new agent-based models of the lithium-ion battery supply chain will assess how shortages of global materials might affect the adoption of battery technologies important to electric vehicle markets.
So how can the US best provide sustainable and secure mineral supply chains to maintain its pursuit of clean energy and vehicle electrification? Expanding reuse and recycle of minerals by big corporations, international agreements for ethical mining, and US expansion of exploration would be a start.
Comment: It is a little late in the process to try and forge international agreements for ethical mining. The investor and government inertia causing technology metals shortages will not only dislodge certain obscure corners of the markets, the shortages will derail the new energy agenda and overall growth.
A VOA examination of U.S. government data shows how China has become the main supplier for some of the most important raw materials that Western countries import, giving Beijing leverage over the materials that go into everything from advanced fighter jets to solar panels.
Comment: They needed a study to figure that one out?
This year, Frédéric Carencotte’s plan is to optimise the recycling process and move into the next investment rounds to scale up the production capacity. Carester aims to reach the recycling of 1.000 tonnes of end-of-life magnets and to 300 tonnes of REEs.
The Carester team is working on a world-class recycling facility to enable a truly green process in Europe without generating any liquid effluents. The new recycling process will decrease the CO2 emissions by a minimum of 30% and cut the water consumption by 80%. Moreover, the French-based company will include boron, which nowadays goes into waste, into the recycling loop.
The administration, however, wants to ensure that any such critical mineral projects are developed at the highest standards for environmental protections.
The administration also plans to invest billions of dollars into domestic and international production of critical minerals, especially rare earths, and battery metals vital to renewable energy and national defense.
This includes $3 billion the Department of Energy has available for projects that mine, extract, process, recover, or recycle materials critical to renewable and efficient energy. Being administered under the DOE Title 17 Renewable Energy and Efficiency Energy Projects, these loan guarantees are reserved for projects in the U.S. that use a new or significantly improved technology; avoid, reduce, or sequester greenhouse gases; and have a reasonable prospect of repayment.
On the national security side, the Department of Defense is being authorized to continue deploying Defense Production Act Title 3 incentives – including grants, loans, loan guarantees, and offtake agreements – to support sustainably-produced strategic and critical materials.
Comment: It will be interesting to see, if during the current administration it will be possible to politically push through the changes deemed necessary.
Climate change is on the agenda for G-7 leaders as they gather for a summit this weekend in England, not that they could forget it, what with a giant reminder staring them in the face.
“Mount Recyclemore,” a towering sculpture made from 12 tons of discarded electronic waste, has been constructed across the water from the Carbis Bay Hotel, where the summit is being held.
Grupa Azoty PULAWY (Warsaw Stock Exchange: ZAP) is part of The Grupa Azoty Group, the European Union’s second largest manufacturer of nitrogen and compound fertilizers, and a major chemicals producer. Its products are exported to over 20 countries around the world, including Europe, the Americas and Asia.
The Parties have signed an exclusive lease option agreement for a site adjacent to Grupa Azoty PULAWY’s large scale fertiliser and chemicals complex at Pulawy in Poland, which provides excellent infrastructure, access to reagents and utilities on site, and an attractive operating environment, resulting in a highly competitive operating cost position for the Plant, based on scoping studies to date.
Comment: Pulawy is a formerly state-owned, chemical complex from COMECON times, established 60 years ago. One could say Poland’s BASF, perhaps. 2,000 t REO per year sounds reasonable. There are of course still a lot of lose ends to tie, but conceptually this sounds very good.
Lynas Rare Earths has been profitable 2 over the past 10 years. Over the past twelve months, the company had a revenue of $244.9 million and earnings of $0.014 a share. Its operating margin is 7.69%, which ranks in the middle range of the companies in Metals & Mining industry. Overall, GuruFocus ranks the profitability of Lynas Rare Earths at 2 out of 10, which indicates poor profitability.
Looking at the Q1 2021 financial results, it seems that MP Materials is definitely delivering on its plans. Revenues almost tripled and EBITDA soared more than six-fold compared to the same period of 2020.
Comment: So far MP Materials don’t produce any REO and thrive on a concept to sell raw material to China to a single customer. MP entering processing will undoubtedly create uncertainty over what the numbers will look like afterwards.
Ucore’s ALASKA2023 Plan Bolstered byPresident Biden’s 100-Day Review of the Critical Mineral Supply Chain
“We are very pleased with the White House’s concern for REEs and its efforts to spur the domestic production of critical materials. China has long dominated the REE supply chain, but with the US government’s help, we can and will use our groundbreaking 21st Century separation technology, RapidSX, to bring control back into the hands of Americans. Our ALASKA2023 business model is founded on this transformative technology and the development of a resilient US supply chain through the development of two REE separation plants and ultimately a HREE mine at Bokan Mountain Alaska – the very definition of US resiliency.”
Comment: Referring to Ucore’s very own 2013 Preliminary Economic Assessment (NI43-101), which based on rare earth crisis prices, the 20,000 t TREO recoverable in Bokan-Dotson may not really add to resilience. Regarding Rapid-SX® we should be hearing about a patent within the coming 11 months.
Further to its announcement on 28 May 2021 (“Exercise of Option over Teesside Rare Earth Refinery Site”), Peak Resources Limited (ASX: PEK) (“Peak” or the “Company”) is pleased to announce that following service of the notice to exercise its option for a 250-year lease from Homes England over a 19-hectare parcel of land within the Wilton International Site, and payment of the GBP1,858,712 purchase price, the lease has been executed by the parties.
Comment: A gold miner, OreCorp, received from Tanzania’s cabinet general approval of a “Special Mining License”, with details still to be agreed upon.
But Peak have not received their license, in spite of a number of hopeful announcements.
The financial year of Peak ends on June 30. If Peak should be unable to obtain the “Special Mining License” from Tanzania by then, how will they go about the Ngualla asset in the balance sheet?
Will they continue to carry it on the books for possible legal recourse, such as Montero are undertaking against Tanzania? What are the prospects of legal recourse on a government of a soverign African nation?
After a period of lull, removal and transportation of mineral-rich sand from Thottappally ‘pozhi’ (sandbar at sea mouth) was resumed last month. According to officials, the sand is removed to ensure smooth flow of floodwaters from Kuttanad into the sea. The sand is being transported to Kerala Minerals and Metals Ltd. (KMML) and Indian Rare Earths Ltd. (IREL).
Mr. Kumar said the Samithi was not against dredging of the channel and removal of sand from the pozhi in a limited way, which is an annual process. However, it was opposed to the transportation of mineral-rich sand to KMML and IREL’s units at Chavara. Local people, especially fishers, allege that the government is engaged in large-scale mineral sand-mining in the guise of flood mitigation.
Medallion Resources Ltd. is pleased to announce the successful separation and purification of the magnetic rare-earth elements (REE) neodymium (Nd) and praseodymium (Pr), from US-sourced mineral sand monazite. This is a significant milestone for the Company and highlights the value-add opportunity created by the recent exclusive licensing of the Ligand Assisted Displacement (LAD) Chromatography method and underlying patents from Purdue University.
Comment: Conceptually this is a giant leap. Can we look forward to Energy Fuels and Medallion cooperating for Southern Ionics’ monazite?
The company told investors this morning that rock chips from outcropping ironstones along the Yin prospect had returned assays of up to 11.2 per cent total rare earth oxides (TREO).
What's more, these results show similar characteristics to Hasting Technology Metals' (HAS) Yangibana project, which lies just 15 kilometres northeast of Yin.
Arctic Biotech Oath provides green bio-mining extraction andrecovery of rare earth elements in the circumpolar northern countries, in contrast to traditional methods that largely use acid chemicals or bioleaching with acidic thriving bacteria for extraction.
Quantum repeaters that can store multiplexed signals; provide heralded signals of entanglement; and operate at telecommunications wavelengths have been developed by two independent research teams. Their work could prove to be an important step towards the creation of a scalable quantum internet.
If it can be built, a quantum internet would allow calculations to be distributed between multiple quantum computers – allowing larger and more complex problems to be solved. A quantum internet would also provide secure communications because eavesdropping on the exchange of quantum information can be easily identified.
Meanwhile in China, the USTC team used QMs based on rare-earth-ion-doped crystals.
Because they are printed and not made of silicon, the OPV modules' shape is more customizable and, unlike many batteries, it does not use rare earths or heavy metals. Instead, the modules are created from carbon-based material.
EVs must be part of the solution, but the core of our approach must be a fundamental rebuilding of our cities around less driving and fewer cars. It’s a daunting challenge and a long-term project to undo a century’s worth of autocentric planning, but it’s the only way to create a truly sustainable transportation system.
