China makes no secret of plans to consume all rare earths domestically

China is adopting policy instruments under its twelfth five-year plan that will create a balance of domestic rare earth production and consumption, industry veteran Jack Lifton told MB.

China is adopting policy instruments under its twelfth five-year plan that will create a balance of domestic rare earth production and consumption, industry veteran Jack Lifton told MB.

“China is not making a secret of the fact that they will eventually consume their entire rare earths production domestically,” Lifton, the co-founder of Technology Metals Research (TMR), said.

“The rest of the world had assumed China would just keep increasing production, but in fact they will keep production levels stable and will grow domestic demand to equal current output,” he said.

“Rather than trying to tackle all the environmental issues associated with increasing production, they are going to limit their production to what they need,” Lifton added.

Materials used in environmental technology will see the strongest surge in demand as the country enacts plans to source 20% of its power needs from wind energy and other renewable sectors in the five years to 2016, Lifton said.

Metals such as neodymium and dysprosium are used to make the industrial magnets contained in the electric motors that drive wind turbines, and demand for both metals in China is already beginning to catch up with supply.

Due to this potential scarcity, the volume of dysprosium or neodymium leaving the country is likely to dwindle as new green energy projects come on stream, he said.

Speaking at the sixth annual Chinese Society of Rare Earths (CSRE) summit last year, a speaker representing the wind turbine industry explained that in the next ten years, China will add 330 gigawatts of wind power to its current capacity, and this will require 59,000 tonnes of neodymium.

Domestic neodymium production in China last year was around 15,000 tonnes, according to the CSRE.

Such a project would also require a minimum of 6,000 tonnes of dysprosium, equal to 7.5 years production at current output levels, Lifton calculated in a recent TMR report.

In order to implement the environmental targets set out in the new five-year plan, China will also look to increase production efficiency and technological innovation by pursuing joint ventures with western companies that currently dominate sectors such as turbine power, he said.

“China is putting pressure on the likes of Siemens and GE to move their turbine operations to the country. They are in a position to say that if you want rare metals for wind turbines, you’ll need to come to China to get them,” he told MB.

“If the US and Europe don’t come up to the mark, then people will be forced to move to China. Siemens and GE have real orders, and they can’t fulfil them without the raw materials,” he said.

“I would say it’s a crisis already for wind turbine manufacturers,” Lifton told MB.

This integration of western technology companies within the country is the “unofficial agenda” subtending concerns about the environmental impact of rare earths mining, John Kaiser, of Kaiser Research, said in a recent presentation at the Critical Metals Emergency Conference in Toronto.

“China is now using export quotas, duties and stockpiling to change itself from being just a raw material exporter. It is doing so in the name of resource conservation, environmental [improvements], and long term domestic strategic interest,” Kaiser said.

“The unofficial agenda is to transfer downstream intellectual property from the west into China where it has a hard time staying proprietary,” he told delegates.

Japan is already well aware of such intentions, and it is not keen to pursue technological joint ventures with China for this reason, Lifton said. 

Sojitz and Japan Oil, Gas and Metals National Corp (Jogmec) have this week signed a new ten-year supply agreement with Australia’s Lynas Corp, securing at least 8,500 tonnes of rare earths from the Mount Weld from September onwards.

The Mount Weld mine is primarily a light rare earths resource, but Jogmec has also entered a partnership with Midland Exploration to develop the Ytterby project, which consists of four properties in the Canadian provinces of Newfoundland, Labrador and Quebec.

The Quebec site is close to the Strange Lake deposit, one of the few prospective mines outside of China with an abundance of heavy rare earths.

There is also an economic incentive to develop value-added rare earth products such as industrial magnets domestically for later sale on the international market, Cindy Hurst, an analyst for the US Army’s Foreign Military Studies Office, said in a report earlier this month.

“Once a rare earth oxide, chemical or metal is transformed into a ‘value added’ product, it is no longer part of the rare earths database,” she wrote.

“For example, the ‘magnetic’ rare earths have an estimated gross value of $400-500 million; the gross value of the rare earth magnets is $4-5 billion; and the electric motors in which they are used have a value that is another order of magnitude greater,” Hurst wrote.

“This is the reason China seeks to maximize the ‘value added’ in China,” she concluded.

The notion that China could develop a closed-loop supply and demand balance has created substantial alarm in Europe, the US and Japan, not least because rare earths have a critical role in military applications, but market participants have stressed that China’s move to a more advanced rare earths sector is not an act of political malice.

Some market sources in Europe cautioned that it was counter-productive to talk about rare earths collectively, as politicians have done, noting that their business partners in China were keen to find ways of developing their market outside China.

“Take yttrium, for example. If you export pure metal from China you face a 15-20% export duty. But Chinese companies have proposed to us a nickel-yttrium alloy so the yttrium content will be lower than 50%, excluding it from the duty,” one European consumer told MB.

They are very open to finding flexible solutions like this. They want to know their customers, to create personal relationships and personal alloys, if you like,” he added.

Under current Chinese export quotas, around 80% of rare earths leaving the country are in the light periodic series, while the remainder are in the heavy category.

Light rare earths include cerium, lanthanum, praseodymium and neodymium, while heavy rare earths include europium, gadolinium, terbium and dysprosium.

The latter group are scarcer both in China and elsewhere in the world, and hold a higher value than light rare earths.

To date China has not distinguished between light and heavy rare earths in its export quotas, but this will change when the allocations for the second half of this year, Lifton believes.

Although producers can realise much stronger revenues from their quota allocations by exporting heavy rare earths, it is likely that the volume of heavy material available to the international market will diminish if the distinction between the two categories is made in upcoming quotas, Lifton said.

“China produced around 200 tonnes of terbium last year, and it’s possible that they will simply stop exporting it. For companies like GE, terbium is extremely important – internally they’ve named it their metal of the year,” he told MB.

The incentive to export both light and heavy rare earths is also being eroded by the strong rise in domestic prices in China, a rare earths trader said.

The domestic price for cerium oxide is currently around 90,000 RMB per tonne ($13,700), above the $10,000-per-tonne fob price seen in August 2010, he said.