Let it not be said that Vale doesn’t know a good thing when they see one.
The mining giant Vale may have needed a little encouragement from government, but the presence of significant quantities of “rare earths (RE) in areas where the firm already mines has encouraged them to look at getting into the latest bubble — er, sorry, hard asset. Rare earth metal prices have rocketed in recent months as China has further reduced supply.
An FT article states that across the board rare earth prices have increased three- to five-fold since January with some such as cerium oxide jumping 475 percent, neodymium oxide up more than 300 percent and dysprosium oxide up 338 percent. The squeeze comes as China has further cut rare earths exports; according to Chinese data, this year’s overseas sales license is 4.5 percent lower on an annualized basis than last year’s and more than 40 percent below the 2009 quota meanwhile, global demand for the metals has been growing.
The article states statistics collected in Hong Kong show an even more extreme situation — exports of rare earth metals have halved over the past year to reach just 1,819 tons last month. At the same time, the value of exports has soared to more than $121,000 per ton, a 10-fold increase from a year ago.
It would be tempting to paint this as China’s bid for world domination of the RE market, but the reality is more mundane. Illegal and uncontrolled mining of RE ores has caused widespread ecological damage and is fast depleting China’s domestic reserves of these resources. While the Chinese are unquestionably profiting from the sharp increase in prices, the authorities are desperately trying to control the industry and raise environmental standards by limiting the licensing to large state-owned entities they feel they can better control.
Nor are the resources themselves particularly rare. They exist in widely dispersed deposits around the world; the rarity is in the processing and refining facilities to turn the ore from the ground into metals and salts that can be used. This is where the West needs to catch up and where a mega-mining firm like Vale has the financial muscle to fund research and development into refining techniques that are environmentally safe and economically viable on an industrial scale.
According to another FT article, Brazil has large deposits of rare earths, although it doesn’t go into detail on the mix of the 17 elements involved (usually deposits are richer in lighter or heavier REs, but not uniform across the range.) Nor does Brazil yet have a major internal market for the high-tech applications the metals and oxides are used for. However, Aloizio Mercadante, Brazil’s science and technology minister, sees a homegrown source as not only a major economic opportunity for export markets, but also a competitive advantage in encouraging the development of homegrown wind turbines, electronics, electric cars, and other high-technology industrial applications.
He’s right on the former, but may not be so much on the latter. Rare earth developments around the world have taken a long time to get off the ground since the last of the majors, California’s Mountain Pass, was closed in 2002 and 90 percent of production was taken over by the Chinese, but the last few years have seen a flurry of activity and recent price rises will drive further investment. The probability is that 5-6 years from now the world will be well served with multiple supply sources, paying higher prices than they were in the last decade, but finally justifying the cost of complex extraction processes these valuable materials require.
For more on recent rare earths commentary from MetalMiner, click here to read Lisa’s recent post.