Friday, June 17, 2011

Exploding Rare Earth Prices: Be Careful What You Wish For (AVL; MCP; REE)

Following up on this morning's "Prices of Certain Heavy Rare Earths Have Doubled in the Last Two Weeks (AVL;REE; MCP; FRO.tsx: UCU.v)".

From RareMetalBlog:
Be careful what you wish for. That could be the take-home message from comments made to RareMetalBlog by Australian REE expert Dudley Kingsnorth. He says the continuation of present high prices, and especially any significant further rises, will just give greater emphasis to the need by end users to find substitutes for REE. After all, we have already seen the Japanese government put up funds to promote the identification and use of substitutes for REE and also to lift recycling of the elements - the whole idea being to free Japanese manufacturers from being hostages to the rare earth miners.

Kingsnorth, who runs Perth-based Industrial Minerals Co. of Australia, said that a few months ago he had forecast that, in 2015 and taken across the whole industry, REE producers would receive an average of between US$30/kg and US$40/kg rare earth oxides (REO). It is noteworthy that the figure for the first quarter of 2010 was between US$12/kg and US$15/kg REO and today it is between US$120/kg and US$150/kg REO. He adds that, when one considers that Lynas is forecasting their costs of production at US$10/kg, one can understand why many analysts are recommending Lynas as a ‘buy’ – it is a mark-up that even the iron ore miners can only dream about! Kingsnorth's latest estimates for 2015 prices is that they will probably be in the range of US$40/kg to US$60/kg REO. The recent rise of dysprosium from US$750/kg to US$1,500/kg is, in his view, unsustainable. Already the high prices are having an effect: producers are selling much lower REE quantities than they were a year ago.

He sees some of the heavy rare earth oxides being in continuing short supply, but many of the others are likely to come off by substantial amounts.

This is not to say that mining REE will be unprofitable, says Kingsnorth. Those companies that get the financing to develop REE mines will, he says, be very profitable businesses. As noted above, Lynas Corp., at its operations in Western Australia and Malaysia, has target production costs of around US$10/kg, and Molycorp at Mountain Pass, California, lower again....MORE
We had a post that touched on the issue back in January:

"New Magnets Could Solve Our Rare-Earth Problems" (MCP; REE; AVL; SHZ; GE)
Our pitch for the catalyst of the next secular bull market has been "some combination of material sciences, advanced manufacturing and nanotechnology".
From MIT's Technology Review:

Researchers are working on composites that would make strong magnets that need less of the hard-to-get ingredients.

Stronger, lighter magnets could enter the market in the next few years, making more efficient car engines and wind turbines possible. Researchers need the new materials because today's best magnets use rare-earth metals, whose supply is becoming unreliable even as demand grows.

So researchers are now working on new types of nanostructured magnets that would use smaller amounts of rare-earth metals than standard magnets. Many hurdles remain, but GE Global Research hopes to demonstrate new magnet materials within the next two years.

The strongest magnets rely on an alloy of the rare-earth metal neodymium that also includes iron and boron. Magnet makers sometimes add other rare-earth metals, including dysprosium and terbium, to these magnets to improve their properties. Supplies of all three of these rare earths are at risk because of increasing demand and the possibility that China, which produces most of them, will restrict exports.

However, it's not clear if the new magnets will get to market before the demand for rare-earth metals exceeds the supply. The U.S. Department of Energy projects that worldwide production of neodymium oxide, a key ingredient in magnets, will total 30,657 tons in 2015. In one of the DOE's projected scenarios, demand for that metal will be a bit higher than that number in 2015. The DOE's scenarios involve some guesswork, but the most conservative estimate has demand for neodymium exceeding supply by about 2020.

"A lot of the story about rare earths has focused around China and mining," says Steven Duclos, manager of material sustainability at GE Global Research. "We believe technology can play a role in addressing this." The DOE is funding GE's magnet project, and one led by researchers at the University of Delaware, through the Advanced Research Projects Agency-Energy (ARPA-E) program, which fosters research into disruptive technology....MORE
HT on the Tech Review story: Dr. Hazlett