Mineral supply squeeze puts China in sweet spot
In the battle over rare-earth elements, China outmaneuvered the rest of the world when it raised prices for materials used to make iPhones, flat-screen TVs, computer monitors, hybrid cars and smart bombs, a Tribune-Review analysis shows.
Export prices have surged 100 to 600 percent since China began limiting the release of its rare earths in summer 2009, the Trib found. The prices on certain of the 17 light- and heavy-weight elements that comprise the rare earths soared several thousand percent.
Because China produces most rare-earth oxides and nearly all rare-earth metals for manufacturing, profits poured in.
People who follow the economics of rare earths say that although the Chinese squeeze was real — and remains so — the shortage it caused was never severe enough to warrant such a price explosion.
Nevertheless, China established itself as the go-to country for manufacturing sophisticated, high-technology products that require rare earths to make.
“It's not working out too badly for them, is it?” asked Washington-based rare-earths expert Dan McGroarty.
When the squeeze play began, “people panicked,” said Jon Hykawy, an analyst with Byron Capital Markets of Toronto.
About 200 companies around the world, many of them upstarts, jumped into the fray, said Gareth Hatch, co-founder of Technology Metals Research LLC in Carpentersville, Ill., northwest of Chicago. Investors gobbled up stocks in most of the new companies. New ventures and reports of discoveries flashed weekly across the financial press.
Almost all of it has come to naught, Hatch said.
The bubble bursts
By the end of summer 2011, the speculative bubble began to burst, sending prices downward and leaving the industry outside China in disarray.
Yet China emerged with its No. 1 position untouched.
There are reasons for the irrational prices that hurt many outside of China.
For one thing, said Jeff Green, a strategic metals expert in Washington, more rare earths made it out of China than the Chinese government acknowledged.
“There's always been a gray market and a black market out of China,” he said.
Another factor is that when China announced rare-earth quotas, it did not apply them evenly across the group of elements. Certain elements more easily found outside of China were treated differently.
In addition, some industries found other products that worked about as well as high-priced rare earths for jobs such as cracking agents in petroleum refining, experts say. Recycling rare-earth metals and other products came into fashion.
Making matters worse for latecomers, many companies and investors did not understand how complicated it is to go from mining a rare earth to making a usable product. Manufacturing products with advanced metals requires some of the world's most advanced technology.
The mining produces tons of soil. Separating out any rare earths it contains is expensive and complicated because of similarities in the outer electron shells of rare earths, according to Hatch. This step produces rare-earth oxides.
There is a market for some rare-earth oxides, but the real money comes from stripping unnecessary oxygen atoms from the oxides to get pure metals. The United States once led the world in doing this, but “China bought the industry,” Hykawy said.
“Rare-earth metals technology is not available in the United States,” said Ed Richardson, president of the U.S. Magnetic Materials Association, a rare-earth industry group. He said that begs the question: “What do you do when you get rare earths out of the ground?”
China's squeeze hurt not only upstarts trying to cash in quickly, but two rare-earth veterans as well.
Molycorp Inc. is restarting Mountain Pass, one of the world's largest and first rare-earth mines in southeastern California. Australia's Lynas Corp. is working a large deposit in that country called Mt. Weld.
Both companies produce, or plan to produce, rare-earth oxides. But Molycorp and Lynas primarily deal with “light rare earths,” called that because of their chemistry and position on the periodic table. Light rare earths are the most abundant and, on a cost-per-ton basis, the least valuable.
Although this set off a recent scramble to find more valuable “heavy rare earths,” China again appears to hold a winning hand.
“China has 99 percent of the heavy rare earths right now,” McGroarty said.
Richardson long has been skeptical about Molycorp's ability to counter China's dominance in heavy rare earths and apparently gained a following. Molycorp is beset with a class-action fraud lawsuit from shareholders claiming the company falsely represented that it had adequate supplies of heavy rare earths. The suit maintains Molycorp might not have any commercially viable heavy rare earths, which Molycorp denies.
The Securities and Exchange Commission is investigating company claims, according to Molycorp disclosures.
Molycorp announced a temporary scale-back of its development plan because of the smaller-than-expected demand for lighter rare earths.
Lynas had planned to dig up raw minerals at Mt. Weld and ship them to Malaysia to be separated into oxides. But Malaysians are concerned that the separation would leave behind radioactive thorium. Mass demonstrations against Lynas have delayed the project.
With Molycorp's stock trading at less than $8, analysts speculate it could become a takeover target. In an email to the Trib, Molycorp's Jim Sims declined to discuss ownership issues.
In an unexpected development in December, Molycorp parted ways with Mark Smith, its CEO since the company went public. Investors noted that his successor, Constantine Karayannopoulus, previously headed Neo Material Technologies, which produces high-end magnetic materials in Chinese factories operated by Magnequench Technologies, part of General Motors.
Rare-earth expert Jack Lifton of Detroit said he thinks “there's a whole lot going on here that's below the surface.”
Lifton suspects China might end up owning part of Molycorp — perhaps the Chinese factories — if the company breaks up.
"We're still beholden to China for up to 100 percent of (rare earths),” Richardson said. “Little has really changed.”
Lou Kilzer is a staff writer for Trib Total Media. He can be reached at 412-380-5628 or email@example.com.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Charge dropped against former Steeler Blount after community service
- Officials identify man, woman killed in apparent Oakland murder-suicide
- Overnight snow delaying schools in western Pennsylvania
- Beloved North Side gardener gets new truck, paid for by her neighbors
- Porch roof collapses in Pitcairn
- Woman, 77, dies in Monroeville house fire
- Beaver County man arrested in 24-year-old Clinton County cold case
- Uber gains PUC approval to operate in most of Pa. for 2 years
- Fort Pitt Tunnel work cancelled this weekend
- Pa. Turnpike claims software fraud, wants $45M
- Medical examiner identifies man in Pleasant Hills police standoff as Justin Hay