By Jamshed Baruah Courtesy IDN-InDepth NewsAnalysis
LONDON (IDN) - As the strategic rare earth imbroglio turns into a roller-coaster ride, amidst talk of China unleashing a war on industrial nations, hitting hard where it hurts them most, some important facts are being sacrificed at the altar of emotionally surcharged rhetoric. This is apparently posing an unprecedented challenge to China's ability to communicate effectively with some of the powerful nations whom it does not wish to alienate.
An article posted on the website of the Royal Society of Chemistry (RSC) in London -- www.rsc.org -- on October 29 says: "Widespread smuggling of rare earth materials and rapidly increasing domestic demands are key factors in China's recent moves to drastically reduce exports of the sought after elements."
The author of the article, Akshat Rathi, refers to a report in China's state-owned news agency Xinhua in 2009 that as much as 20,000 tonnes or one-third of the total volume of rare earth elements leaving China in 2008 had been smuggled out of the country as a result of high prices in the legitimate market.
The news agency reported earlier in 2010 the arrest of seven suspects implicated in smuggling over 4,000 tonnes of rare earth metals and compounds worth around Yuan109 million (equal to £10.3 million, Euro11.8 million or USD16.5 millions).
The significance of these figures lies in the fact that, as Rathi points out, smuggling is detrimental to the Chinese rare earth industry because it keeps prices low and depletes resources more quickly, causing supply problems for Chinese companies. Lately, China has been taking steps to gain more control over the industry by clamping down on illegal mining and smuggling, and reducing export quotas.
"Even today, the Chinese rare earth industry has a large number of unofficial, sometimes even unknown, entities," says Jack Lifton, a senior fellow at the Institute for the Analysis of Global Security (IAGS), a non-profit think tank in the U.S. "This is the first time that China is trying to organise the industry because they want an accurate picture of how much (rare earth) they have and how much they produce."
In July 2010, China -- presently controlling almost the entire global rare earths market -- announced a reduction of up to 72 per cent in its exports for the second half of 2010 compared to the same period in 2009. "Despite its position as the world's major producer of rare earth elements, as the materials bleed out from the country, China has attempted to acquire other mines around the globe to maintain its control of the growing global market;" writes Rathi.
According to IAGS, China controls around 97 per cent of the global rare earth elements market and almost 60 per cent of all known global rare earth resources, which are needed to produce trillions of dollars worth of high-tech electronic goods including everything from smart phones to hybrid cars to wind turbines.
The RSC website quotes Roderick Eggert, director of the economics and business division at the Colorado School of Mines, USA, that China's action to reduce export quotas is understandable: "The demand of Chinese manufacturers for rare earths has increased and China is merely acting like a private company would (to protect its interests)."
The consultancy firm, Industrial Minerals Company of Australia, suggested in a report in 2008 that China's domestic consumption would become equal to its domestic production of rare earth elements by 2012. Reviewing the projections in light of the economic slow down extended this timeframe to 2014. With a rapidly growing economy, satisfying domestic demand of rare earth elements has become a priority for China.
Rathi points out that in 2005, Xu Guangxian, a renowned Chinese rare earth chemist, called for protective measures in the Chinese rare earth industry, saying that resources at some sites were in "urgent need of protection and rational utilisation".
The report on RSC website goes on to say that in the same year, China National Offshore Oil Corporation tried unsuccessfully to acquire Unocal, an oil company based in California for USD18.5 billion (£11.6 billion). At the time, Unocal's subsidiary Molycorp Minerals owned the only rare earth mine in the U.S.
"If the bid had been successful, the Chinese firm would have gained access to the biggest rare earth mine outside of China," the report says. Molycorp closed the mine in 2002, but now plans to restart production in 2012, it adds.
The rare earths firm Lynas Corporation made plans in 2009 to open a mining site at Mount Weld in southwest Australia. By May 2009, China Non-Ferrous Metal Mining Company had tried to acquire 51 per cent stake in Lynas but were unsuccessful due to intervention by the Australian government. "In Australia, the Chinese did just not want a large stake in a mine, but they also wanted control. The Australians did not want this to happen," says Lifton, a senior fellow at the IAGS.
In 2009, Jiangsu Eastern China Non-Ferrous Metals completed the acquisition of a 25 per cent stake in Arafura Resources, another rare earth developer in Australia. Arafura's operations in Australia are scheduled to start in 2013, with the company predicting annual production from its Whyalla site near Adelaide of 20,000 tonnes of rare earths -- around 10 per cent of the world's supply, says Rathi, author of the article on RSC website.
According to Lifton, China is now also actively trying to develop mines in unregulated markets such as in West Africa.
CANADA FACES THE AUSTRALIAN CHALLENGE
An article in the Canadian Business magazine's online issue of November 8, 2010 says: Canadian companies will benefit from the rare earth rush. "End users want to see an alternative supply. So that's the opportunity that's presented itself," says Don Bubar, president and CEO of Avalon Rare Metals, which is developing an $899 million project in the Northwest Territories.
Avalon is "five years down a 10-year timeline" to getting its rare earth deposit into production, according to Bubar. Other Canadian firms, such as Great Western Minerals Group and Quest Rare Minerals, have their own domestic projects in various stages of development, writes James Cowan in the Canadian Business magazine.
"With roughly 70 rare earth exploration companies listed on the Toronto Stock Exchange alone, there is now prospecting taking place from British Columbia to New Brunswick. Meanwhile, Great Western Minerals intends to start production using minerals from a South African mine within the next three years," says Cowan.
With demand increasing by roughly 9 percent annually over the past few years, the market for rare earth metals will only increase as China constricts its exports. "Only recently have investors recognized the explosive growth in rare–earth metals, caused by the demand for all these gadgets that people use," says Scott Walters, managing partner with MaxCapital Markets, a Toronto investment firm.
"You backstop that with China's massive stockpile, and people want to hedge their exposure. And they're looking to Canada."
According to Cowan, industry watchers say developments like Avalon's Thor Lake project or Quest Rare Mineral's Strange Lake project in northern Quebec have the potential to deliver both a large quantity and full spectrum of rare earth metals. "But Canadian mining firms face competition beyond China. Mines in the States and Australia will likely be operational within two years, potentially covering 30 percent of global demand."
