China is doubling down on illegal mining and traceability of rare earth metals and minerals, according to new guidelines published by the country’s Ministry of Industry and Information Technology (MIIT) late last week, as reported by Reuters.
As readers know, China’s been attempting to clean up its rare earths production sector for about a decade already, and it’s made strides toward its goals, but there’s still a way to go.
Even after launching a crackdown on the rare earths sector in 2009 and being forced by the WTO to get rid of export controls in 2014, “illegal mining and production continued to disrupt ‘market order’ and damage the interests of legitimate enterprises,” the ministry stated in their notice, according to Reuters.
The ministry is also committed to establishing a traceability system to prevent buyers from snapping up illegal material and will suspend licenses of companies that break the law, according to the news service.
Meanwhile, In Korea…
Across the Yellow Sea, patent applications for uses of rare earths have been going strong.
According to the Korean Intellectual Property Office (KIPO) on Dec. 30, as reported by BusinessKorea, “the number of patent applications related to the use of rare earth materials for permanent magnets and batteries totaled 2,356 over the past five years from 2011 to 2016.”
High-tech heavyweights Samsung led the way, with Hyundai and LG not far behind.
After surging more than 50% in the last four months, palladium — that previously little-discussed Platinum Group Metal (PGM) — reached $1,255.12/ounce, surpassing gold for the first time in 16 years last week, according to The New York Times.
Driven by both investor and trade interest, palladium appears to be responding to strong demand from the auto industry (from which 80% of its consumption comes).
A swing to petrol engines has boosted palladium demand, in preference to its sister metal, platinum, which is used more in diesel engines. The metal is also used in alloys for products like surgical instruments, dental alloys and certain electronic applications, The New York Times notes, but it is a combination of catalyst demand and constrained supply that has caused shortages, leading some dealers to run out of metal.
According to the report, citing consulting firm Metals Focus, demand for the metal for catalytic applications will reach a record high of 8.5 million ounces this year. Tighter emissions legislation and the switch to petrol cars is driving surging demand, such that consumption is expected to outstrip supply by 1.2 million ounces this year, with the market remaining in deficit next year.
Miners have found it difficult to keep up.
Mines in South Africa, in particular, have faced worker disruption and are said to be struggling to cover costs, as PGM prices generally remain depressed but mine inflation challenges profitability and deters investment.
The world’s largest producer is Norilsk Nickel in Russia. Buyers were heartened by the firm’s announcement last week that it plans to invest $12 billion in mine expansion over the next five years, according to The NewYork Times report. Supply may come onto the market just as the long anticipated but equally delayed arrival of electric vehicles finally begins to become a reality.
But for now, the metal seems a good bet for 2019, providing vehicle sales do not falter. Investors have driven Palladium ETFs up 12.3% this year, even as gold has fallen 6.4%.
Lynas Considers Legal Action Against Malaysian Government
In last month’s installment of the Rare Earths MMI, we noted shares of Australian miner Lynas Corporation Limitedgot a boost on news that the Malaysian government would allow it to continue storing waste materials in the country.
However, this week the miner announced it was considering legal action, among other options, against the Malaysian government, which recently issued a statement regarding conditions for the miner’s license renewal.
According to a Lynas statement, the two conditions for renewal on Sept. 2, 2019, from the Malaysian government are: 1) the export of Water Leach Purification residue before Sept. 2, 2019, and 2) submission of an action plan for the disposal of Neutralization Underflow Residue (NUF) (which has valid approval through Feb. 5, 2019).
As readers know, China overwhelmingly dominates the global rare earths sector; however, Lynas represents the biggest rare earths miner outside of China.
Rare-Earths Elements in Mining Waste?
Given the demand for rare earths, particularly vis-a-vis high-tech applications (e.g. electrical vehicle batteries), every little bit of supply helps.
“The problem is that the minerals we want are hidden in the waste heaps in very small quantities, and we do not have efficient methods for extracting them,” Wenzhong Zhang, a doctoral researcher in the Department of Chemistry at the University of Helsinki, was quoted as saying.
His research focuses primarily on recovery of rare-earths elements, namely scandium, from aluminum.
The Democratic Republic of the Congo (DRC) — where a majority of the world’s cobalt is mined — declared cobalt to be a “strategic” substance, according to a Reuters report citing a government decree.
So, what does that mean, exactly?
Operating in the country is going to be pricier for miners like Glencore. The royalty rate for the coveted material will rise to 10%, nearly triple its previous rate, according to the report.
The decree was signed by Prime Minister Bruno Tshibala Nov. 24 and made public this week.
Cobalt is coveted for its application in batteries used in electric vehicles. However, the price of cobalt on the LME has plummeted this year, from $95,000/ton in late March to $54,750/ton this week.
2018 LME cobalt prices. Source: LME
The DRC ushered in a new mining code earlier this year, which saw an increase in royalty rates for a number of metals, including cobalt.
Glencore, a major mining player in the country, in October reported cobalt production of 28,500 tons, up 44% year over year, through the first three quarters. Its full-year guidance called for approximately 39,000 tons of production (plus-minus 2,000 tons), which would mark an increase from last year’s 27,400 tons.
Speaking of cobalt and tension with the DRC government, Bloomberg reported the government had begun an audit of cobalt produced by a Glencore unit in the country was found to have traces of uranium.
Tokyo Steel Announces Plate Price Hike
As we noted last month, Tokyo Steel announced plans to hike steel plate prices in the final month of the year.
“Plate prices have always had their own price dynamics separate from the other forms of flat rolled steel (such as HRC and CRC). Plate prices in the U.S. have remained fairly well-supported compared to the other forms of steel, so it should come as no surprise that in markets with strong construction demand, like Japan, mills would announce price increases,” we noted in a post last month.
“Interestingly, Chinese plate prices have started to slip, but those dynamics could change based on environmental curbs, whether the Japanese plate price increases stick and Chinese demand. U.S. metal-buying organizations will want to pay close attention to these price dynamics in Japan and China.”
China Denies Report it is Limiting Rare Earth Output
China’s dominance in the rare earths sector is well-documented.
The country’s sway in the market is significant — one should look no further than the U.S.’s $200 billion tariff list instituted in September.
An original list of Chinese products targeted for tariffs included rare earths — but when it came time to finalize the list, the rare earths were removed.
As such, as the world’s biggest producer and supplier of rare earths, China has considerable influence in the market; anything Beijing does with respect to output of rare earths is important.
According to a Reuters report citing the Shanghai Securities News, the Chinese government recently denied claims that it has slashed rare earth output in the second half of this year.
Reuters had previously reported data suggesting China was slowing exports in an effort to boost prices.
China’s Ministry of Industry and Information Technology, however, denied the claim, according to the recent report.
Lynas Gets a Boost
Meanwhile, outside of China, Australian rare earths miner Lynassaw its shares rise on news that it would be allowed to continue to store waste materials at a Malaysian facility, the Financial Times reported.
The company’s shares rose as high as 8.5% on the news before tracking back for a more modest 0.9% jump, according to the report.
Tariffs have been flying left and right this year, impacting a wide range of products, from steel and aluminum to everyday consumer goods.
Last month, the Trump administration imposed an additional $200 billion worth in tariffs on Chinese goods, marking a significant escalation of trade tensions between the two countries (the U.S. had already imposed a total of $50 billion in tariffs on Chinese goods).
But one sector that has avoided tariffs is perhaps not so difficult to guess: rare earths.
Given China’s overwhelming dominance of the market and the U.S.’s position as a relative non-factor in the industry (the U.S.’s only rare earths mine closed in 2015), the U.S. is thus dependent on China for many critical rare earths.
According to the U.S. Geological Survey, 78% of the total amount of U.S. rare earths imports from 2013-2016 came from China, followed by: Estonia (6%), France (4%), Japan (4%) and other sources (8%). The value of imports of rare earth compounds and metals reached $150 million in 2017, up from $118 million in 2016.
Rare-earth metals are a group of 17 elements, which are found in geological deposits. Some of the most abundant metals in the world are neodymium, cerium, and lanthanum.
All rare earths are classified into two groups: light rare earths (LREs), and heavy rare earths (HREs).
Just 20 years earlier, the Government of India (GoI) allowed the private sector into beach sand mining. Now, it issued a notification, wherein the right to export these rare-earth metals have been taken away.
The primary aim of canalization of exports through Indian Rare Earths (IRE), according to the Financial Express, is to curtail direct private sector export of beach sand minerals and derivatives like ilmenite, rutile and zircon.
Canalizing means putting quantitative restrictions on exports.
But the move has obviously not gone down well with rare earths miners. Miners have said these checks would curtail beach sand mining activities and deprive India of a developing sector.
According to a new research report by Global Market Insights, Inc, the rare earths market size will exceed U.S. $20 billion by 2024. It’s well known that the majority of the global rare earth production capacity is in China. However, China has not shown much inclination of sharing those resources with other nations.
Thus, the focus is on countries like India and Japan — specifically India, which has a sizable reserve.
Driving this sector is the demand for magnets in automobiles, and requirements in defense and energy generation. Electric cars, for example, rely on some of rare-earth metals.
Beach sand minerals and their derivatives find diverse applications in paints and other decorative materials, papers and plastics, and high-tech applications. At present, much of India’s share of domestic production, as well as exports, are done by private sector firms.
The GoI notification said export of beach sand minerals had been brought under the STE and shall be canalized through IRE. Beach sand minerals, permitted anywhere in the export policy, will now be regulated in terms of the new policy. One of the other sources of angst for private firms in the business is that they have already made huge capital investments by way of technology and production facilities.
According to the Financial Express report, beach sand minerals mining activity commenced in India in 1908. In addition, until 1998, other minerals were restricted only to public sector companies (except for garnet), but just after that the GoI embarked on a path of liberalization that allowed participation by the private sector.
Much has been said about the rise of trade tensions around the world, particularly between the U.S. and China.
Those tensions began to manifest in the form of the Trump administration’s steel and aluminum tariffs this past spring, which, in addition to China, have affected U.S. allies.
But what about the impact of trade conflict on rare-earth metals, a market overwhelmingly dominated by China (at approximately 90%, according to most industry estimates)?
The U.S. is threatening a potential additional $200 billion in tariffs on Chinese imports (on top of the previously announced $50 billion, of which $34 billion has already gone into effect), while China has indicated it is prepared to respond in kind.
But, as The New York Times reported last month, China could strike back in other ways, too, including disruption of supply chains that depend on rare earth metals for an end product (e.g. smartphones).
scandium and yttrium, whether or not intermixed or interalloyed
mixtures of rare-earth oxides or of rare-earth chlorides
yttrium materials and compounds containing by wt. >19% but < 85% yttrium oxide equivalent
compounds, inorganic or organic, of rare-earth metals, of yttrium or of scandium, or of mixtures of these metals, nesoi
With very little in the way of alternative supplies — that is, supplies of rare earths outside of China — the end result could simply be that U.S. companies will have no choice but to pay more for the metals, as an editorial in the South China Morning Post explains.
China’s dominance in the market and concerns over that fact are nothing new, nor is the situation likely to change anytime soon.
As the U.S. Geological Survey (USGS) noted earlier this year, rare earths were not mined in the U.S. at all in 2017. According to USGS, the estimated value of rare-earth compounds and metals imported by the U.S. in 2017 was $150 million, up from $118 million in 2016. According to USGS, the distribution of rare-earths imports by end use was as follows: catalysts, 55%; ceramics and glass, 15%; metallurgical applications and alloys, 10%; polishing, 5%; and other, 15%.
Outside of China
Despite China’s dominance in the rare-earths sector, that hasn’t stopped business interests from probing for new sources around the world.
Within the U.S., Alaska is one such place considered potentially viable for rare-earth mining.
Alaska Sen. Lisa Murkowski, who chairs the Energy and Natural Resources Committee, expressed concerns during a July hearing on the issue of China’s dominance of the market and the impact of potential tariffs.
“My concern, among many concerns, is if China ultimately responds to tariffs by restricting our supply of rare earths, or any number of other minerals, the U.S. could be in serious trouble. We’ve heard testimony in the past about the dangers of the concentration of supply from a handful of countries that control the supply chain,” she said, as quoted by the Anchorage Daily News. “I’m hopeful that we aren’t about to experience those dangers firsthand and will continue to urge action to reduce this significant vulnerability.”
As the report notes, at the current stage, much work remains to be done before assessing the viability of rare-earth mining in the state, including the Bokan Mountain prospect, considered to be the most promising of Alaskan sites, per the report. But availability and viability are two different things; particularly in light of the specter of potential tariffs, it is certainly worth keeping an eye on developments in rare-earth mining efforts in The Last Frontier.
Actual Metal Prices and Trends
It was a down month for many of the metals in the Rare Earths MMI basket.
The price of yttrium fell 2.8% month over month, down to $33.03/kg. Terbium oxide dropped 2.8% to $3,009.10/kg.