Japan, too, is aiming to reduce its reliance on Chinese rare earths, partly by reducing its consumption and boosting its recycling, but also by diversifying its suppliers away from Chinese sources. Great Western signed a deal in April with Aichi Steel Corp., part of the Toyota group, to provide a long-term supply of rare-earth alloys for Toyota’s automotive magnets.
Japanese scientists also said recently that they have found large rare-earth deposits on the floor of the Pacific Ocean, which could be a promising, albeit high-cost, new source for these elements.
China has only a third of the world’s proven rare-earth reserves, but it took control of the industry in the 1990s by driving down prices, exploiting its cheap labour and low environmental standards. Western sources of supply were forced out of business. At the time, world demand was low, and the West ignored the trend.
But this abruptly changed when rare earths were needed for new technologies in laptop computers, rechargeable batteries, smart phones and clean-energy products such as solar panels and wind turbines. Suddenly the world needed the minerals and China controlled virtually all of the supply.
World prices soared dramatically when China reduced its export quotas by 40 per cent last year and a further 35 per cent in the first half of this year, seeking to build a stronger domestic industry. It has also introduced an export tax on some rare-earth products. Many experts believe that these restrictions are a violation of Beijing’s obligations under the World Trade Organization, and there have been rumours of a possible WTO case against China.
Until recently, it seemed that the Australian company, Lynas, would be the first to challenge the Chinese monopoly. But its mine is closely linked to a planned opening of the world’s biggest rare-earth refinery in Malaysia, and the refinery has been stalled by protests and regulatory reviews.
Luisa Moreno, an analyst with Jacob Securities, said China has tried to acquire stakes in Lynas and Molycorp in separate bids in the past. But such an acquisition is unlikely because of the geopolitical significance of the industry, which is “massive,” she said. “China would love to be able to control the industry, but that is not going to happen, especially because of the defence component of it,” she said in an interview.
Despite their name, rare-earth minerals are not actually rare – they exist in many places in the world. Great Western, Lynas and Molycorp are front-runners in seizing the opportunity. “Even by themselves, those three projects, when in full production, will increase the global supply by 100 per cent,” said Jon Hykawy, an analyst at Byron Capital Markets who has travelled often to China to study the industry.
Still, production from the three Western companies won’t do much to address the need for some of the heavy rare earths, Mr. Hykawy noted.
Other Canadian companies are also developing rare-earth mines, including Stans Energy Corp., which owns a former Soviet mine in Kyrgyzstan, and Frontier Rare Earths Ltd., which is planning a mine in South Africa within about 100 kilometres of the Great Western site. Several rare-earth mines are planned in Canada, including a project by Avalon Rare Metals Inc. in the Northwest Territories and a project by Great Western in northern Saskatchewan.
Jacob Securities is forecasting a 20 per cent rise in global production of rare-earth minerals in 2012. “As new mines come into production in 2012, it will likely lead to an overall surplus,” it said in a recent report.
But further down the road, it predicted, a shortage could develop again, with China likely to become a net importer of rare earths within the next five to 10 years.
“China has no intention of relinquishing the control it has in the rare-earth industry,” the report says. “Chinese companies are aggressively pursuing rare-earth opportunities around the globe, and the idea, it seems, is to consolidate the industry into a few large players.”
Another report, by Goldman Sachs, suggests that rare-earth prices will continue to increase next year, with a “modest surplus” finally developing in 2013 to ease the situation. But prices could rise further if China is successful in halting illegal production from unauthorized small mines, it said.